It might surprise you that there is one step even some seasoned farm income tax filers need reminding of, namely: When preparing your 2025 tax return, make certain you’ve counted all your income in addition to all expenses.

Sounds obvious? Read on.

In our experience, it’s not difficult for a farmer to remember reporting expenses, since they can reduce income tax liability. People will make an extra effort to search for farm and other business costs they’ve paid since last January 1, to receive the fullest deduction they can claim. But a common error our attorneys have seen over the years is that one or more sources of income were left out of a submitted tax return.

Maybe it’s an oversight and not intentional. People make mistakes, and the IRS does have forms for amended returns, and to extend the deadline to file a tax return. The problem with this oversight is if you sign and submit a return that doesn’t include all reportable income, even if you later voluntarily file an amended return, the burden may fall on you to prove you weren’t committing tax fraud. The IRS takes its collections very seriously and may label what you would call an “error” as fraud.

For this reason, even if a professional is helping prepare your return this year:

• Take the time to make sure you’ve included all income for 2025
• Tell your preparer about all income so they have a clear picture of your income as they prepare your return
• Make sure you understand your tax return before signing and submitting; if you don’t, ask questions
• Spouses: If you are signing a return, make sure you understand what’s on there — even if it’s not your primary income or expenses, you can be held liable for fraud as well. In addition, whatever tax is owed is the obligation of each taxpayer who signs the return

Gains – or not – on grains

While there are a few types of accounting methods individuals and businesses use to track finances, by far the most common for everyday taxpayers and farmers is cash basis accounting. With few exceptions, income is reportable when salary or payment is received, and expenses, when they are paid.

Another method is accrual basis, mostly used by large corporations that are barred from using cash accounting. Under accrual, timing on when to report income and expenses differs from cash basis—one example is that grain from an accrual farm may be taxable inventory as soon as it’s harvested, but for a cash farm, there’s no income until the farmer is paid.

If you are using cash basis to keep your books and file taxes, carrying over unsold stored crop into 2026 simply means you’re deferring that income to this tax year instead. It’s only income when you sell it. If you are using accrual, there are tax implications to discuss with your accountant or preparer.

Carrying over corn or soybean inventory does impact a cash farmer in other ways:

• There are costs in keeping grain stored
• There is risk that moisture or other exposure could spoil it while waiting for a better price to sell
• If you have debt you could pay down by selling the grain, you may be adding another cost on yourself in the form of interest by keeping it in the bin

Although a lot of farmers have seen less income, there are some who harvested enough to pay their debts and still have grain in the bin. If they want to benefit a particular charity and empty the bin, they can donate grain directly to their beneficiary of choice. Note: This is not selling the grain and then donating the money for a deduction; it is donating the grain directly, and the elevator or other trustee sells it and disburses the payment to the charity. By doing this, a farmer can still claim eligible input costs for producing that grain but does not pay income taxes on its sale.

The disclaimer on this, of course, is that the gift must be made in the reportable tax year—now is too late for 2025, but it’s something to think about before the end of 2026, if you are in this situation. Talk with your tax preparer for details.

(319) 363-1641

Notable “et ceteras”

In 2017, Congress’s Tax Cuts and Jobs Act made some changes to how equipment trade-ins are reported on income taxes, beginning with the 2018 tax year. Although this is several years old, there are frugal farmers who have not traded in equipment since then, who may have recently done so (or are considering it) and are unaware of these changes.

Before 2018, if you traded in fully depreciated used equipment, any trade-in value you received would be applied as your down payment, and the “boot,” on the new item would be the tax basis for the newly acquired piece of equipment. Since 2018, in this same scenario, you are required to report the trade-in value like a cash receipt treated as income—but you can also report the entire new purchase value as the tax basis for the newly acquired equipment, which can then be utilized for a Section 179 deduction.

This income can have an effect on income used to determine the cost of Medicare Insurance premiums, so talk with your tax preparer to understand those impacts. This advice is also applicable to everything in this article, so be sure to hire a knowledgeable tax professional who understands farm finances.

Another consideration for some farmers is an upcoming change in the alternative minimum tax. The AMT was enacted decades ago by Congress to ensure wealthy individuals and corporations would pay a certain level of tax no matter how many deductions they could claim. Over time, though, more “regular” taxpayers began to fall under this umbrella because of how inflation raised their incomes. Under the 2017 Tax Cuts and Jobs Act, new AMT rules significantly reduced the number of taxpayers affected by it, by raising income exemptions and phase-out thresholds (income level at which one must pay the AMT).

However, Congress did not vote to renew the 2017 Act, which means 2025 is the last tax year to which it will apply. Major triggers for AMT include:

• Having household income of at least $626,350 for a single or married-filing-separately filer (or $1,252,700 for married-filing-jointly)
• Receiving large capital gains income, including some land, equipment, or home sales
• Exercising some stock options for profit

These triggers will be somewhat lower when filing for the 2026 tax year, in 2027.

These are just some considerations to be aware of when prepping your 2025 tax return. We repeat: Be sure to report all your income as well as expenses for the year. Aside from anything else, the 1099s and other income forms you receive are also transmitted to the IRS, which an agent may compare to your signed return.

Hire a qualified, trusted tax professional to assist with your return. And if you have any legal questions regarding past or current taxes, or the IRS has contacted you about payments still owed, call Ag & Business Legal Strategies for counsel sooner rather than later. Taxes are serious business!

(319) 363-1641