Does it seem too early to start planning for taxes?

Even though calves await weaning, and crops still stand in the fields, September and October are excellent times to meet with your tax accountant and start looking ahead for tax purposes.

Pre-tax planning allows producers to plan for upcoming income and expenses. Make or hold off on major equipment purchases, sell or wait to sell livestock and crops—pre-tax planning will help avoid unforeseen tax implications of your decisions.

What should you do when planning a pre-tax meeting with your tax accountant?

• Start early. Set an appointment with your accountant. September and October will allow for time to make end-of-the-year decisions. Planning in advance is an advantage for cattle producers, where livestock are not as easy as crops to sell quickly, if needed, and sale checks are sometimes larger. 

• Come prepared. Get your books up to date and bring these to your pre-tax meeting. Email your tax accountant any reports for the year. Electronic bookkeeping programs, like Quickbooks and Quicken, have templates for reports, or you can create a custom report, and share information in Excel or PDF form.

• Look ahead. What are estimated future expenses? Will any additional income come in before December 31? 

• Did you purchase or trade any equipment? Bring the purchase agreements/trade papers for this year’s equipment purchases.

After reviewing the numbers, if your operation has a surplus, what sound business decisions can you make with the profit?

• Estate and transition planning for your operation. Some of your attorney’s fees may qualify as tax-deductible expenses.
• Maintenance and repairs. Schedule a time before the end of the year to repair equipment, buildings, pivots, or make land improvements, such as fence, new tanks or stock wells, or control invasive species.
• Pay down debt, with a plan. According to Tina Barrett, Executive Director of the Nebraska Farm Business Inc, “excess funds are tricky.”  To have extra cash to pay down debt, you need taxable income. “But if someone takes $100,000 and pays down a land note, they may get to the end of the year and realize their taxable income is $100,000 higher than usual. It is not a pleasant surprise, when there is no money to pay expenses,” explains Barrett.  Every situation is different, so ask your accountant about your position.
• Do not spend money on tax deductible expenses, just to reduce tax payments. “If you didn’t spend that $100,000 on stuff that’s not needed, and if instead, you could have spent $30,000 on taxes and $70,000 to reduce debt you would be further ahead financially,” Barrett comments. Again, each tax situation is unique, so ask what works best for your operation.

Ask your accountant how hard it has become, or if it’s still a good plan, to try and meet the March 1 deadline to submit taxes for agricultural producers. An alternative is to make an estimate by January 15, pay the estimate, then producers have until April 15 to file and pay the difference. This can be beneficial with late information, or if income is higher this year than the previous year.

With weaning and harvest around the corner, take the time to prepare and set up a pre-tax planning appointment with your tax account.

For financial planning, budget and decision-making tools, check out our beef producer toolbox.