Tips for farmers when preparing tax returns

MALTA, Ill. — Farmers have options they can implement prior to the end of the year to impact the amount of taxes they will owe for 2025.

“The last two months of the year are the busiest times for CPAs,” said Keaton Dugan, certified public accountant and commodity crop leader at Pinion.

“I want to tax plan for five or 10 years down the road, not just look at 2025,” he said during a presentation at the 2025 Farm Business Summit: Farm Succession & Business Strategies, hosted by Illinois Soybean Growers at Kishwaukee College in Malta.

Since farming is cyclical, Dugan said, farm income might be up one year and down the next, so his goal is to smooth it out as much as possible.

“Looking at the tax brackets, there is a sweet spot and to me it’s the 24% bracket,” he said.

“The one thing you give up every year if you file a zero taxable income is the standard deduction,” he noted. “For married, filing jointly the standard deduction this year is $31,500.”

If the tax bill had not been passed by Congress this summer, Dugan said, that standard deduction would have fallen to $16,700.

“That was going to put a lot of people into a world of hurt,” he said.

“If you have grain left to contract in 2025, at this point I would recommend doing a deferred grain contract,” he added. “Give that information to your CPA and then you can decide to take that income in 2025 or defer it to 2026, so now you have an option to choose.”

To build in more flexibility, Dugan recommends selling grain in more than one contract.

“Then we can pick and choose which contract we want to pull into 2025 or defer to 2026,” he said. “That’s a really good tool to help dial into the top of the 24% bracket or whatever your goal might be.”

Depreciation is a quick and easy way to move the needle, Dugan said, for farmers that are buying equipment or building a new shop.

“If you buy an asset in 2025, with bonus depreciation, you don’t have to wait five years to recoup the expenses, you can expense the entire amount,” he said.

Prior to the new tax bill, the bonus depreciation was going down 20% every year, so it was at 40% for 2025.

“The new tax bill puts the 100% back into play,” Dugan said. “So, this is a lever we have and the new tax bill did not erase the 40% option, so if that works for your tax plan, you can still elect the 40%.”

If a farmer takes the bonus depreciation on a new tractor, it has to go on all of his five-year assets.

“Either 40% or 100% for the year — it is an all-or-nothing bonus election,” the CPA said.

“For crop inputs such as fertilizer and seed, if you have the cash or line of credit available and you want to get the discounts for next year, go ahead and prepay,” he said.

The pass-through entity tax is available to farmers in some states, including Illinois.

“If you are farming through a pass-through entity such as an LLC or S Corp, then you can elect to pay the state tax at the entity level before it gets to you personally,” Dugan explained. “You get a tax credit for what the entity already paid on your behalf.”

“The benefit is you get to deduct it federally if you prepay it now in 2025,” he said. “You can take the federal reduction for it now or you can pay it next year and take the reduction next year.”

Section 180 allows farmers to purchase fertilizer that is needed and apply it to the fields and expense it all at once.

“For fertilizer that is in a field when you purchase new property, we call it excess nutrient land deduction,” Dugan said. “We have been exploring this for a long time and we get a lot of questions about it.”

To take this deduction, Pinion requires the property to be purchased in the year of the tax return and third-party soil sampling.

“To me the deductibility of the nutrients is what is above normal,” Dugan said.

“When you purchase property, don’t forget about irrigation, tiling, fencing, cattle guards, waterways and erosion control structures,” he said. “Assign a value to them because you are paying a premium for a property for other reasons than the soil nutrient deduction.”

The fourth-quarter estimate for income taxes is due Jan. 15, 2026.

“Qualified farmers with two-thirds of their income coming from farming, qualify for this due to the cyclical nature of what you do and the risk you take every year,” Dugan said. “The fourth-quarter estimate is all that is necessary.”

“If you make that fourth quarter estimate by Jan. 15, the due date is March 15 for flow-through entities and your personal return is due April 15,” he said.

Another tool that can help farmers is farm income averaging.

“If your income is too high this year, you can actually go back three years and fill up those brackets, assuming you were in lower tax brackets,” Dugan said. “I use this quite a bit. It is a really good tool.”

He encourages farmers to talk to their CPA four to five times a year.

“They should understand your business and goals for the next three to five years,” he said. “Supply good books to your CPA and you have to be timely about it.”

“If you missed the mark on tax planning, ask questions,” he stressed. “Don’t make that mistake next year.”