The Farmer’s Tax Guide 2025: What Every Agricultural Operation Needs to Know
Taxes don’t just happen in April. For farmers, tax planning is a year-round job that can make or break profitability. Between crop cycles, equipment investments, and government program payments, agricultural tax rules are anything but simple.
That’s why the IRS created Publication 225 – the Farmer’s Tax Guide. Updated annually, this essential document outlines everything from depreciation rules to Schedule F reporting. But at nearly 100 pages, it’s easy to miss what matters most.
We’ll break down the 2025 Farmer’s Tax Guide into actionable steps for your farm. Whether you raise cattle, grow corn, or run a mixed-use operation, these tips will help you reduce your tax burden, stay compliant, and plan smarter.
As you read, think about how these rules apply to your acreage, revenue, and complexity—and where expert help might save you time and money.
Know What Counts as “Farm Income”
The IRS defines farm income broadly—much more than just crop or livestock sales. According to Publication 225, your taxable income may include:
Sales of raised livestock or harvested crops
Government payments (e.g., FSA, disaster relief)
Cooperative distributions
Custom hire services
Crop insurance proceeds
Actionable Tip: Review all revenue sources and match them to your 1099s or receipts. Many farmers miss reporting disaster or insurance proceeds, which can lead to IRS scrutiny.
✳️ If you’re managing multiple income streams across various entities, take a moment to consider whether your current system catches everything.
Deducting Farm Expenses (and What You Can’t Write Off)
The Farmer’s Tax Guide offers an exhaustive list of deductible expenses, including:
Feed, seed, fertilizer
Hired labor wages
Equipment fuel and repairs
Conservation expenses
Rent for land or buildings
However, the IRS also outlines nondeductible expenses like personal groceries, life insurance premiums, and capital improvements (unless depreciated).
Farm-Specific Example: A farmer buying fencing materials for a new pasture must capitalize and depreciate those costs instead of deducting them immediately.
Actionable Tip: Use a clear chart of accounts that separates ordinary deductions from capital expenses.
✳️ Ask yourself: Can your books show a clean audit trail without explanation? If not, it's time to tighten your system.
Understanding Depreciation and Section 179
New tractors, irrigation pivots, and barns all fall under the IRS depreciation rules. Publication 225 explains how to:
Apply MACRS depreciation (Modified Accelerated Cost Recovery System)
Use Section 179 to fully expense certain assets in year one
Track asset life and apply salvage value properly
Key Rule for 2025: The Section 179 deduction limit remains at $1,220,000, with a phase-out threshold of $3,050,000.
Actionable Tip: Time large equipment purchases to maximize Section 179 deductions before year-end. Coordinate with your CPA if you’re approaching the phase-out cap.
✳️ If your capital purchases are nudging against the phase-out limit, now is the time to re-evaluate your tax strategy.
Missing one IRS rule could cost your farm $5,000—or more—in penalties or lost deductions.
✳️ Imagine discovering that a deduction you skipped could have covered your seed bill.
Reporting with Schedule F
Form 1040 Schedule F is the heartbeat of farm tax filing. It tracks income, expenses, and net profit or loss. The IRS uses this form to determine:
Your eligibility for deductions and credits
Your self-employment tax obligation
Whether your operation qualifies as a “business” or a “hobby”
Common Mistake: Mixing personal and farm-related expenses—like truck fuel or phone bills—can lead to disallowed deductions.
Actionable Tip: Keep a dedicated farm bank account and credit card to cleanly separate business from personal transactions.
✳️ The more complex your operation becomes, the more important it is to streamline your records. Think about whether your current setup is built for scale.
Tax Treatment of Government Payments
The 2025 Farmer’s Tax Guide includes updates on how to report:
Conservation Reserve Program (CRP) income
Cost-share payments
Pandemic or drought relief funds
Example: CRP payments are often taxable but may be exempt from self-employment tax if the farmer qualifies for retirement age exemption.
Actionable Tip: Don’t just plug in Form 1099-G numbers. Understand what kind of payment it is—and how it’s taxed.
✳️ If your operation receives six or more different types of payments from federal or state programs, it may be time to bring in a specialist.
Putting It All Together
The IRS Farmer’s Tax Guide is more than a publication—it’s a playbook for smart financial decisions. From reporting government payments to maximizing Section 179, this annual guide outlines what every producer needs to know.
✳️ Think about the systems you’ve built—or outgrown. If your farm’s financials are too complex for off-the-shelf solutions, you're not alone.
Here’s your next step: stay informed, track your numbers, and work with a CPA who understands agriculture. The difference between a good tax season and a stressful one often comes down to how prepared you are.
Need help applying the 2025 Farmer’s Tax Guide to your unique operation? Schedule a no-pressure consultation with our team at Farm+Ag CPA.
We specialize in agriculture, and we work best with farm operations that are already thinking at scale. Contact us today and stay ahead of the IRS curve.
Join the Conversation
What’s one part of farm taxation that always confuses you? Leave a comment or send us your biggest farm tax question—we’ll answer it in a future blog post.
