Operating a ranch or farm in Montana means balancing unpredictable weather, seasonal income, and large operational costs—but it also means there are valuable deductions available to help lower your tax burden. At SDH CPAs, one of the top questions we get from ag clients is: “What farm expenses are tax-deductible?”
Common Deductible Farm Expenses:
- Feed and Livestock Purchases
Any money spent on feed, breeding stock, or livestock intended for resale is fully deductible. This includes hay, grain, minerals, supplements, and the purchase cost of cattle, pigs, or other animals. - Equipment, Repairs & Maintenance
Tractors, combines, irrigation systems, fencing, and even hand tools are deductible through depreciation or Section 179. Immediate write-offs may be available for small equipment purchases, while major equipment is depreciated over several years. - Fuel, Oil, and Utilities
Diesel for tractors, gas for work trucks, and electricity or propane for barns or irrigation systems are considered business utilities and are fully deductible if used for farming operations. - Fertilizer, Seeds, and Pesticides
Essential crop inputs such as herbicides, fungicides, and soil conditioners can be deducted in the year they are purchased. - Labor and Hired Help
Wages paid to farmhands, seasonal workers, and contracted labor are deductible. Be sure to issue W-2s or 1099s appropriately and maintain clear records of hours worked and tasks performed. - Insurance and Interest Payments
Crop insurance, farm liability coverage, and interest on farm loans are all deductible. The key is that the insurance must relate directly to the farm or ranch operations. - Property Taxes and Rent
Land used for farming, even if leased, qualifies for property tax deductions. If you rent grazing land, lease tractors, or store hay off-site, those lease payments are fully deductible.
Bonus: Depreciation vs. Section 179
Farmers and ranchers can deduct large purchases over time using depreciation schedules or potentially write off the full cost in the first year under Section 179. Choosing the right strategy can save thousands but should be discussed with a CPA familiar with agricultural accounting.
Record-Keeping is Critical
To qualify for these deductions, you must keep accurate records. We recommend using accounting software or spreadsheets to categorize expenses monthly. Maintain all receipts and clearly separate personal vs. farm expenses.
Pro Tip: Want to smooth out the ups and downs of seasonal income? Talk to us about income averaging—a strategy unique to farmers that allows you to spread income over multiple years to reduce your tax bill.
Farming is unpredictable, but your finances don’t have to be. Let us help you build a tax plan tailored to your operation.
