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Tax Planning Success Lies in the Details

Navigating tax and accounting services within the agriculture industry can be overwhelming due to the abundance of available information. Managing decisions involving payments, prepaid expenses, assets and deductions can be complex. Having a dedicated team focused on tax and accounting within this niche area can alleviate the challenges of understanding the rules and regulations governing farming operations.

Whether you have a dedicated tax and accounting team or are thinking about hiring out for services, it’s important to know what your options are so you can avoid any surprises at tax time.

Preview your upcoming taxes
Engaging a tax and accounting service can provide insights into your potential tax obligations. By utilizing their estimates, they can advise you on various options to address your tax liability. Prepared to answer  questions such as whether you want to prepay expenses, make purchases or seek additional income. Prior to your meeting, ensure that your records are current to provide the most accurate information possible.

Prepay or not to prepay
It may be beneficial for your operation to prepay expenses like chemicals, fertilizer, seed, feed or other farm supplies. Though there are some limitations, it may be worthwhile for your financial bottom line.

Crop insurance deferment
In cases where you have received payment for crop damage and the situation aligns with standard business practices, it may be possible to postpone recognizing crop insurance income. The postponement implies that income from the sale would be included in gross income the following year. Note that revenue protection policy payments are ineligible for this deferral opportunity.

Deferred contract on grain
The option of using a deferred contract on grain can work well but should be set up in smaller contracts versus one large one. The IRS allows you to elect out of the deferred contract on a contract-by-contract basis. Having a smaller contract will allow you to bring income into the current year rather than deferring all the income if you have deductions in the current year to cover additional income.

Purchasing capital assets
Though purchasing capital assets allows for accelerating depreciation deductions into the current year, it’s important to think about whether you really need to make a purchase. To take advantage of depreciation benefits like bonus depreciation or Section 179, you need to receive the equipment by the end of the year. As a reminder, any trade proceeds received from a purchase are considered income.

Contribute to a retirement plan
Several retirement contribution options exist, including a Simplified Employee Pension (SEP) and an Individual Retirement Account (IRA). The contribution amount for an SEP is tied to your business’s profit  and may surpass that of an IRA during highly profitable years. Notably,  you can use both an SEP and IRA before filing your tax return. However, you will need to establish a SIMPLE IRA or 401(k) before the tax year ends.

Our dedicated consultants have the expertise and knowledge to work with clients in agriculture and rural America. Visit to learn the latest on tax and accounting and to connect with a local tax consultant to see if our services are right for you.

Tax and accounting services are subject to regional availability. For information about service availability in your area, please contact your local Compeer Financial representative.

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