Best Tax Software for Farmers: How to Choose the Right Option

Filing taxes as a farmer comes with unique challenges, from tracking equipment depreciation to managing income from multiple sources. Choosing the right tax software simplifies this process by ensuring accurate calculations and maximizing deductions specific to agricultural businesses.

With various options available, finding software that meets your farm’s needs while being easy to use is essential.

Necessary Forms for Farm-Related Returns

Farmers must file specific tax forms to report income, expenses, and deductions. The most important is Schedule F (Form 1040), which details farm income and expenses, allowing deductions for costs like feed, seed, fertilizer, and labor. Properly categorizing these expenses ensures compliance with IRS regulations and maximizes deductions.

For those employing farmworkers, Form 943 reports federal payroll taxes, including Social Security and Medicare contributions. Unlike most businesses that file Form 941 quarterly, agricultural employers typically file Form 943 annually. Missing this deadline can result in penalties, making payroll tracking essential.

Farmers selling livestock, crops, or other products on installment plans may need Form 6252 to report income over multiple years, potentially lowering tax liability. Additionally, government subsidies or disaster assistance must be reported on Form 1099-G, issued by the USDA or other agencies.

Software Tools for Depreciation and Equipment

Managing depreciation is crucial in farm taxation, as agricultural operations require significant investments in machinery, vehicles, and buildings. Tax software should include depreciation calculators that handle multiple methods, such as the Modified Accelerated Cost Recovery System (MACRS), which allows for faster depreciation in the early years of an asset’s life. Some programs also support Section 179 expensing, permitting farmers to deduct the full cost of qualifying equipment in the year of purchase, up to $1,220,000 in 2024.

The best software integrates with farm accounting systems to track asset purchases, sales, and disposals. This is particularly useful for farmers who regularly upgrade machinery or sell used equipment. Automated tracking ensures gains or losses on asset sales are correctly reported on Form 4797, which covers the sale of business property. Some software even includes forecasting tools to model future depreciation expenses, helping farmers plan tax liabilities and make informed purchasing decisions.

Depreciation tracking also affects eligibility for deductions like bonus depreciation, which allows immediate expensing of 60% of qualified new and used property in 2024. Since this percentage has been decreasing annually from the previous 100% rate, selecting software that stays updated with tax law changes is important. Some programs also provide guidance on state-specific depreciation rules, as certain states require separate calculations.

Checking User-Friendliness and Support Channels

Tax software should be intuitive, especially for farmers managing complex agricultural finances. A well-designed interface with clear menus and step-by-step guidance makes filing easier. Some platforms offer farm-specific workflows that prompt users for relevant income sources, such as crop sales or government program payments, ensuring nothing is overlooked. Visual dashboards summarizing tax liabilities, estimated payments, and potential refunds in real time help farmers stay organized.

Customer support is equally important, particularly for complex tax scenarios. The best software provides multiple support channels, including live chat, phone assistance, and email responses from tax professionals. Some even offer direct access to enrolled agents or CPAs specializing in agricultural taxation, which is valuable for issues like self-employment tax calculations or estimated quarterly payments.

Response time is another factor—during peak tax season, long wait times can delay filing. Software with an extensive knowledge base, including FAQs, video tutorials, and IRS form explanations, can provide immediate answers to common questions, reducing the need for direct support.

Ensuring Proper Handling of Farm-Specific Deductions

Maximizing deductions requires tax software that accurately categorizes farm-related expenses while ensuring compliance with IRS guidelines. One often overlooked deduction is for soil and water conservation expenses under IRC Section 175, which allows farmers to deduct costs for erosion control, terrace construction, and drainage improvements. Unlike capital improvements that must be depreciated, these expenses can be deducted in the year incurred, reducing taxable income immediately. However, the deduction is limited to 25% of gross farm income, making it important for software to correctly calculate eligibility and carry forward any excess amounts.

Prepaid farm supplies present another challenge. Farmers often purchase feed, seed, and fertilizer in advance to lock in prices, but IRS regulations limit the deduction for prepaid expenses to 50% of total deductible farm costs, unless the purchases meet specific business necessity criteria. Tax software must recognize these restrictions and properly allocate expenses to avoid triggering an audit. Similarly, interest deductions on farm-related loans must be categorized correctly, distinguishing between operating loans, land purchases, and personal expenses, as different tax treatments apply under IRC Section 163.

Addressing Multi-Entity Filing Needs

Many farmers operate through multiple business structures, such as sole proprietorships, partnerships, S corporations, or LLCs, to manage different aspects of their agricultural operations. Tax software must handle these complexities, ensuring that income, expenses, and deductions are properly allocated across entities while maintaining compliance with IRS regulations.

Farmers structured as partnerships or S corporations must file Form 1065 or Form 1120S, respectively, to report business income and distribute Schedule K-1 forms to owners. The software should generate these forms and integrate them with the individual tax return to avoid discrepancies. For those with multiple entities, the ability to consolidate financial data across businesses is valuable, particularly when managing inter-entity transactions such as equipment rentals or crop sales between related entities. Some programs also offer tools to track basis calculations for S corporation shareholders, ensuring distributions and losses are correctly reported under IRC Section 1366.

For farmers leasing land or equipment to their own operations, properly reporting rental income on Form 4835 or Schedule E is necessary to avoid misclassification. Software that distinguishes between passive rental income and active farm income ensures that self-employment taxes are correctly applied. Additionally, those with C corporations must file Form 1120, which requires more complex tax planning, including corporate tax rates, retained earnings considerations, and dividend distributions. Selecting software that accommodates these various filing requirements while maintaining integration between personal and business returns can significantly reduce administrative burdens.