Year-end tax planning follows closely on the heels of harvest. Farmers should update records, review cash flows and consider year-end tax planning while preparing to file taxes, says Dennis Erhnwald, farm business management extension educator in Champaign County, IL.
To maximize your time, Erhnwald recommends coordinating income-tax planning, cash-flow planning and marketing. This ensures any measures taken for tax purposes will meet cash flow needs.
The tax code allows up to $20,000 worth of capital purchases to be expensed rather than depreciated. This strategy allows an immediate tax benefit, Erhnwald says.
Another strategy is shifting grain sales back to this year and delaying some expenses for next year. This would equalize the two years' incomes to avoid a tax bracket shift or be beneficial if you're paying for storage. Erhnwald advises farmers to consult with tax professionals to make sure their strategies won't cause financial harm.
For the Farmer's Tax Guide, a publication by the Internal Revenue Service, visit www.irs.ustreas.gov/prod/forms_pubs/pubs/p225toc.htm.