Year End Tax Guide for Farm Businesses

By Scout Nelson

Farmers and ranchers are encouraged to start their year-end tax planning to better handle their 2025 income taxes. Many producers face changing income each year, so planning early helps avoid penalties and unexpected tax bills. Agricultural tax rules for 2025 include updates that producers should understand before the year ends.

Experts recommend that producers begin by reviewing their year-to-date income and expenses and estimate what the rest of the year may look like. They should include any deferred income from previous years and estimate depreciation for all equipment. Planning ahead helps prevent extreme high or low income in a single year.

Farmers who do not make estimated tax payments have until March 2, 2026, to file their 2025 tax return without penalty. Qualified farmers who make an estimated tax deposit by January 15, 2026, can file by April 15, 2026. Making this deposit gives producers more time to finish their tax return.

Several important tax rules apply to agricultural producers. They can use 200% declining balance depreciation on most farm equipment with recovery periods of 3, 5, 7, and 10 years. Fifteen-year and 20-year property must use 150% declining balance. Most new farm equipment, except grain bins, uses a five-year recovery period.

Section 179 allows producers to deduct up to $2.5 million on qualifying equipment. The limit phases out for purchases above $5 million. Equipment must be used more than 50% for business. Bonus depreciation is also reinstated at 100% for purchases after January 19, 2025, and 40% for purchases made earlier in the year.

Other rules include NOL carryback options, real property like-kind exchanges, and income averaging using Schedule J. North Dakota producers may use Form ND-1 FA for income averaging.

Producers can use different strategies for low-income years, such as amortizing fertilizer, capitalizing repairs, postponing expenses, and using regular depreciation instead of Section 179. For high-income years, they may defer crop insurance payments, use livestock disaster deferrals, prepay expenses, defer income to 2026, buy equipment, or contribute to a retirement plan.

Farmers are encouraged to contact tax professionals or the IRS for more guidance.

Additional questions on this topic should be addressed to a tax professional or the IRS at 800-829-1040 or https://www.irs.gov. North Dakota income tax questions can be addressed to the North Dakota Tax Department at 877-328-7088 or https://www.nd.gov/tax.

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