Ag Producers Should Do Year-End Tax Planning

By Ron Haugen

Now is the time to consider year-end income tax planning. There have been changes to the tax law in 2025 that agricultural producers should be aware of.

“When tax planning, it is best to start with year-to-date income and expenses, and estimate them for the remainder of the year,” says Ron Haugen, North Dakota State University Extension farm management specialist. “Estimate depreciation, and include any income that was deferred to 2025 from a previous year.”

Haugen recommends producers try spreading out income and expenses so as to not have abnormally high or low income or expenses in any one year.

Farmers and ranchers have until March 2, 2026, to file their 2025 income tax returns without penalty if they have not made estimates.

Qualified farmers have until April 15, 2026, to file without penalty if they have paid their estimated tax deposit by Jan. 15.

Haugen encourages producers to think about making a deposit by Jan. 15, 2026, if it looks like they will have a tax liability:

“That would give producers more time to prepare their return and file on April 15.”

Haugen includes tax provisions to take note of:

• Agricultural producers are allowed to use 200% declining balance depreciation for 3-year, 5-year, 7-year and 10-year property. A 150% declining balance is required for 15-year and 20-year property.
• For most new agricultural machinery and equipment (except grain bins), the recovery period is five years.
• The Section 179 expense has increased. It generally allows producers to deduct up to $2.5 million on new or used machinery or equipment purchased in the tax year. There is a dollar-for-dollar phase-out for purchases exceeding $5 million. Equipment must be above 50% business use to use Section 179. A net operating loss cannot be generated with a 179-expense election.
• The additional 100% first-year bonus depreciation has been reinstated for purchases after Jan. 19, 2025. The rate is 40% for purchases between Jan. 1 and Jan. 19, 2025. It is available for both used and new property.
• Net operating loss (NOL) carryback rules are in effect. Producers can carry back losses to offset income.
• Like-kind exchanges are not allowed for personal property but are allowed for real property.
• Income averaging can be used by producers to spread the tax liability to lower income tax brackets in the three previous years. This is done on Schedule J.
• Producers may also use Form ND-1 FA (income averaging) for North Dakota income tax calculations.

Haugen offers these tax planning tips for a low-income year:

• Amortize fertilizer purchases.
• Capitalize repairs. Pick and choose which repairs to capitalize.
• Postpone expenses.
• Do not 179 expense all purchases. Use regular depreciation.