So make sure you establish the depreciation categories the year you purchase the assets. For example, if you're a young farmer who invests regularly in depreciable assets, have a number of personal exemptions and carry a heavy debt load with accompanying interest deductions, you may benefit from slow cost recovery. You must report income for the same fiscal year as you use in your bookkeeping. If you keep your farm books by the calendar year, you must report your income for the calendar year. A sole proprietor must report business income and deductions for the same period as personal income and deductions.
Most farmers report on a calendar-year basis, for a number of reasons.
They find it easier to obtain information on rule changes and to obtain tax forms at the time when they need them. However, a fiscal year beginning March 1 or April 1 may more clearly show the normal cycle of your farm business. Also, this may make it easier to secure the services of a professional tax consultant, because he or she won't be overburdened with other tax returns. Farmers may keep records and report their income on either the cash or accrual method. If you use the cash method, you report income in the year cash or its equivalent is received, and expenses when they are paid.