Jonathan D Shepherd, Agricultural Extension Specialist, State Director of the UK Income Tax Program, Department of Agricultural Economics, Martin-Gatton College of Agriculture, Food, and Environment.
Jerry Pierce, State Coordinator Kentucky Farm Business Management Program, Department of Agricultural Economics, Martin-Gatton College of Agriculture, Food, and Environment.
Tax season is here again — for some, it may have already passed. While many of us tend to think of taxes primarily in terms of deadlines, it’s important to shift our mindset and view taxes as an ongoing process. By approaching taxes this way, you'll experience less stress and fewer surprises when the actual filing time comes around. In this blog, we’ll dive into tax tips, best practices, and the latest updates to help you navigate the process more efficiently and with less anxiety.
The Importance of RecordKeeping
One of the most crucial aspects of preparing for tax season is keeping detailed and accurate records throughout the year. It cannot be overstated how beneficial it is to stay on top of your financial records. If you maintain organized records consistently, it allows you to engage in tax planning. Tax planning is best done toward the end of your accounting period, and it can significantly reduce any surprises when it’s time to file your taxes. For many agricultural producers, tax planning usually happens in the fall, as many operate under the calendar year cash accounting method. This gives them the ability to plan their taxes toward the end of the year, leading to less uncertainty and a clearer picture of what they owe. While it is too late to tax plan for the 2024 filing, it is the perfect time to start off on the right foot for the 2025 filings.
Keeping records is an ongoing process, and it's essential to find a system that works for you. There is no one-size-fits-all approach, but you must keep your records up to date. Whether you're using accounting software or a manual system, it’s vital to stay organized. This will pay off during tax time, as it reduces the chances of unexpected costs or missed deductions.
Extended Filing Deadlines Due to Disaster Relief
In a significant update, the entire state of Kentucky has been declared a federally recognized disaster area. This was due to severe storms that began on February 14, 2025, as designated by the Federal Emergency Management Agency (FEMA). Consequently, all individuals and businesses, including farm operations in Kentucky, are included in this declaration. As a result, the IRS has extended the filing and payment deadlines for individual and business income tax returns to November 3, 2025, for those affected by the FEMA disaster declaration. This includes returns and payments that would normally be due between February 14, 2025, and November 3, 2025.
The deadline extension covers several important items:
Individual Income Tax Returns: Normally due on April 15.
Contributions to 2024 IRAs and Health Savings Accounts: These can be included on individual returns.
Estimated Tax Payments: Due normally on April 15, June 16, and September 15.
Business Tax Returns:
Partnerships and S Corporations, typically due by March 17.
C Corporations, typically due by April 15.
Quarterly Payroll and Excise Tax Returns.
According to the IRS, they will automatically identify taxpayers located in the covered disaster area and apply the filing and payment relief. It’s important to make sure your address on your tax return qualifies for this relief. If you live or operate a business outside of Kentucky but believe you are affected, you should call the IRS Special Services toll-free number at 866-562-5227 to request assistance.
However, farmers who were required to file tax returns by March 3, 2024, are not eligible for the extended deadline. This includes farmers who elected not to make quarterly estimated tax payments and instead filed and paid taxes in full by March 1, 2024. Farmers who filed and paid their 2024 estimated taxes by January 15, 2025, will qualify for the new November 3, 2025, deadline.
Kentucky State Tax Relief
Governor Beshear announced that the Kentucky Department of Revenue will offer similar tax relief for state taxes in line with the IRS extension. However, it’s important to note that interest may still apply to late tax payments.
Weather Related Sales of Livestock
IRC § 1033(e) Involuntary Conversion of Breeding, Draft or Dairy Animals
This provision offers potential tax relief for producers who are forced to sell more draft, breeding, or dairy animals than usual due to adverse weather conditions, by deferring the resulting gain for up to two years. "More than normal" refers to animals sold in excess of what would typically be sold in the normal course of business. To qualify, producers must replace the sold animals with identical ones (e.g., breeding cattle for breeding cattle) within the two-year period.
For example, if a producer typically sells 5 cows, but in 2024, sells 15 cows due to weather conditions, they would only be able to defer the gain on the 10 additional cows sold (the difference between the normal and actual sales). The basis of the replacement animals will be the basis of the animals sold, plus any additional amounts invested.
If the animals are not replaced, or the reinvestment is less than the gain from the sale, the producer must amend their return for the sale year to account for the gain. This amended return will then be subject to additional taxes and interest, based on the producer's overall tax situation. It’s important to note that this provision does not require a federal disaster declaration, but the producer must demonstrate that weather conditions forced the sale of animals beyond normal levels.
To make this election, the producer must attach a statement to their tax return with specific information. For an example and the required criteria, visit: https://extension.usu.edu/ruraltax/tax-topics/weather-related-sales-of-livestock
IRC § 451(g) One Year Deferral of Income for Sales of Animals
Unlike IRC § 1033(e), IRC § 451(g) requires that the area affected by the weather-related event be designated for federal disaster assistance. Notably, the animals do not need to be raised or sold in the disaster area, but the producer must show that the event caused the area to receive disaster designation and led to sales beyond normal.
