Cattle Tax Deductions: 5 Tax Breaks for Farmers

Published By: Chad Silver
On: November 25, 2020
Last Updated: February 9, 2022

See More in: Business Tax, Tax Education

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Cattle tax deductions and other credits have the potential to save you more money than you realize. When you’re a farmer, you know that profit margins are already slim. There are some deductions that can help you make the most of your business, but knowing which are available can be a time-consuming job in and of itself.

Not all farmers can get all the possible deductions, of course, but it’s important to know which breaks are out there and how to qualify for them to maximize your income. You may even be able to make a few changes throughout the year so you can get the deductions next year. This ensures you’re treating your farm like a business and making the most of the latest tax codes.

What Is a Cattle Tax Deduction?

A cattle tax deduction is designed to help you save money when you file taxes, and was created by the Internal Revenue Service (IRS) to ensure farmers have incentives for their businesses. The cattle industry is critical to the United States, after all.

There are a few different deductions to explore, depending on what you do with your cattle. These include:

If you’re purchasing cattle for the purposes of resale, you’ll need to include them in your inventory just as you would any other farm equipment that’s needed to help you do your job. The Farmer’s Tax Guide from the IRS can be overwhelming to read, but it will tell you more about cattle tax deductions based on your various farm supplies and how you use them.

As you explore the various tax deductions, it’s also important to keep your farm designated as an actual business as opposed to being labeled as a “hobby farm.”

How Do You Claim a Cattle Tax Deduction?

Whether you sell, breed, or use cattle within your farm, you are in the business of farming. You will be able to claim a cattle tax deduction once you establish how you use the cattle — and you may use them in more than one way. You’ll need to fill out IRS Publication 225, Form 4797, and Form 4562 come tax season. Here’s what you need to know about each document.

IRS Publication 225

This form enables you to identify all that you’re able to deduct. In addition to being able to depreciate the cattle you keep on your land for the purpose of breeding or milking, you can also depreciate other items such as:

Be sure you establish a list of all the items associated with cattle being used across your farm. Save the receipts as you buy the items so they can be claimed and deducted on your taxes.

Form 4797

This form will be filled out to help you compensate for the sale of any livestock.

Form 4562

This form will cover any depreciation and amortization. Both it and Form 4797 would get attached to your tax return when you file.

5 Other Tax Breaks Available to Farmers

Beyond the cattle tax deductions, a few other advantages and deductions may be available to you as a farmer.

Advantage 1: Property Tax Deductions

There are all sorts of deductions that help to alleviate some of your property tax requirements. Depending on where you live, there may be exemptions based on crops that you plant or animals that you raise. Other tax breaks may be available if you’re a veteran or a senior.

Advantage 2: REAP Program

The Rural Energy for America Program (REAP) is a way for you to explore making your farm more energy efficient. The program is run by the U.S. Department of Agriculture (USDA) and makes it possible to afford upgrades and improvements.

Both grants and loans are available, but you cannot have any outstanding debt, judgments, or delinquent federal taxes to qualify. Further, you must work as a small business owner in an un-urbanized area or make at least 50% of your gross income from agricultural operations.

Advantage 3: Net Operating Loss

Farming is one of the most unpredictable businesses out there. Drought, crop disease, and more can result in you seeing a net operating loss, so it’s important to know that you’re able to deduct such issues on your taxes. It’s even possible to claim a loss from up to two years ago, which means you may get a refund on some of the income taxes you paid on those years. While it won’t help you overcome the loss, it can prevent you from paying more taxes than necessary.

Advantage 4: Conservation Easement

When you’re sitting on a significant amount of land, you may want to consider donating some of that property to a charitable land trust. This provides you with two benefits: The first is that you reduce the market value of your property — think cheaper property taxes — and the second is that you get to claim the donation on your taxes. As long as you’re willing to give up some of the developmental rights to the land, it can be a way to save quite a bit of money.

Advantage 5: Retirement Plans

As a farmer, you may not be thinking about retirement. You have to run your farm just as you would run any other business, though, and that means considering the various retirement plans available. There are ways for you to get income tax benefits by having money withheld from your income to set aside from retirement. You won’t be taxed on that money until it’s withdrawn, however — and you may be in a lower tax bracket at that time.

Explore Your Cattle Tax Deductions Today

It’s important to take a good look at what happens on your farm to ensure you’re taking advantage of all the tax breaks that are available to you. While you may know about the basic deductions for your land, you may be missing out on important cattle tax deductions.

The team at Silver Tax Group has the expertise to guide you through the various deductions you may qualify for. Contact us today to ask questions and find out how one of our experts can help you with your cattle tax deductions and other tax-related concerns.