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Your Farm Business

Tax management strategies for farmers

November 19, 2010
From Wayne Schoper and Rich Baumann, South Central College

The 2010 crop has been harvested and now some end-of-year jobs need to be done. One of these is planning to manage your 2010 income taxes. Thinking about tax planning and management strategies now (and actually all year long) is a vital component of good overall farm business management, and can add to your bottom line.

With the current volatility of farm commodity prices and production input costs, tax considerations become even more important in the decision making process. The operation and management of most farm businesses requires the handling of a large volume of money for current operating expenses as well as considerable capital investment. Farm revenue and expense, unfortunately, tends to fluctuate greatly from year to year for a number of reasons. Generally, after tax dollars will be the greatest when the year to year variation in taxable income can be held to a minimum. Therefore tax planning should begin early enough in the year so that the proper timing of sales, purchasing of operating inputs, and capital investments can occur. Try to avoid wide fluctuations in taxable income from year to year.

An attempt should also be made to maintain taxable income that will at least equal your standard deductions and exemptions; and hopefully high enough to utilize any tax credits you may be allowed. Many of these deductions and credits do not carry forward and are lost if you do not report income high enough to cover these items. This is especially a concern if you are carrying a larger commodity inventory at the end of the year compared to the inventory brought in at the beginning of the year.

Article Photos

Rich Baumann and Wayne Schoper

Any building improvements and equipment needs that have been put off during the lower profit years may fit in nicely on higher return years. This can give you some added expenses and deductions in a year that you need to offset income through the use of 179 depreciation expensing and bonus depreciation. However, the business manager should be cautious, and purchase capital needs that fit into the farm's typical cash flow and meet the goals and objectives of the business, not just the tax goal.

If you have not already done so, tax planning and management for 2010 should be done now. Information you will need to assemble include your 2010 farm records done up to date, projections of any income and expense you are planning on for the rest of the year, an estimate of your depreciation for the current year and the previous year tax information.

If you would like to learn more about tax management strategies for your farm business, contact Wayne at 794-4241 or Rich at 354-7836. (Some of this information is from Greg Dvergsten, Farm Business Management Instructor, Thief River Falls.)



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