2.4.1 Allowable farming expenses

• Allowable farming expenses are costs that are essential to run your farm and are deducted from your taxable income to reduce your tax liability.
• Allowable farming expenses, include:-

1. Car and Truck Expenses

• Farmers, like other business owners, have the option to either

1. Deduct the actual cost of operating a truck or car in their business or
2. Deduct the standard mileage rate for each mile of business use.

2. Actual Cost

• Those taxpayers who choose the actual cost method may deduct those expenses related to the business use of the vehicle.
• These include gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits).
• Farmers choosing this method must keep good records of these expenses. 

3. Standard Mileage Rate

• When vehicles are used for both personal and business purposes, the taxpayer may take deductions only for the percentage of use attributable to the business.
• This requires detailed recordkeeping.
• Farmers, however, have a special rule under which they can claim 75% of the use of a car or light truck as business use without any allocation records. 

4. Fertilizer and Lime

•  Taxpayers engaged in the business of farming may elect to immediately expense the cost of fertilizer and lime (where the benefits last substantially more than one year), rather than to capitalize the expense and depreciate it over the term of its useful life.

5. Interest

• Interest paid on farm mortgages and other farming-related loans is deductible as an ordinary and necessary business expense.
•   For cash method and accrual method farmers, interest is deductible in the year it is paid or accrued respectively. 

6.Rent or Lease Payments

• Cash land rent paid by a tenant is generally deductible on line  in the year it is paid.  
• Crop share rent is not deductible.
• Equipment rental payments made by a farmer are deductible on line .

7. Seeds and Plants

• Farmers may generally deduct the cost of seeds and plants used to produce a crop for sale. 

2.4.2 Computing of the adjusted taxable income

                                                                                        YXZ LTD.

                                      Computation of adjusted taxable income for the year ended 

              Reported Net Profit                                                                                                           XXX

              Add back:  Non Allowable expenses

              Donation (in kind)                                                     XX

             Loss on sale of investment                                        XX

             Medical expenses- Non Executive                           XX

             Bad debts- General Provisions                                 XX

             Farm House                                                                  XX

             Irrigation scheme                                                        XX

             Less:

            i)  Non Business Income

            Interest Income (net)                                                    XX

            Surplus Pension                                                              XX

           ii)  Non Taxable Income

           Dividend Income                                                             XX

            Gain on sale of tractor                                                   XX

           iii)  Omitted Allowable Expenses

            Capital Deductions                                                         XX

           Adjusted Taxable Business Income                                                                                      XX

          Add other Incomes

           Investment income gross                                                                                                                 XX

           Surplus Deduction                                                                                                                              XX

           Total Taxable Income                                                                                                                  XXX

             Gross Tax Liability

             30% *XXX                                                   XX

            Less Set offs:

           Withholding tax not final                          XX

          Net Tax Liability                                          XX

2.4.3 Hobby farming

• Hobby farming is a small-scale farm that is more for pleasure than business.
• It doesn’t have to be a full-time venture.
• People that hobby farms can have day jobs and other focuses in their lives rather than dedicating all their time to the farming lifestyle.
• If you are accurately classified as a hobby farmer, you do not have to report your farm income on your tax return. However, this also means losses related to this activity cannot be applied against other sources of income.