The tax code is a maze of varying income tax rates and rules governing the application of these rates. Navigating this maze can be a complex task but understanding the various rules can greatly aid in tax planning for dairy farmers as they manage their livestock.

Livestock held for draft, breeding or dairy purposes that are sold as a result of drought or weather-related conditions may qualify for favorable tax treatment. Gain does not have to be recognized on these sales if the proceeds from the sale are used to purchase replacement livestock within two years from the end of the taxable year in which the sale takes place.