Experts offer tips for filing taxes

Tax time is a busy time of year for many producers in many ways, but navigating taxes can be an added challenge.

However, tax experts offer producers a few tips to consider to reduce their tax burden. They suggest tackling them proactively and having accurate recordkeeping, including documentation of all income sources, expense receipts and records of asset purchases and sales. 

Taking these steps can create a smooth and efficient tax filing process, while also leading to increased savings, preventing audits and the opportunity to maximize a refund.

“Agricultural producers need to understand the specific tax forms required for farming operations, such as Schedule F for reporting farm income and expenses, are essential,” states North Dakota State University (NDSU) Extension Farm Management Specialist Ron Haugen. 

Haugen provided producers with the opportunity to learn and ask questions during a virtual tax management program, held in late November and sponsored by NDSU Extension and the Internal Revenue Service (IRS), featuring presentations from both sponsors, plus Ag Country Farm Credit Services and the University of Minnesota Extension.

“Farmers should also be aware of any changes in tax laws that could affect their filings,” Haugen adds. “Utilizing tax software or consulting with a tax professional can ensure accuracy and compliance.”

Understanding the nuances of tax deductions and credits is crucial for producers who aim to maximize their savings, while also reducing stress during the tax season.

Income tax planning

According to Haugen, when tax planning, it is best to start with year-to-date income and expenses and estimate them for the remainder of the year.

“Estimate depreciation and include any income that was deferred to 2023 from a previous year. It is best to try to spread out income and expenses so producers don’t have abnormally high or low income or expenses in any one year,” Haugen continues.

Producers have until March 1 to file their 2023 income tax returns without penalty if they have not made estimates.

“Qualified farmers have until April 15 to file without penalty if they have paid their estimated tax deposit by Jan. 16,” he reports. “I would encourage producers to think about making a deposit by Jan. 16 if it looks like that will have a tax liability. This would give them more time to prepare their return and file on April 15.”

Haugen reminds producers like-kind exchanges are not allowed for personal property but are allowed for real property, Section 179 expense has increased and for most new agricultural machinery and equipment, except grain bins, the recovery period is five years.

Other tax planning

items to note

During the program, experts explained crop insurance proceeds can be deferred to the next tax year if a producer is a cash-basis taxpayer and can show normal income from damaged crops would be included in a tax year following the year of the damage and would include prevent plant insurance payments.

“For those who have crossed into the new year but still need a way to lower 2023 taxes, contribute to a simple individual retirement plan or a health savings plan. Both are great tools for helping bring taxes down but save taxes overall for the producer,” Haugen continues.

Another planning tool is to defer income to 2024.Crop and livestock sales can be deferred to the next year by using a deferred payment contract. 

Haugen further notes most grain elevators or livestock sale barns will defer sales until the next tax year, but producers should be aware of if they are at risk of the business becoming insolvent before the check is received and cashed.

An important consideration for producers who had to sell livestock because of drought is the IRS has two provisions for deferral. 

According to the IRS, the first one is IRC 1033(e), in which a livestock producer who sells more draft, breeding or dairy animals than normal due to weather-related conditions may defer recognition of the gains for up to two years, and a disaster declaration is not necessary. But, if there is a federal disaster declaration, the replacement period is four years. 

The IRS’s second provision is IRC 451(g), in which a livestock producer who uses the cash method of accounting can elect to defer for one tax year the income of any qualified livestock sold due to weather-related conditions.

The U.S. Department of Agriculture has created an online tool which provides agricultural producers with a source for agriculturally-related income and self-employment tax information which is both easy to understand and continually updated to reflect changes in tax laws. 

Melissa Anderson is the editor of the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.