SALEM, Ohio – It’s the middle of December. Do you know where your farm finances stand?
Look at your record book – is the last entry from Jan. 13, 2004, despite your resolution to keep up-to-date this year? Do you even have a recordkeeping system, whether it’s electronic or in the old red book?
Ohio State Extension farm management specialist Dave Miller says it’s a good idea to sit down and pencil out your true financial footing before going on any Christmas shopping sprees.
“It’s been a good year for a lot of farmers, and they’ll likely have tax liabilities to pay this year. Where are you going to get money to pay your tax bill?”
It’s not all bad to have to pay taxes, Miller said. That means you made money this year. But managing your liabilities can help you get the most deductions and exemptions possible. Miller offers the following advice:
Reduce taxable income in a high-income year
* Hold crops, livestock or equipment to sell after Dec. 31. Income from those will go on next year’s records.
* Sell farm goods under deferred payment contracts. Truck a load of soybeans to the local elevator, but contract for them to hold payment until after Jan. 1, 2005.
* Pre-purchase diesel fuel, seed, chemicals and other inputs before Dec. 31.
* Buy and place depreciable equipment in service before Dec. 31. Ask your tax adviser about Section 179 and other depreciation methods.
The key here is the equipment must be available for service. You won’t use the new hay baler in the back shed until spring, but it’s available for service and can be written off. The new tractor at the dealership up on blocks waiting for the set of tires you requested doesn’t count.
* Put money into an IRA. Force yourself to put in as much as you can, as often as you can.
If you’re planning on depending on the farm operation well into your retirement, you’re setting the farm up for difficulties in transfer to the next generation.
Increase taxable income in a low-income year
This method keeps income high enough to be able to take advantage of exemptions and deductions in years when crops may have failed or milk prices were low.
* Pay bills after Dec. 31. Keep as much money as you can in this year’s account to take advantage of tax exemptions and deductions.
* Sell something. Add a little income to this year’s account by selling crops, livestock or used equipment.
* Use straight line or alternative life depreciation on new items. Don’t use Section 179 or first-year depreciation. Consult your tax adviser for more information.
* Don’t put new equipment in service until after Dec. 31.
* Collect money owed to you.
For more information, consult your tax adviser or refer to the Internal Revenue Service’s Farmer’s Tax Guide, available online at www.irs.gov/businesses/small/farmers/. The site also features other tips and links to regulations and other resources.
(Reporter Andrea Myers welcomes reader feedback by phone at 1-800-837-3419, ext. 22, or by e-mail at email@example.com.)