Maximizing farming deductions

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Dear Tax Talk,
My husband and I have a small farming business. We buy, sell, breed, train and board registered horses. How can we make sure we are claiming everything we should? (Is there a book?) What is the difference in fence repair, barn repair and new fencing or building a new barn? Last year when we filed and claimed “fencing,” the CPA listed that under a depreciation section, but it was not a new fence, it was repairs to our old fence. Those are the things we are unsure about. Any advice would help.
— Rhonda

Dear Rhonda,
You have to be clearer with your CPA — try “fencing repairs” next time. It’s probably hard for your CPA to understand your business by just looking at your information on a piece of paper. You should ask him to visit your operations to gain a better understanding that will help you maximize your deductions.

A relationship with a CPA is usually a lifelong commitment and a few hours of his time invested in visiting your farm will go a long way in cementing your bond for years.

The IRS publishes numerous free tax guides including Publication 225, Farmer’s Tax Guide. While to some people it doesn’t seem like you’re going to get the best tax advice from the IRS, it is a good starting point for understanding how the IRS views your business.

For example, if you look at the section discussing prepayments of feed, it may occur to you that you can write off a quantity of feed purchased before the end of the year. With respect to repairs, the IRS provides the following guidance:

You can deduct most expenses for the repair and maintenance of your farm property. Common items of repair and maintenance are repainting, replacing shingles and supports on farm buildings, and periodic or routine maintenance of trucks, tractors, and other farm machinery. However, repairs to, or overhauls of, depreciable property that substantially prolong the life of the property, increase its value or adapt it to a different use are capital expenses (subject to depreciation).

Hence, the original fencing would have been capitalized; subsequent repairs to existing fencing that return it to its original condition should be expensed.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.