Experts who specialize in agricultural law and taxation can help you in several important ways — even if you don't think you'll need their services. Here are five top reasons to hire them, according to Roger McEowen, director, Iowa State University Center for Law and Taxation; Gary Hoff, University of Illinois Extension Taxation Specialist; and Guido van der Hoeven, Extension Specialist, North Carolina State University.
- Decrease your tax burden
An agricultural tax specialist can tell you which specific steps to take during the year to minimize your taxes, points out Hoff. “As you get closer to year-end, it's harder to reduce your tax liability,” he says. “However, early planning can help arrange your tax liability to come out virtually wherever you want it to be.”
For example, if you're thinking about buying a new combine, your tax accountant can tell you the tax implications of buying one this year compared to next year, he adds. Another example is that the alternative minimum tax comes into play after your income exceeds a certain level, so it may pay to delay some agricultural sales until next year to escape paying that tax this year.
- Avoid costly penalties
“Tax laws change all the time, and they are complicated,” says Hoff. “If your return is done wrong, the penalties can be severe.”
In addition to tax laws, farmers can easily make costly mistakes concerning farm program payments and eligibility, says McEowen. “Coordination is the key, because of the complexities,” he says. “I suggest a team approach ? not just an attorney, but also an expert in estate planning and farm tax laws. Some people can do both, but not always.”
Farmers might also consider adding a life insurance agent and financial planner to his/her advisory team, suggests McEowen. “When you set up goals and objectives,” he says, “you should consider how to structure your business with both tax and non-tax benefits in mind.”
- Save time
“Most farmers can spend their time more profitably by making farm management and marketing decisions than they can by preparing their own taxes,” says Hoff. “Preparing taxes is very time consuming. The IRS estimates the average time spent to prepare the Schedule F alone to be 11 hours and 34 minutes. Form 4797 (concerning farm equipment and livestock breeding) could consume another 51 hours.”
Farmers still need to learn some tax law to be able to talk knowledgeably with an accountant, however, says Hoff. Also, they need to choose their tax advisor wisely. “You can't reap all the benefits of using a tax professional if your tax preparer doesn't specialize in agriculture,” he cautions.
- Protect yourself fromlitigation
A good lawyer with expertise in agriculture can help review your farm management practices and ensure you aren't liable under rural law, land law and agricultural law, says van der Hoeven. “Somebody should be looking over your shoulder to make sure you're within the bounds of the law to be absolved of liability issues,” he says. “With more people moving to rural areas from big cities, litigation is becoming more common.”
Some common areas of liability concern are moving large equipment on public thoroughfares, encroachment and trespassing issues and appropriate applications of fertilizer and crop protection products. Losing a lawsuit involving one of these issues could cost you your farm.
Most farmers are richer than they think they are, points out van der Hoeven. “A key fact is that land is your largest valued asset that needs protection,” he says. “A multi-million-dollar farm operation may not be generating a lot of income compared to a similarly-sized business in town, but its wealth base is still significant in land and equipment.”
- Prepare for retirement and succession
Landowners need to make sure that their titles are up-to-date and indisputable, says van der Hoeven. They especially need to have clear and saleable ownership before retirement and succession, he emphasizes.
“A smooth succession, keeping taxes down and establishing trusts requires planning,” says van der Hoeven. “Make sure your farm is profitable enough to afford succession in the way that you want it to. You'll also need to identify the next farm successor and develop their management skills at least six to seven years before your retirement.”