How to Track Farm Expenses: Complete Guide for Farmers

If you've ever faced tax season with a shoebox full of receipts, you know the importance of learning how to track farm expenses properly. Good expense tracking isn't just about surviving tax time—it's about understanding your farm's profitability and making better business decisions.

The truth is, many farmers lose thousands of dollars annually to missed deductions and poor financial visibility. They work hard all year, then can't prove their expenses or understand where their money actually went.

This guide shows you practical methods to track expenses, what you can deduct, and how to organize your farm financial records—whether you prefer paper systems, spreadsheets, or dedicated software.

Why Expense Tracking Matters

Beyond Tax Time

Yes, good expense tracking saves you at tax time. But the benefits go further:

Understand true profitability. You might think tomatoes are your best crop. But once you track all the inputs—seeds, trays, labor, irrigation, pest control—you might discover they barely break even.

Make better decisions. Should you buy new equipment or repair the old? The answer depends on numbers you should already have tracked.

Qualify for loans and grants. Lenders and grant programs want to see organized financials. Poor records disqualify you immediately.

Catch problems early. Expenses creeping up? Tracking lets you spot the trend before it becomes a crisis.

Know your break-even point. How much do you need to sell to cover costs? You can't know without tracking those costs.

The Cost of Not Tracking

Consider what happens without good expense tracking:

• Missed deductions: The average small farm misses $2,000-5,000 in legitimate deductions annually
• Inaccurate pricing: Without knowing true costs, you're guessing at prices
• Audit vulnerability: The IRS can disallow deductions you can't document
• Poor decisions: Investing in the wrong crops or equipment
• Stress: Tax season becomes a nightmare instead of a routine task

What Expenses Should You Track?

Direct Operating Expenses

These are the day-to-day costs of running your farm:

Seeds and Plants

• Vegetable and flower seeds
• Plant starts and transplants
• Cover crop seed
• Trees and perennial plants

Growing Supplies

• Fertilizers and soil amendments
• Pest and disease control products
• Row covers and plastic mulch
• Trellising and support materials
• Containers and pots

Irrigation

• Drip tape and fittings
• Sprinklers and hoses
• Water costs (if metered)

Labor

• Employee wages
• Contract labor
• Payroll taxes and benefits
• Workers' compensation insurance

Livestock Inputs (if applicable)

• Feed and supplements
• Veterinary care
• Bedding materials
• Breeding fees

Farm Maintenance

Equipment

• Fuel and oil
• Repairs and maintenance
• Small tools and implements
• Parts and supplies

Facilities

• Building repairs
• Fencing materials
• Storage supplies

Marketing and Sales

Direct Sales

• Farmers market booth fees
• Packaging and labels
• Display equipment
• Point-of-sale supplies

Marketing

• Website hosting
• Advertising and promotion
• Farm signs and banners

Administrative

Insurance

• Liability insurance
• Crop insurance
• Equipment insurance
• Health insurance (partially deductible)

Professional Services

• Accounting and bookkeeping
• Legal fees
• Consulting services

Office and Technology

• Phone and internet (farm portion)
• Software subscriptions
• Office supplies
• Computer equipment (farm use)

Education

• Conferences and workshops
• Farm tours and educational events
• Publications and subscriptions

Land and Facilities

If you own:

• Property taxes
• Mortgage interest
• Depreciation on buildings
• Land improvements

If you rent:

• Lease payments
• Any improvements made

Transportation

• Vehicle expenses (mileage or actual costs—business standard mileage rate is 70 cents per mile for 2025)
• Trailer registration and maintenance
• Delivery costs

Methods for Tracking Expenses

Method 1: Paper System

Best for: Very small operations, farmers who hate technology

How it works:

1. Keep a folder for each expense category
2. Place receipts in appropriate folders immediately
3. Log expenses in a paper ledger weekly
4. Reconcile monthly

Pros:

• No technology required
• Works during power outages
• Tangible, physical records

Cons:

• Easy to lose receipts
• Time-consuming to summarize
• No automatic calculations
• Hard to analyze trends
• Doesn't scale well

Tips for paper systems:

• Use an expanding file folder with labeled sections
• Write the category on each receipt as you file it
• Photograph receipts that fade (thermal paper)
• Schedule weekly time to update your ledger

