Year-end tax management strategies

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BLACKSBURG, Va. – Income tax management is an important part of sound business management, and this year, that’s even more critical.

A major goal of tax management is to minimize taxes over a period of years rather than just in the current year. Having historical farm records, to determine a “normal” income pattern over a multi-year period, enables you to use tax management when the estimated net income in a current year falls outside the normal pattern.

Good times. There are some ways to delay income or accelerate expenses in good financial times:

* Use deferred sales contracts;

* Make bona fide advanced purchases of feed and fertilizer;

* Postpone some sales until next year, culls for example;

* Fully utilize “Section 179” depreciation;

* Make major machinery/equipment purchases in the current year; and

* Fully fund IRAs for you and your spouse.

Bad times. Conversely, there are other ways to increase net income in the poor year:

* Speed up marketable grain, hay and/or livestock sales;

* Postpone major investments;

* Forego “Section 179” depreciation;

* Schedule bill payments into the next year if possible; and

* Do off-farm or custom work.

Your tax management strategy must be consistent with the farm business management plan. Making a profitable management decision is always more important than making a decision resulting only in saved taxes.

Also beware of managing net income so that it is consistently very low or even negative. You family’s future Social Security benefits will be severely impacted by this strategy.

In addition, you need to generate at least enough net income to take full advantage of available personal exemptions and deductions.

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