For farm business income taxation purposes, depreciation is considered what?

• A. A revenue expense
• B. A deductible expense
• C. A tax credit
• D. Not deductible

Answer: (B)

Depreciation is a deductible expense for farm business income tax purposes. It represents the annual portion of the cost of a capital asset—like a tractor, bin, or building—that is allocated over its estimated useful life. This creates a deduction from income, reducing taxable income even though you aren’t cashing out the full cost in that year. It’s not a revenue expense, which are costs that are consumed in the current year and deducted in that year; depreciation spreads the cost over several years. It’s also not a tax credit, which would directly reduce the tax owed; depreciation lowers the amount of income subject to tax. So the correct concept is that depreciation acts as a deductible expense.