Re: 2009 Planning: Farming Business

Dear Client:

Farmers, as with any other type of business, may deduct their ordinary and necessary business expenses.
However, there are a number of unique tax provisions and considerations that apply only to the business of
farming. These tax provisions arise from a variety of special considerations, including federal subsidy programs,
special inventory needs, and the family nature of many farming businesses. A comprehensive tax plan can help you
navigate the rules that effect the reporting of income and expenses, and ultimately, reduce your tax burden.

For example, government payments are generally included in farm income; however, there are exceptions for cost-
sharing payments for conservation, reclamation and restoration programs. Further, although individual farmers can
request that income tax be withheld on those payments, it may not be advisable to do so because deferral of taxes
until 2 1/2 months after the close of the tax year is a valuable tax benefit. Farmers also have control over when
income from Commodity Credit Corporation Loans is reported, which may permit the farmer to recognize income
in the year the related production expenses are deducted. In addition, costs incurred for soil or water conservation
or to prevent erosion are deductible by farmers even though they are capital expenditures. To complicate tax
matters further, a farmer may elect to average their income over three years to compensate for the sometimes
erratic nature of the farming business.

Tax planning for farmers therefore requires a more in-depth discussion than other businesses in order to develop a
greater understanding of your needs. But regardless of your unique challenges and goals, tax savings should always
be a priority. Please call our office at your convenience to arrange an appointment. We will be happy to answer
your questions.

Sincerely yours,