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Farm Tax Planning: Strategies for Agriculture Operations

Navigating accounting and tax services for the agriculture industry can be overwhelming due to abundant information. Managing payments, prepaid expenses, assets, and deductions for farm accounting proves complex. Having a dedicated farm accounting and tax team alleviates challenges understanding the rules and regulations governing farm operations.

If you have a dedicated farm accounting team or consider outsourcing these services, it’s important to know your options to avoid tax-time surprises.

Preview Upcoming Taxes
Engaging tax and accounting services provides insights into potential tax obligations. Their estimates advise on options to address tax liability, like prepaying expenses, making purchases, or seeking additional income. Provide current records for the most accurate information before your meeting.

Prepay Expenses or Not?
Prepaying expenses like chemicals, fertilizer, seed, feed, or farm supplies may benefit your bottom line, though limitations exist.

Crop Insurance Deferment
If you received crop damage payment aligning with standard practices, you may postpone recognizing that crop insurance income until the following year's gross income. Note revenue protection policy payments are ineligible for deferral.

Deferred Grain Contracts
Using smaller deferred grain contracts rather than one large one can work well. The IRS allows electing out of deferred contracts individually. Smaller contracts let you bring income into the current year if you have deductions to cover it, rather than deferring all income.

Purchasing Capital Assets
Purchasing capital assets accelerates depreciation deductions into the current year, but consider if you really need to make a purchase. To get depreciation benefits like bonus depreciation or Section 179, you must receive equipment by year's end. Any trade proceeds count as income.

Retirement Contributions
Options include Simplified Employee Pensions (SEPs) and Individual Retirement Accounts (IRAs). SEP contribution ties to profits and may surpass an IRA in highly profitable years. Use both SEP and IRA before filing, but establish a SIMPLE IRA or 401(k) before year's end.

Our consultants have agriculture/rural expertise to work on farm accounting and tax services. Connect with a local tax and accounting consultant to see if our specialized services fit your needs.

Tax and accounting service availability varies regionally. Contact your local Compeer Financial representative for service details in your area.

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