Tax Planning Guide in Agriculture for 2017

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“This Post Has Not Been Updated to Include Changes from the “Tax Cuts and Job Act” passed on December 22, 2017.”

Farmers can benefit from meeting with their tax preparers for tax planning prior to their tax year-end.

What will your 2017 depreciation expense deduction will be?

You may know what to expect from your operating revenue and expenses this year, but do you know what your 2017 depreciation expense deduction will be? To understand this deduction, you must know how much depreciation expense to expect for assets placed in service in prior years, as well as how much depreciation you will be allowed on assets purchased or disposed of during the current tax year. Make sure to find a qualified tax professional that can help quantify this number for you. If your tax professional specializes in agriculture, they can also make sure you are using the correct depreciation methods required for farming assets. 

Section 179 is also an option. Section 179 allows farmers to deduct the assets purchased (such as equipment) in the first year versus depreciating the asset over time. Does this option make sense based on your current year’s results as well as your expectations for future results? AgriSolutions tax specialists can help you calculate these numbers. 

 

Tax timelines to remember

Last year, the income tax deadlines for C-corporations swapped with partnerships and S-corporations.

  • C-corporations are now due the 15th day of the 4th month after the end of the tax year. For farming operations using a December 31st tax year-end, the deadline is April 15th
  • S-corporation and partnership tax returns are now due the 15th day of the 3rd month after the end of the tax year. This is March 15th for operations using a December 31st tax year-end. 
  • Sole proprietor farms filing Schedule F will keep the April 15th deadline.

 

Deadlines for tax payments

Unlike other tax payers, many farmers are not required to pay quarterly estimated tax payments. However, farmers should pay their taxes due by March 1st in order to avoid late payment interest and penalties. Year-end tax planning can help you forecast your tax liability so that you can make an accurate payment on March 1st if your tax return is not filed by this date. Further, it is important to remember that filing an extension provides more time to file your tax return. The extension does not provide more time to pay your taxes due. If taxes are not paid by your deadline, interest and penalties may be charged.

 

Prepaid expenses

Farmers are allowed to prepay for certain farming supplies. These supplies include feed, seed, fertilizer and similar farming supplies not used or consumed during the year. Through year-end tax planning, AgriSolutions can help you determine which supplies are eligible for this deduction and if prepaying for farming supplies is a good option for you. There are rules that limit the deduction. It's our job to help make sure you follow these rules.

 

Do you have a Net Operating Loss (NOL)?

An NOL is a deduction for expenses incurred in a prior year that you were unable to deduct on your return if you did not have enough income to offset them. For farmers, an NOL can be carried back 5 years and carried forward 20 years to offset income. At the end of 20 years, your NOL will expire and you will lose the tax deduction. Do you know when your NOL will expire? Do you know how much income you should earn each year in order to utilize the NOL before it expires?

 

Basis in a Partnership or S-Corporation

Do you know your basis in your Partnership or S-Corporation? Generally, basis is equal to your investment in the company, plus income and contributions, less losses and distributions. If you have reported losses on recent tax returns, you should confirm your basis. 

Why does this matter? If your partnership or S-corporation reports a tax loss on its return which is larger than your basis, you may not be able to deduct those losses on your personal income tax return. For example, you wouldn’t be allowed to offset other 2017 wages or K-1 income on your personal return with the losses from your partnership in 2017 if your losses are larger than your basis. This could result in taxes due on your personal tax return, form 1040.

 

Recent tax law changes in 2017

The federal government and many states have made or may still make many changes to the tax code in 2017. Do you know how those changes impact you farming operation? We can help you plan for these changes. Through a year-end tax plan, we can show you how these changes impact your taxes.

 

What other options are available?

Have you considered contributing to a Healthcare Savings Account or retirement account? Many types of contributions provide tax benefits. We can show you how these contributions impact your tax results.

 

Know your tax bracket

Did you know that if your 2016 taxable income was $75,300 you were in the 15% tax bracket? However, if your taxable income was $75,301, you would have been in the 25% tax bracket? Through careful tax planning, we can make sure you are aware of where you fall in the tax brackets so that you know what to expect. In some situations, we can find deductions available in the code so your taxable income will fall into a lower tax bracket.

 

Other benefits for farmers

In addition to the items stated above, there are numerous deductions available for farming operations from Farm Income Averaging to the domestic production activities deduction. Let us provide a tax plan to make sure your return includes all available deductions.

 

Free tax return review

 

Disclaimer – Descriptions provided in this article are presented as generalities. There are many factors not listed above which may impact a tax calculation. This article should not be considered legal or tax advice. For advice on a specific transaction, please contact the AgriSolutions Tax Department at taxes@agrisolutions.com.

 

Written By

Mary-Karen Wittman

Mary-Karen Wittman

Senior Tax Manager

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