Farm Tax Planning Likely a Good Idea for Most in 2020
Article By: Jeff Poeschel, Sundstrom & Company, Inc.
2020 is potentially shaping up to be a profitable year for many farmers. Commodity prices, in general, have been up, down, and everywhere in between. Several government programs like the Commodity Food Assistance Program (CFAP), the Payroll Protection Program (PPP), and the WI Farm Support Program have generated significant revenue for many. Undoubtedly, 2020 has been a wild ride for farmers. It will make sense for most farmers to work closely with their tax accountant as 2020 winds down to be sure the farm income and expenses are managed in a way to plan and minimize taxes where possible.
Tax planning really begins after you figure out what your projected 2020 taxable income will be. Some basic ideas on ways to help manage your 2020 tax liability would be:
- Prepay expenses.
- Make capital expenditures and use Section 179 expenses to write them off.
- Defer income using a deferred payment contract
- Defer crop insurance proceeds.
- Contribute to a retirement account such as an Individual Retirement Account (IRA).
- Contribute to a Health Savings Account (HSA).
- Defer your Required Minimum Distribution (RMD) if over 72.
- Make a charitable donation.
- Delay applying for forgiveness on any PPP loan proceeds received.
Working on your tax planning strategy as the year concludes can often save a lot of unnecessary tax. Most of the above tax planning strategies need to be implemented before year-end, which makes advanced planning critical. Several of the above strategies are often used together to produce the result that makes the most sense for the farm.
Tax planning can happen at any time during the year. Some farmers like to get an idea of how the farm is performing before the fall harvest. Other farms like to wait until the fall harvest is complete. The main goal should be to complete the planning process with plenty of time left before the year concludes to implement whatever strategies have been decided on.
A few hours of tax planning before 2020 concludes can help your farm avoid potentially thousands of dollars of tax due by March 1, 2021.
Jeff Poeschel is a certified public accountant with Sundstrom & Company, Inc., a team of local accountants located in Durand, WI. The firm specializes in tax preparation and business services. For more information, contact him at 715-672-4425.