Method 2: Spreadsheet System

Best for: Farmers comfortable with computers who want more control

How it works:

1. Create a spreadsheet with columns for date, vendor, category, amount, payment method, and notes
2. Enter expenses weekly (or more often)
3. Use formulas to sum by category
4. Create charts to visualize spending

Pros:

• Free (Google Sheets, Excel)
• Customizable to your categories
• Can create reports and charts
• Searchable and sortable

Cons:

• Requires manual data entry
• Easy to make formula errors
• No receipt attachment
• Multiple users gets complicated
• Limited mobile access

Sample spreadsheet structure:

Method 3: Accounting Software (QuickBooks, Wave)

Best for: Larger operations, farms with employees, those wanting accounting-grade records

Is QuickBooks good for farmers? QuickBooks can work, but it's designed for general businesses, not farms. You'll need to customize categories, and it lacks farm-specific features like crop tracking or inventory batch management.

How it works:

1. Connect bank accounts for automatic import
2. Categorize transactions as they import
3. Attach receipt photos to transactions
4. Generate standard accounting reports

Pros:

• Automatic bank transaction import
• Receipt attachment
• Professional financial reports
• Accountant-friendly
• Multiple user support

Cons:

• Monthly subscription cost
• Learning curve
• Not farm-specific
• May be more than you need
• Expensive for basic needs

Alternatives:

• Wave: Free accounting software with similar features
• FreshBooks: Good for invoicing-heavy operations
• Xero: Cloud-based alternative to QuickBooks

Method 4: Farm Management Software

Best for: Farms wanting integrated operations and financial tracking

How it works:

1. Track expenses alongside other farm operations
2. Connect expenses to specific crops, activities, or projects
3. See profitability by enterprise, not just overall
4. Integrate with customer and inventory management

Pros:

• Farm-specific categories built in
• Connect expenses to crops/livestock
• See true profitability by product
• Integrates with other farm data
• Mobile-friendly for field use

Cons:

• Monthly subscription cost
• May duplicate some accounting software features
• Requires commitment to use consistently

What to look for:

• Expense categorization for Schedule F
• Mobile receipt capture
• Report generation
• Integration with bank accounts
• Multi-user access

What Farm Expenses Can You Write Off?

Farm expenses that are "ordinary and necessary" for your operation are generally deductible. Here's a reference list:

Fully Deductible in Year Incurred

• Seeds, plants, and fertilizers
• Feed and veterinary expenses
• Farm supplies
• Labor costs
• Rent and lease payments
• Interest on farm loans
• Insurance premiums
• Utilities for farm buildings
• Marketing and advertising
• Professional services
• Farm-related travel and lodging

Depreciable (Deducted Over Time)

• Farm equipment and machinery
• Buildings and improvements
• Fencing
• Vehicles (farm-use portion)
• Computers and technology

Partially Deductible

• Home office: If you have dedicated farm office space
• Phone/internet: Farm-use portion
• Vehicle: Mileage or actual costs for farm use
• Health insurance: For self-employed farmers

Special Deductions

• Section 179: Immediate deduction for equipment purchases (limit of $2,500,000 for tax years beginning in 2025)
• Conservation expenses: Soil and water conservation on farmland
• Fuel tax credit: Refund on federal fuel tax for off-road farm use

NOT Deductible

• Personal living expenses
• Cost of land (but improvements are depreciable)
• Fines and penalties
• Political contributions
• Personal portion of mixed-use expenses

Organizing Farm Records

Create a Simple System

1. Digital receipt capture: Use your phone to photograph receipts immediately. Paper receipts fade.

2. Consistent categorization: Use the same categories all year. Match Schedule F categories when possible.

3. Weekly review: Don't let expenses pile up. 15 minutes weekly beats 15 hours at tax time.

4. Separate accounts: Keep farm and personal finances separate. Use dedicated farm checking account and credit card.

5. Backup everything: Cloud storage or regular backups protect against loss.

Schedule F Categories

Organizing by IRS Schedule F categories simplifies tax preparation:

