Farmers may report and deduct various taxes paid on Line 29, Schedule F. Some deductible tax obligations include:
- Social Security and Medicare taxes the farmer pays to match the withholdings from employees’ wages.
- Federal unemployment tax.
- Federal highway use tax.
- State unemployment fund contributions if under state law the contributions are treated as a tax.
- Property tax on farmland used in the trade or business of farming.
- Property tax on farm machinery, livestock, and vehicles subject to such tax.
Example 1. Louisa has two employees; as an employer she matches the withholdings from her employees, which this year totaled $7,500. Additionally, Louisa paid $8,500 in real estate property tax on her farmland and buildings, and $3,500 on her farm machinery and farm vehicles. Therefore, Louisa uses Line 29, Schedule F to report and deduct a total of $19,500 tax paid in the current year. [$7,500 + $8,500 + $3,500].
Example 2. Roger owns a semi-tractor and several trailers for hauling grain, livestock, or equipment as needed in his farming operation. Roger is assessed $2,000 in Federal highway use tax for using his semi and trailers over public roads. Roger reports and deducts this $2,000 on Line 29, Schedule F.
Other Taxes Paid, but not Deductible on Schedule F
In addition to the above examples, farmers pay taxes which may be related to the farm business but are personal. As such, these taxes are not deductible on Schedule F. Examples of these taxes include the following:
- Federal income taxes (which include self-employment tax). Self-employed farmers may deduct one-half of their self-employment tax on Schedule 1, Form 1040.
- Property taxes on the principal residence and personal property not used in business (These may deducted on Schedule A, Form 1040, if the farmer itemizes deduction and if the state and local tax deduction limit of $10,000 is not exceeded).
- Taxes assessed for improvements such as road improvements or sewers in the locality of the farmer’s residence. (These tax payments are generally added to the basis of the property.)
- State and local sales taxes on items purchased for the farming business; these taxes are added to the cost of the property, and if depreciable, recovered over the allowed period.
The Center for Agricultural Law and Taxation is a partner of the National Agricultural Law Center (NALC) at the University of Arkansas System Division of Agriculture, which serves as the nation’s leading source of agricultural and food law research and information. This material is provided as part of that partnership and is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.