Last minute tax tips for the farm

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Taxes
Farmers who were forced to sell livestock due to drought may have an additional year to replace the livestock and defer tax on any gains from the forced sales, according to the Internal Revenue Service.

Hello, Northeast Ohio! Next week’s tax deadline is a few days away and you may be like me, frantically working to get your taxes submitted this weekend. If so, we won’t be alone as, at the close of March, the Internal Revenue Service reported that less than 50% of the expected 168 million returns have been filed.

The good news is we all have three extra days to complete our returns as this year’s filing date has been pushed back from the traditional April 15 deadline because it falls on a weekend. Then, because Washington, D.C., will observe Emancipation Day on April 17, the deadline was further extended to Tuesday, April 18.

And, if you need even more time, you can request an automatic six-month extension. Just remember this is just an extension for the time to file and not an extension of time to pay any taxes which are owed.

I know many of us just hate tax season. However, the tax season is a great time to focus on the fiscal management of your farm operation and to check in on your estate plan. So, before you stuff the tax return into the filing cabinet, I would encourage you to grab a cup of coffee and spend some time in your records.

Garbage in, garbage out

Bruce Clevenger, OSU Extension field specialist in farm management, has challenged farmers to look beyond their tax return when it comes to examining the profitability of their operation. Typically, the Schedule F tax form is completed on a cash basis meaning that income and expenses are reported when cash changes hands. Oftentimes, the reported net income shown on the Schedule F does not accurately reflect what is truly occurring from a farm financial standpoint. This is because revenues and costs can be adjusted to reduce profits for a given tax year. The amount of depreciation reported can also distort net income-especially true for accelerated forms of depreciation.

David Kohl, professor emeritus from Virginia Tech, has said that if management and marketing decisions are being made based on the Schedule F break-even points and profit objectives, the old adage of “garbage in, garbage out’’ most likely will apply.

We encourage you to start by looking at the Schedule F tax return but then to go the next step by plugging in adjustments for accounts receivable, accounts payable, inventory, prepaid expenses, and accrued expenses.

Time to plan ahead

Tax time is also a great time to make sure your estate plan is in order. As we complete our taxes, we receive year-end statements for our financial accounts and investments. These could include checking, certificates of deposits, stocks, bonds, IRA and 401K, mutual funds, life insurance and public and private retirement accounts.

When reviewing these documents, we encourage you to update your personal and farm balance sheet to reflect the market value of each of these assets. At the same time, it is a great time to update the present value for your land, machinery, and equipment on your balance sheet. More information about creating a balance sheet can be found at: https://ohioline.osu.edu/factsheet/anr-64

Having an up-to-date balance sheet allows you to know the value of your estate and how it compares to the current federal estate and gift limitation of $12.9 million. This will be even more important in 2026, when the federal limits are set to roll back to their pre-2017 level of $5 million per person, adjusted for inflation. By knowing your estate valuation, you will be able to develop a plan with your agricultural attorney which will help mitigate any potential estate taxes.

Additionally, as you review your year-end statements, it is important to check each to determine what person, persons or entity has been listed as the beneficiary of the asset through a transfer-on-death and payable-on-death designation.

For most financial assets it is easy to designate a beneficiary and change them as needed. It is important that you review your beneficiaries each year. We have seen cases where an ex-spouse has received an account because the beneficiary designee was never changed after the divorce occurred. So take time to double-check.

Resources

If you are looking for more information on estate and transition planning, make sure to check out the resources from the OSU Extension Farm Office website at: https://farmoffice.osu.edu/law-library/estate-transition-planning.

We have a great resource titled “Getting Your Affairs in Order” which will help you gather all your account information as you develop your farm estate plan. Just drop me an email at marrison.2@osu.edu to receive a copy of this great planning document.

I hope you are in the home stretch of filing your 2022 tax return. And remember Rob Knauerhase who stated, “Isn’t it appropriate that the month of the tax begins with April Fool’s Day and ends with cries of ‘May Day!’?” Have a good and safe day!

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David Marrison is an associate professor and Extension educator, Agriculture & Natural Resources, Ohio State University Extension. He can be reached at 740-622-2265 or marrison.2@osu.edu.

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