Accounting for Magic Valley farms and ranches

Farming has a tax code largely of its own: different depreciation treatment, different income smoothing options, different rules for what counts as a deductible expense against a crop that has not been sold yet. General practitioners often treat a farm return as a business return with unusual line items. It is not.

Income averaging

Farm income averaging lets a good year be spread against the three prior years, which for an operation with volatile yields or prices can be worth a great deal. It is elected on the return and frequently missed.

Equipment and depreciation

Section 179 and bonus depreciation interact with farm equipment purchases in ways that reward planning the timing. Buying a tractor in December rather than January is a decision with a number attached to it.

Land, water and improvements

Land is not depreciable but many improvements to it are, and the allocation between them at purchase affects decades of returns. Water rights carry their own treatment and, in this valley, real value.

Deferred payment contracts

Grain and livestock sold under deferred payment contracts give a measure of control over which year the income lands in, which is a planning tool when used deliberately.

Succession

Passing a farm to the next generation involves basis, estate tax, and the practical question of whether the operation can carry the debt of buying out siblings. These are decisions best made over years rather than in the month after a death.