Tax Calendar

Take control

Meet with your accountant before the end of the year to discuss your financial situation and what tax bracket you’re going to be in. With enough time, you may be able to bring in additional income if you’re facing a net loss, or you make a purchase if your income is too high.

Frequent tax planning strategies

There are a variety of ways to decrease and increase taxable income that can be used year in and year out. Not all of them may be applicable given your operation’s circumstances but are important for you to have on your radar.

Methods to decrease taxable income

• Farm income: Averaging all or some of your farm income using rates from the three prior years. • Common expenditures to reduce taxable income: Prepaying inputs and other allowed items, capital expenditures, and retirement contributions. Depending on your entity structure, retirement plan contributions can be significant, especially for selfemployed individuals via a SEP, simple or other qualified plan. This also establishes retirement assets outside of the farming operations. Diversification is a good thing! • Healthcare deductions: Create an employee benefits deduction to allow for business deduction of these expenses. • Selling under a deferred contract: You can sell grain before the end of the year, but not be paid until after the first of the next year.

You then have flexibility to decide, after the fact, if you need additional income in the year that the crop was sold. Make sure you sell in several small contracts rather than one large contract to provide more flexibility for when to show income. Also, consider the risk of collection in your decision-making process.

Methods to increase taxable income

• Election to capitalize repairs rather than expensing them: It can be adjusted annually. • Maximizing depreciation methods, including direct and bonus expenses: Try to never depreciate your way out of standard deductions and exemptions. • If a farm loss is inevitable, common ways to increase income include: IRA distributions,

IRA to Roth IRA conversions, and sale of non-farm capital assets (i.e., stocks). An IRA to Roth IRA conversion generates taxable income on the tax return, but the earnings are tax free. Any farm losses may be offset by the income generated from the rollover and no income taxes would be owed on the money rolled into the IRAs.

2021 tax changes to think about

Advance Child Tax Credits: If you have qualifying children under 18, and did not opt out of receiving monthly payments, by now you have received months of advance payments in 2021. These payments will impact your net tax position when you file your 2021 tax return. Keep good records of the payments you’ve received and give it to your tax accountant! More details on this topic can be found in the article, Advance Child Tax Credits on our website, www. greenstonefcs.com. Payroll Protection Program (“PPP”) proceeds are tax free: This goes into the bucket of “everything is important”. Make sure your tax accountant knows where you recorded this in your records. If not communicated, these amounts could be erroneously included in taxable income or as a reduction of expense on your income tax return. Overcommunicate! Potential changes in tax rules under Biden’s American Families Plan (AFP) proposal: President Biden’s AFP proposal outlines tax law changes – predominantly focusing on individuals that earn more than $400,000 annually. The proposal includes higher tax rates for ordinary income, higher tax rates for capital gains, elimination of tax-free-like-kind exchange gains exceeding $500,000, and numerous other items. The AFP has not been passed and as of the date of this article we’re not aware of when Congress may vote on the plan. Keep watch for updates and discuss the potential impact with your tax accountant. Farmer March 1 tax deadline – buy yourself some time by making an estimated tax payment! Many farmers have the understanding that their income tax returns are due by March 1 each year. While that is one of the deadlines, it doesn’t have to be the case for all farmers. Read our article titled “Why you may want to plan to not file your taxes by March 1 each year” on our website, www.greenstonefcs.com, to learn how to buy yourself until at least April 15, maybe even October 15, to file your return by simply making an estimated tax payment by January 15. Ask your tax accountant when your return is actually due and if making an estimated payment is an option for you. We’re finding this option more and more helpful to farmers given all the tax complexities and the timing of receipt of year end forms.

OCTOBER

15

Individuals file a 2020 income tax return (Form 1040) if an automatic six-month extension was requested (5 months from extended tax deadline of May 17 in 2021 due to COVID-19). Corporations file a 2020 calendar year income tax return (Form 1120) if you requested an automatic six-month extension (5 months from extended tax deadline of May 17 in 2021 due to COVID-19).

Non-farm employers file Form 941 for the third quarter to report wages paid, and social security, Medicare, and income tax withheld from wages, and compute employer matching social security payments.

31

DECEMBER

15

Corporations deposit the fourth installment of estimated tax for 2021.

Paying some tax is actually a good thing!

You’re probably cringing reading that line – but it’s true. Paying tax means you’re making money, which should be the goal of running a successful farming operation. Paying federal income tax builds up your future Social Security / disability earning potential. You should always manage to maximize the 10% and 12% effective tax rate brackets. Try to avoid taking out loans simply to buy equipment to avoid taxes. You save taxes in year one, but you have the loan payment for years to come, which can cause you to continue to feel cash poor.

An ever-changing 2021

Every operation needs special attention, especially in more-complicated years. Our tax accountants at GreenStone Farm Credit Services realize this, and we’re ready to work with you on your individual needs. Please don’t hesitate to contact us - it’s never too early to plan for taxes. ■