As the year draws to a close, farmers have the coming tax season on their minds. If that dredges up some painful memories from 2019, thanks to changes in the federal tax code and the headaches it caused, that’s to be understood.
Hopefully, the gained knowledge from the learning curve leaves everyone better prepared for the 2020 tax season. To get ready, review your prior tax documents, call your accountant, and make sure everything is in place before the calendar turns on Dec. 31. (While you’re at it, now’s a great time to organize and update your farm records.) In the meantime, here are some tax season issues to keep in mind.
If you traded in new equipment or farm machinery, you may be concerned about getting a nasty surprise on your tax bill. As you may have heard, Minnesota’s tax code doesn’t fully conform with changes to the federal tax code. As a result, some farmers who had claimed a 179 deduction (depreciation) on a 2018 trade-in have started receiving letters from the state advising they now owe income taxes on that gain. If you’re concerned what’s in store for you after a 2019 trade-in, be sure and flag this to your accountant. In the meantime, state lawmakers hope to have a fix for all producers who were ensnared in the discrepancy.
If you’re paying on a bond referendum for your local school district, good news awaits. In 2020 the state will kick in an even higher portion of the bond bill in the form of a credit, which is known as the Ag2School credit. By 2023, this credit should reach 70% of the bond burden.
We hope you saved those receipts from the grocery run to feed the crew during harvest time. Because while you can no longer deduct entertainment expenses, you can deduct 50% of meal costs related to business.
Most of us are familiar with the idea of writing a check to a nonprofit before the end of the year to offset the tax bill. But were you aware that instead of giving cash, producers have the option of donating their commodity to charity to realize some tax benefits? This lets you deduct the costs of cultivating it on your taxes, plus you can also exclude any costs of the sale from your income. If you have stored grain, consult with your accountant to see if a donation makes sense for your bottom line. Just keep in mind you can’t sell the grain and then give the proceeds to the charitable organization, because at that point, it would be considered a straightforward tax donation.
Keeping financial records in order year round makes tax season much easier for farmers. To streamline your account management and get your books in great shape for 2020, turn to Minnwest Bank's agri-business cash management services. We have agri-business account managers in your community, so make an appointment today.