This provision allows cash-basis livestock producers to defer income from the sale of animals in excess of normal until the following year. In this case, there is no requirement to replace the sold animals; the proceeds from the sale are simply deferred to the next tax year. The same criteria applies here as it does for IRC §1033(e) regarding what is meant by “excess/more than normal.”
To elect this deferral, the taxpayer must attach an election statement to their tax return. For more information and an example of this election, visit: https://extension.usu.edu/ruraltax/tax-topics/weather-related-sales-of-livestock
Understanding Form 1099-K
Farmers and business owners who conduct transactions through third-party networks (like PayPal, Venmo, and other payment services) will likely start receiving Form 1099-K. This form reports gross payments made to you for goods or services via credit cards, debit cards, or online payment services. Third Party Settlement Organizations (TPSOs) manage these transactions on your behalf.
As of 2024, TPSOs are required to issue a 1099-K if the total payments to you exceed $5,000, although they can issue one even if payments are below that threshold. For 2025, the threshold decreases to $2,500, and by 2026, the threshold will drop further to $600 — aligning with most other 1099 forms. This decrease will result in many more 1099-K forms being issued to a broader range of taxpayers.
Farm transactions commonly involve third-party networks for direct sales to customers — think farmers’ markets, on-farm retail markets, roadside stands, online sales, nurseries, wineries, and agritourism. These payment platforms are also increasingly used for the sale of hay, livestock, and other farm-related products.
What You Need to Report
When you receive a 1099-K, you need to report the total gross payments listed on the form. It’s essential to verify the accuracy of these amounts using your records before including them on your tax return.
Generally, payments from family and friends are not reported on the 1099-K, but if there is any ambiguity about the nature of a payment, you may need to request a corrected form from the TPSO to remove any non-farm income.
Additionally, if the transaction is related to farm income, you can deduct fees, credits, refunds, and shipping costs charged by the payment processor (like PayPal or Venmo) as farm expenses. Make sure to report gross payments from Form 1099-K as you would with other income, depending on the nature of the transaction:
Farm-related sales, custom work, and miscellaneous farm income: Report these on Schedule F (Form 1040).
Sales of farm equipment or breeding livestock: Report these on Form 4797.
Rental income: Generally reported on Schedule E (Form 1040).
Avoid Common Pitfalls
It’s important not to subtract any expenses directly from the amount reported on Form 1099-K. The IRS will be looking for the gross payments reported on your return, so ensure you accurately report them. Instead, include expenses in the appropriate section of your tax return.
Additionally, make sure to set up a separate business account with the TPSO for farm income and a personal account for non-farm income to avoid mixing funds.
Remember, third-party networks will require you to complete a Form W-9 with your Employer ID Number or Social Security Number. Failure to do so could result in backup withholding of 28% of gross payments, or you may lose access to the service.
Corporate Transparency Act Updates
The Corporate Transparency Act (CTA), passed into law in 2021, took effect in January 2024. Initially, this law required individuals who meet the definition of a beneficial owner to report their Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN).
While the law has faced some challenges and delays, as of March 21, 2025, FinCEN clarified the rules. The new interim final rule indicates that only foreign entities formed under the laws of another country, but registered to do business in the U.S., need to comply with the CTA’s reporting requirements. U.S. persons are exempt from having to report their beneficial ownership information to a foreign entity under this law.
This clarification significantly reduces the burden on most U.S.-based small businesses. In fact, it’s estimated that this change will exempt 99.8% of U.S. small businesses from needing to report under the CTA.
If you have a business that was formed outside the U.S., it’s advisable to seek qualified counsel to understand how the CTA applies to your specific situation.
Accelerated Depreciation and First-Year Deductions
For business owners, there are two key tax provisions available to accelerate the recovery of costs for depreciable assets: Section 179 and Bonus Depreciation.
Section 179 Expensing
In 2024, the Section 179 expensing limit was set at $1,220,000, with a purchase cap of $3,050,000. Under Section 179, you can recover the full cost of qualifying property (such as assets with a class life of 10 years or less) up to the expensing limit. The expense limit is reduced dollar-for-dollar once you crest the purchase cap. As a result, once your total qualifying purchases exceed $4,270,000, you can no longer use Section 179 expensing.
Bonus Depreciation
Bonus depreciation (also known as additional first-year depreciation) allows you to deduct 60% of the cost of eligible assets in the year of purchase. The remaining 40% of the asset’s value is depreciated over the normal period, as per IRS guidelines. This differs from Section 179, which allows you to deduct the entire amount in one year and includes property up to a 20 year recovery period. This is especially useful for general purpose buildings and barns.
Both of these options can be useful for lowering your tax liability, but they can also have long-term consequences, especially if the asset is financed. For instance, if you use Section 179 or Bonus Depreciation and finance the asset, you might end up with a scenario where you have limited depreciation in future years, leaving you unable to offset loan payments.
Conclusion
Tax preparation can be complex, and it’s essential to stay informed about the latest changes and available strategies. By staying on top of record keeping, understanding your filing deadlines, and utilizing tools like depreciation options effectively, you can manage your tax obligations with more confidence. It’s always advisable to seek qualified counsel to ensure you’re making the best decisions for your business. As the tax code continues to evolve, having the right support can make all the difference in minimizing your liabilities and maximizing your deductions.