Tax Planning Strategies for Family-Owned Farms
Family farms are the backbone of American agriculture—and like any business, they face complex financial decisions that can impact long-term success. With fluctuating commodity prices, rising input costs, and generational transitions to consider, proactive tax planning is one of the most powerful tools available to protect your farm’s legacy.
Effective tax planning isn’t just about minimizing liability for the current year. It’s about creating long-term strategies that align with your operational goals, succession plans, and personal financial future.
Why Tax Planning Is Critical for Farms
Family-owned farms face unique tax considerations that differ from traditional businesses:
- High-value assets like land, equipment, and livestock
- Variable income streams depending on market conditions or crop cycles
- Intergenerational ownership and succession planning
- Eligibility for agricultural-specific credits, deductions, and deferrals
A well-structured tax plan can help farm owners take full advantage of available opportunities while avoiding unnecessary tax burdens.
7 Tax Planning Strategies for Family-Owned Farms
- Income Averaging
Farmers may qualify for income averaging, allowing them to spread current-year income over the previous three years. This can help smooth out the effects of a particularly profitable year and reduce exposure to higher tax brackets. - Section 179 Expensing & Bonus Depreciation
Purchasing equipment or other qualifying property? Section 179 allows you to deduct the full purchase price (up to a limit), while bonus depreciation lets you write off 100% of new or used eligible assets. These can be powerful tools for managing taxable income. - Prepaying Expenses
Cash-basis farmers can prepay certain expenses (feed, seed, fertilizer) for the next year and deduct them in the current tax year—helping reduce current-year taxable income when managed properly. - Establishing a Retirement Plan
Setting up a SEP IRA, SIMPLE IRA, or other retirement plan for yourself and any employees allows for tax-deferred savings while also reducing taxable income. This is particularly important for long-term planning, especially in family operations without formal benefits. - Managing Inventory Accounting Methods
How you value your crops and livestock (cash vs. accrual accounting, unit-livestock-price method, etc.) can significantly impact taxable income. Choosing the right method—and making timely elections—is essential for accurate reporting. - Gifting and Estate Planning
Gifting portions of the farm, equipment, or income-producing assets to heirs during your lifetime can reduce the size of your taxable estate and aid in succession. Coordinating these gifts with a long-term estate plan ensures a smooth transfer across generations. - Taking Advantage of Agricultural Tax Credits
Federal and state programs may offer tax credits for conservation practices, fuel usage, environmental compliance, and more. Staying informed on available incentives can create significant savings.
Start Planning Early, Reap the Benefits Later
Tax planning is most effective when it’s proactive—not reactive. Waiting until year-end limits your options, especially if your income or expenses fluctuate. Meeting with a qualified advisor throughout the year can help you adjust to market changes, maximize deductions, and stay aligned with your long-term goals.
How DBC Helps Family Farms Plan for the Future
At De Boer, Baumann & Company, we work with farms of all sizes across Western Michigan, helping family-owned operations create custom tax strategies that support both today’s profitability and tomorrow’s legacy.
From equipment purchases to succession planning, our advisors understand the full picture—and we’re here to help you make confident, informed decisions.
