The agriculture industry is critical to the economics of our country. It provides food, employment opportunities, products for export, and many other necessary resources for the country and our economy. 

At Cooke, Lavender, Massey, & Company P.C., we believe it is essential to provide farmers and agriculture workers with the right tools and resources to navigate the complex accounting and tax preparation issues facing these industries. 

We serve farmers and agribusinesses in Blacksburg, Radford, Christiansburg, the New River Valley, and the surrounding region. Members of our team are well acquainted with all the unique tax and accounting challenges facing farmers and agribusinesses.

We serve all types of agribusinesses, including small farms, meat and dairy farmers, wineries, hemp farmers, and other agribusinesses. Our team provides a variety of accounting and tax services, including:

  • Accounting
  • Bookkeeping
  • Payroll Services
  • Income Tax Preparation
  • Audits, Reviews, and Compilations

Unique Accounting and Tax Challenges Faced by Agribusinesses

Agricultural and farming businesses must navigate some unique accounting and tax challenges. 

Depreciation of equipment and breeding stock

The Tax Cuts and Jobs Act shortened the deprecation period for new farming equipment and machinery from seven years to five years. The Act also allows many types of farm property to be depreciated under the more favorable depreciation methods. Unique depreciation regulations for livestock must also be considered for any farmer with breeding stock. Our team can help you apply these complicated rules to your circumstances.

Hobby loss determination

If it is determined that a taxpayer’s business is not being conducted as a for-profit business, any losses attributable to this type of activity (a hobby), is not deductible against other taxable income. Current tax law presumes that an activity is not a hobby if gross income exceeds deductions in any three out of five consecutive years (two out of seven for horse breeding, training, showing, or racing). If these criteria are not met, the taxpayer may be required by the IRS to prove that the business is operating with a profit motive under certain tests of facts and circumstances.

State grants

Farming income is generally subject to self-employment taxes (SE tax). However, some unique regulations and methods that apply to farmers. For instance, gains from the sale of draft, breeding, sport or dairy purposes and rent received for the use of farmland for which you are not materially participating are not subject to SE tax.

Agribusiness Frequently Asked Questions

Farmers can deduct ordinary and necessary expenses they paid for their business. An ordinary expense is a common and accepted cost for that type of business. A necessary expense means a cost that is proper for that business. Common deductible expenses include amounts paid to farm labor, depreciation of things like buildings, equipment, livestock vehicles, and machinery, gasoline, electricity, oil, water, vehicle maintenance, insurance, and similar expenses. These expenses must be allocated expenses between amounts attributable to business and personal use. Generally, the personal part of these expenses is not deductible.
The establishment of new a Virginia farm winery and/or vineyard and capital improvements made to existing Virginia farm wineries and/or vineyards may qualify for an individual or corporate income tax credit available for Virginia farm wineries and vineyards. The credit is generally equal to 25% of the cost of all qualified capital expenditures. Our tax experts will help you determine if you qualify and help you obtain the right tax credits for your agribusiness.
If you sold livestock or other farm related items that you bought for resale, you must report the sale. Depending on the holding period and the type of property, these sales are reported differently however, your profit or loss is always the difference between your selling price and your basis in asset or livestock (including the undepreciated original cost of the livestock, sales taxes paid, freight paid, etc.). The sale of raised livestock held primarily for resale is also taxable and you must report these sales. The gain from a sale of animals not held primarily for resale and livestock held for draft, breeding, dairy, or sporting purposes are reported on Form 4797 and depending on holding periods and type of animal/livestock may receive preferential capital gains tax treatment.

Common Mistakes

As with any business or industry, agribusiness tax law is complicated, and it’s easy to make mistakes that could cost you money. Our team is dedicated to helping our agribusiness clients avoid common accounting and tax mistakes.

Complications with wine excise taxes

Virginia levies a state tax of 40 cents per liter of wine sold in the Commonwealth. Wineries must pay 4% of the price charged for wines sold to consumers. These complex tax laws can be challenging to understand, navigate, and accurately report. Many wineries and vineyard owners are unclear about what taxes they need to pay, how to report the taxes collected, and how to pay them. Our team can help you apply these complicated rules to your circumstances and make sure you are in compliance.

Agribusiness depreciation methods

Farmers can depreciate most types of tangible property, with the exception of land, used in their trade or business such as buildings, machinery, equipment, vehicles, certain livestock and furniture. To be depreciable, the property must meet specific requirements. Our accountants can help you determine if you meet the requirements that allow you to depreciate the cost of these types of property.

The Tax Cuts and Jobs Act shortened the deprecation period for new farming equipment and machinery from seven years to five years and allows many types of farm property to be depreciated under the more favorable depreciation methods.