How To Save Money On Income Taxes – Ag Matters

The only thing worse than Mondays may be taxes.  And the only thing worse than taxes is preparing all that paperwork.  Bonnie Collins with Cornell Cooperative Extension says it's still not too late to make adjustments to save money on your income taxes.

Having accurate and up-to-date farm records is a must. You need to know where you stand and to make projections for the end of the year.

Gather income and expenses from all sources that you have year to date. This should include any purchases of, or sale of, capital equipment or improvements.

Classify the different types of income sources and expenses by farming operations, investments, and personal.1 For example, separate cull cows from breeding calves, the reason being the cull animals, are subject to capital gains and are taxed at a lower rate.

Farm income includes the sales of both raised and grown products, custom work or farm related services, cooperatives, barter income (at fair market value), refunds and reimbursements. However, rents received for farm land use is reported as rental income on Form 4835. Money received from the sale of farm assets such as machinery and equipment, buildings and land would be reported on Form 4797.

Farm expenses that are ordinary and necessary in farm production are part of the farming operations, where payments for improvements to machinery and buildings must be capitalized (depreciated) it if prolongs the useful life of the asset. Utilities, property taxes, and insurance maybe partly personal and partly business. As the personal amount is not deductible choose a reasonable approach to allocate the business portion. Also do not forget you are allowed to deduct the cost of using a truck or auto using the actual or standard mileage rate method.

Take your income and expenses through the end of the year by what you have already done, what needs to be done (pay employees-minimum wage will increase to $9/hr. on Dec. 1, 2015), etc.) and what you could do (invest in or sell equipment, pre-pay supplies, etc.).

Then meet with your tax advisor to develop and analyze your options based on the information, while being aware that what you do this year can affect future year’s tax liability.

Somethings to concern in tax planning:

· Delaying income until next year.
· Using the Section 179 direct write-off of the cost of depreciation assets.
· Prepay allowable expenses before January 1st.
· Making contributions to an IRA, SEP, of SIMPLE retirement account.
· Paying down existing liabilities.
· Leasing of depreciable business assets.
· Consider Income averaging

The tax burden is never easy and is not going away anytime soon. That makes it more important than ever to figure out where your profits are before the end of the year and plan accordingly.  When it comes to financial planning, Cornell has plenty of helpful guidelines and workbooks at their website.

SOURCE: Cornell Cooperative Extension - Bonnie Collins