[Editors: This story will not be valid after Jan. 1.]

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.

Haugen recommends noting these tax planning items for a high-income year:

• Crop insurance proceeds can be deferred to the next tax year if a producer is a cash-basis taxpayer and can show that normally income from damaged crops would be included in a tax year following the year of the damage. This would include prevented plant insurance payments.
• A livestock income deferral is available for those who had a forced sale of livestock because of a weather-related disaster. This is a very important consideration for producers who had to sell livestock because of drought. The IRS has two provisions for deferral. The first one is IRC 1033(e), in which a livestock producer who sells more draft, breeding or dairy animals than normal due to weather-related conditions may defer recognition of the gains for up to two years. A disaster declaration is not necessary; however, if a federal disaster declaration is issued, the replacement period is four years. The second provision is IRC 451(g), in which a livestock producer that uses the cash method of accounting can elect to defer for one tax year the income of any qualified livestock sold due to weather-related conditions.
• Prepay farm expenses. Feed, fertilizer, seed and similar expenses can be prepaid. Typically, discounts are received by paying for these expenses in the fall. Producers can deduct prepaid expenses that do not exceed 50% of their other deductible farm expenses.
• Defer income to 2026. Crop and livestock sales can be deferred to the next year by using a deferred payment contract. Most grain elevators or livestock sale barns will defer sales until the next tax year. Producers should be aware that they are at risk if the business becomes insolvent before the check is received and cashed.
• Purchase machinery or equipment. Machinery or equipment purchases can be made before the end of the year to get a depreciation or Section 179 expense deduction in 2025.
• Contribute to a retirement plan, such as a simplified employee pension plan, savings incentive match plan for employees or individual retirement account.

Information on agricultural topics can be found in the Farmer’s Tax Guide, Publication 225. It can be obtained at any IRS office or ordered by calling 800-829-3676.

Additional questions on this topic should be addressed to a tax professional or the IRS at 800-829-1040 or https://www.irs.gov. North Dakota income tax questions can be addressed to the North Dakota Tax Department at 877-328-7088 or https://www.nd.gov/tax.

NDSU Agriculture Communication – Dec. 5, 2025

Source: Ron Haugen, 701-231-8103, ronald.haugen@ndsu.edu

Editor: Dominic Erickson, 701-231-5546, dominic.erickson@ndsu.edu