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Tax Planning Important In Good Economic Year | |
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“Most farmers won’t take any action until December, but they need to get their ducks in a row now.”
David Heisterberg, coordinator of the Kentucky Farm Business Management Program |
By Laura Skillman PRINCETON, Ky. (Oct. 27, 2004)
– With 2004 being a year of good livestock prices and bumper grain production,
farmers need to be planning now to address income tax issues they will be
facing. Cash receipts for agricultural
products are expected to increase five percent this year due to continued
strength in commodity prices and higher volumes. Demand for beef and pork
continue to be strong and dairy prices improved, leading to good markets for
producers. Corn and soybean harvests are under way and excellent yields are
being reported. “Overall about all the
commodities are having a good year,” said David Heisterberg, coordinator of
the Kentucky Farm Business Management Program, a plan of the University of
Kentucky College of Agriculture. Many
grain farmers defer sales from one year’s crop into the next so many farmers
may have sold some of the 2003 crop that year but waited until early 2004 to
sell the remainder capturing high prices and looking at a bumper crop in 2004,
he said. With this scenario, paying
taxes may be inevitable but properly managing taxable income will result in the
minimum amount of taxes being paid. For proper planning, good records are
essential, he said. Without good, accurate records, farmers can’t know where
they stand. The KFBMP can assist farmers in
keeping accurate records. The program helps farmers track financial performance,
determine the profitability of individual enterprises, improve management
practices, complete tax returns, set business and personal goals and make sound
management decisions. The program also helps improve farm management of
non-member farms by providing factual economic information about Farmers should consult with a
qualified tax advisor to establish a plan prior to the end of the year. The
advisor should be able to provide details and regulations concerning deferred
sales contracts, prepayment of expenses and other possible planning measures. “Most farmers won’t take
any action until December, but they need to get their ducks in a row now,”
Heisterberg said. Under no circumstances should
sound marketing practices for grain or livestock be abandoned in order to defer
income to a later year, Heisterberg said. Instead there are several tax
management strategies to utilize. Prepayment of 2005 operating
expenses is the most commonly used strategy but to be deductible, the payment
must be for a specific quantity of specific inputs. Another strategy would be to
use accelerated depreciation on equipment or other capital gains. But remember
the first criteria in using this strategy should be that the purchase of
equipment be based on need for the item without tax considerations, he said. If
the equipment is justified from a management standpoint, then the most
advantageous use of it can be made for tax purposes. “The goal of any business is
to make money and if you are spending money you don’t need to for your
business, that’s not wise management,” he said. “Don’t be afraid to pay
some taxes. This year is going to be a high tax year, but next year could be
worse without proper tax planning.” Farmers need to keep accurate
information on breeding livestock which is handled differently than other
livestock for tax purposes and Phase II tobacco payments which are not taxable
in “The goal is to keep income
level,” he said. With the volatility in farming,
that may not always be possible, Heisterberg noted a look at the five-year
history of someone who manages their income and tax situation well will show a
pretty level track. For more information on tax
planning or the Kentucky Farm Business Management Program contact a local
Cooperative Extension Service office.
-30- Writer: Laura Skillman 270-365-7541 ext. 278 Source: David Heisterberg 270-886-5281 Return to Main News page. |