​Would a Farm Tax ID Be Beneficial for Your Small Farm?

As the end of the financial year approaches, it is helpful to learn about tax implications for small farms. Here at Tractor Tools Direct, we field many questions about small-farm sales tax exemptions and other tax deductions. If you haven’t already, it may make sense to set up your small farm as a business. Read further to learn more about the process to determine if applying for a farm tax ID would be beneficial to your operation.

What is a farm tax ID number?

A farm tax ID number is basically a social security number for a business. The number is 9 digits long and takes the format XX-XXXXXXX. A tax ID number is one way that farms can be identified to the government to gain eligibility for various government services. Furthermore, it sets your small farm up as a business - thus allowing tool, equipment, and supply purchases to be tax deductible. It also serves to identify a farm to a business like Tractor Tools Direct for the purpose of sales tax exemption.

Who is eligible?

To be eligible for a farm tax ID number, you must prove that you are actively involved in making a profit from your farm, have the knowledge to make a profit, and are treating your farm as a business. There is a firm distinction between being a farm business and being a hobby farm. Hobby farm expenses are ineligible for tax deductions.

Why should my farm have a tax ID?

There are many reasons to have a farm tax ID. An ID is an important way to identify your farm to the government in order to access various United State Department of Agriculture (USDA) programs. It allows you to apply for Farm Service Agency (FSA) loans and crop insurance. With a tax ID number, your farm will be counted in the Agricultural Census which could result in more resources being created in your area to support small farms. This number also allows you to vote on FSA county committee members who help to prioritize programs for your county.

As stated above, a farm tax ID will establish your farm as a business so that expenses like an equipment purchase from Tractor Tools Direct will be exempt from sales tax (see your state’s specific laws regarding this). Thanks to current tax law, an ID will also allow you to deduct equipment purchases from your taxable income. For this last reason, many of our customers make late December purchases not only to take advantage of our end-of-year clearance deals, but also to reduce their tax liability for the year.

How do I get a farm tax ID?

Well good news, it’s free! There are three simple ways to get your farm tax ID number.

• Set up an appointment with your local FSA office which is usually located with your cooperative extension. The appointment will likely take 30 to 60 minutes. Be sure to bring applicable documents with you like your driver’s license and social security card. You will also need proof of control of the farm. Your contact at the FSA office will let you know what other documents, if any, are required. The FSA staff will locate your farm parcel and issue you a number if it does not already have.
• Apply by phone using the number 800-829-4933. Your form will be completed for you over the telephone. Be sure to have all pertinent information handy (see documents listed in number 1). Once the form is complete, you will be provided with your farm tax ID number and will receive a hardcopy of your number from the IRS by mail within a couple of weeks.
• Apply online using this form: https://sa.www4.irs.gov/modiein/individual/index.jsp. The form must be completed in one sitting. For this reason, read all the directions ahead of time to ensure you have both the time and the required documents on hand to complete it.

A farm tax ID will establish your farm as a business. It is fairly easy to do, and if your farm is eligible, it will hook you up with many government resources. An ID will also qualify your farm for several tax benefits. If you haven’t already applied for your farm’s number, now just might be the time to do so.

References

http://www.employeridentificationnumber.net/what-is-the-difference-between-an-ein-number-and-a-tax-exempt-number.html

https://smallbusiness.chron.com/can-deduct-farm-equipment-taxes-18630.html

https://www.calt.iastate.edu/article/deducting-farm-expenses-overview

https://www.rafiusa.org/blog/beginning-farmers-how-and-why-to-get-a-farm-number/