Crop and livestock farmers who are working on preparing their 2022 income tax returns can review two useful documents for end-of-year determinations.
The article “Suggested Closing Inventory Prices for 2022 Records” provides suggested closing inventory prices for all major crop and livestock commodities produced in Iowa, and “Deductible Livestock Costs for Adjusting 2022 Income Tax Returns” provides cost estimates for farmers who consume food produced by their operation, which must be deducted from expense reporting.
Both documents are published by Iowa State University Extension and Outreach and are part of the December Ag Decision Maker.
“The closing inventory prices found in the ‘Suggested Closing Inventory Prices for 2022 Records’ document are used by farmers and farm business consultants to assign a consistent value to ending inventories of crops and livestock each year,” said Alejandro Plastina, associate professor in economics and extension economist at Iowa State.
The inventory prices are averages compiled by economists with ISU Extension and Outreach, using data from the United States Department of Agriculture, the Iowa State Cash Rental Rates Survey, and the Iowa Farm Business Association. The prices are used by consultants with the Farm Business Association and tax preparers across Iowa.
In addition to tax preparation, the prices can help farmers who simply want to track their inventory, or who are required to track and report inventory for lending or other business purposes.
“A net worth statement or balance sheet should be developed on or around Jan. 1, to measure the financial progress of the farm from year to year,” said Plastina. “This helps farmers make comparisons and estimate the net income for each year.
As Plastina explains, when farmers consume livestock or products that they have produced themselves, they are not allowed to include the costs of raising those livestock or products in their deductible expenses. Likewise, these products are also not taxed as income, because they are being consumed at home.
“Since most farmers would not be able to estimate their own costs for one unit of livestock or product, the document provides an estimated average cost, for common products produced and consumed at home,” said Plastina. “This report is particularly relevant to farm income tax preparers who attend the Farm income Tax Schools.”
Both reports use averages, based on credible data. Actual results per farm should be based on local markets, conditions of the crops and livestock marketed, and other pertinent factors. Farmers should consult with their accountant or tax professional on final determinations for their farm.