With another growing season behind you, and another year winding down, without a doubt, tax planning is on your mind.
If you haven’t already made the appointment, now is the perfect time to meet with your tax professional so you can make those important decisions about end-of-year spending and selling that will help you keep as much cash in your pocket as possible when tax time rolls around in 2018. Even small decisions can add or subtract a few thousand dollars from your ledger. Here are three key considerations for this year's planning:
What's the best income reporting strategy?
Tax experts talk about smoothing out farm income, because if your income tends to fluctuate, it can cost you. One clear tax solution is transferring income to 2018 when possible. Of course, most soybean and corn producers are in a position where they have no choice but to store this year's harvest. Even so, that's not necessarily the only option. Even with low corn and soybean prices, carryover inventory may actually drive up your income from years past. And that's why even in a down year, farm income averaging might be a sound tax strategy.
The balancing act of deductions
Deductions are an important part of any producer's tax planning. Here is a checklist of possible year-end decisions that can give your deductions a springtime lift:
- Purchase next season's operating inputs, so you can get the most heft from your deductions. As a bonus, prepaying often means lower prices, but do your research to get the most bang for your buck.
- Pay into your retirement account.
- Pay your kids a wage for their work (and invest it in a Roth IRA in their names).
- Purchase capital assets that are on track for the next year.
- Contribute a year-end donation to your place of worship or charity.
- Pay incurred interest.
What should we be doing in 2018?
With federal tax reform flying and reconciling through Congress, planning ahead is tough. Even so, ask your tax preparer for advice and insights for the coming year. At the same time, be sure and talk about potential savings on your state tax bill. For example, you may have heard about a new tax credit for Minnesota farmers who sell or rent land and equipment to those who are new to farming. The idea is to provide young farmers a way into the industry. If you have land or
equipment to share, this is a great opportunity to give back, while gaining a small reward for your efforts.
Everyone's operation is different, there are many factors to consider, from tax benefits to long term outcomes, to take into making these decisions at tax time. Discuss your options and the possible outcomes with your tax adviser, so you can make the most informed decision at tax season.
As you finalize your end of year tax planning, your lender at Minnwest Bank is there to help you discuss your options. Set up an appointment today.
