6 Tips for Tax Time: Make the Most of the Year’s End
As the calendar year comes to a close, most dairy farmers have already made at least one trip to the accountant’s office. There’s a good chance most dairy farmers have enough expenses to offset low on-farm income this year, but it still pays to pay attention to year-end tax basics. Here are a few tax tips from Paul Neiffer, CPA and principal at CliftonLarsenAllen.
1. Keep Accurate Records
This should go without saying, but your accountant can only work with the information you provide. If your records are incomplete, you could end up paying more taxes than necessary.
2. Pay Your Kids
“If you are a schedule F farmer with children under age 18, make sure to pay them what they really earned this year,” Neiffer advises. “Children with no other income can earn about $6,000 this year tax-free (some states might require a little bit of tax) and the wages paid are completely deductible and even better, no payroll taxes are owed.” He says the child can take those earnings and contribute to a Roth IRA account. If your child puts $5,000 into a Roth IRA at age 17 and lets it compound until age 65, it will grow to about $80,000.
3. Be Generous
If you do not itemize and plan on giving money to your church or other charity at year-end, consider giving a commodity gift instead, Neiffer says. This will reduce taxable income and your selfemployment tax burden if you file a schedule F or are a partner. Similarly, consider gifting grain to your child. “You reduce your self-employment tax, and if they hold the grain for at least a year after harvest you will qualify for longterm capital gains treatment,” Neiffer explains. “If you make this gift, make sure to gift a prior year crop, not the current year crop.
4. Sell Some Grain
Consider selling some grain on a deferred payment contract. “This gives you flexibility after year-end if you need to bring income into 2018,” Neiffer explains.
5. Be Specific
If you plan to prepay expenses to reduce your tax liability, keep in mind they must be for a specific quantity of a specific product. Ask your input company to give you an invoice reflecting what was actually purchased, Neiffer advises.
6. Plan Ahead
Determine if it makes sense to pay an estimated tax payment on Jan. 15 and pay the remainder on April 15, 2018. That could be better for your cash flow than filing and paying your entire tax liability at once.
Fri, 12/22/2017 – 14:45
Source: Dairy Herd