• Car and truck expenses
• Chemicals
• Conservation expenses
• Custom hire
• Depreciation
• Employee benefits
• Feed
• Fertilizers and lime
• Freight and trucking
• Gasoline, fuel, and oil
• Insurance
• Interest (mortgage and other)
• Labor hired
• Pension and profit-sharing
• Rent/lease (vehicles, machinery, equipment)
• Rent/lease (land, animals)
• Repairs and maintenance
• Seeds and plants
• Storage and warehousing
• Supplies
• Taxes
• Utilities
• Veterinary, breeding, and medicine

Documentation Requirements

For each expense, keep:

• Date of purchase
• Vendor/payee name
• Amount
• Business purpose
• Receipt or invoice

For vehicle expenses:

• Beginning and ending odometer readings for the year
• Mileage log (date, destination, purpose, miles)
• OR actual expense records (fuel, repairs, insurance)

Best Practices for Farm Expense Tracking

1. Capture Receipts Immediately

The biggest expense tracking failure: receipts that never make it into your system. Build a habit:

• Photograph receipts as soon as you get them
• Use a dedicated app or folder
• Never leave receipts in pockets or vehicles

2. Categorize as You Go

Don't wait until tax time to figure out what each expense was for. Categorize immediately while you remember the context.

3. Review Monthly

Set a monthly date to:

• Ensure all expenses are recorded
• Check that categorization is correct
• Compare spending to budget
• Identify unusual expenses

4. Keep Business and Personal Separate

A mixed-use account is a nightmare at tax time. Open separate:

• Farm checking account
• Farm credit card
• Farm savings account

5. Track Mileage Consistently

Vehicle expenses are a common audit trigger. Keep contemporaneous mileage records—not recreated at year-end.

6. Save Records Appropriately

The IRS can audit up to three years back (six years in some cases). Keep records for at least seven years:

• Tax returns and supporting documents
• Receipts and invoices
• Bank and credit card statements
• Asset purchase documentation
• Depreciation schedules

FAQ: Farm Expense Tracking

What is the best way to keep track of farm expenses?

The best method depends on your comfort level and farm size. For most small farms, a combination works well: capture receipts with your phone, categorize them in a spreadsheet or farm management software weekly, and reconcile with bank statements monthly. The key is consistency—any system you'll actually use beats a perfect system you abandon.

Is QuickBooks good for farmers?

QuickBooks works but isn't ideal. It's designed for general businesses, not farms, so you'll need to customize categories and work around features designed for retail or service businesses. For basic bookkeeping it's adequate. For farms wanting to track costs by crop, manage inventory, or integrate with other farm operations, dedicated farm management software is often a better fit.

What is the best bookkeeping software for farmers?

For pure bookkeeping, Wave (free) or QuickBooks are common choices. For integrated farm management including expense tracking, options like SmartFarmPilot combine expenses with customer management, inventory, and operations. The best choice depends on whether you want just financial records or a complete farm management solution.

What farm expenses can you write off?

Most ordinary and necessary farm business expenses are deductible: seeds, fertilizer, feed, labor, equipment repairs, fuel, insurance, marketing costs, and professional services. Large equipment purchases can often be deducted immediately under Section 179. Keep detailed records—the IRS requires documentation for all claimed deductions.

How do I organize my farm records?

Start with separate categories matching Schedule F (the tax form for farm income). Use a digital system to capture and store receipts. Keep farm and personal finances in separate accounts. Review and reconcile monthly rather than waiting for tax season. Store records securely for at least seven years.

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Start Tracking Today

Good expense tracking is a habit, not a project. Start simple:

1. Open a dedicated farm bank account if you don't have one
2. Choose your tracking method (paper, spreadsheet, or software)
3. Set a weekly 15-minute appointment to record expenses
4. Keep your phone ready to photograph receipts

The payoff—understanding your true profitability, maximizing deductions, and eliminating tax-season stress—is worth the small weekly investment.

Need help tracking expenses alongside customers, orders, and inventory? SmartFarmPilot gives you farm-specific expense tracking integrated with everything else you manage. Get started free and see your complete farm picture in one place.

Your next step: Calculate how much you spent on seeds and supplies last year. If you don't know, it's time to start tracking.

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Sources

• IRS Publication 225 (2025): Farmer's Tax Guide
• IRS Schedule F (Form 1040) Instructions 2025
• FarmRaise: Schedule F Line by Line Help for Farmers
• TurboTax: What is Schedule F?
• FarmRaise: How to Maximize Your Farm's Tax Deductions