Maximize savings and limit penalties with these guidelines
Wrapping up taxes for the year might seem about as much fun as having a tooth pulled, but it doesn’t have to be nearly as painful. Here are a few simple steps to help you organize information and prepare to meet with your CPA.
- Keep Good Records. This should be a no-brainer. Yet when life happens, paperwork tends to get pushed to the margins of your desk.
- Chart Taxable Income. Build a spreadsheet in Excel that allows you to periodically update projected taxable income. An initial assessment should take place right after harvest. Include income or losses and anticipated additional income before the end of the year, then subtract any expenses, depreciation or newly purchased assets.
- Even Out Income. Amid uncertainty over Section 179, Neiffer recommends taking advantage of deferred payment contracts. This allows you to sell grain in 2015 but realize payment in 2016. If you ended up experiencing a loss rather than a gain, or Section 179 is approved, these contracts allow you to bring some of that revenue back into 2015 retroactively for maximum financial benefits.
- Soak Up Savings. Amid tight margins, increasing farm income isn’t a bad idea. Most producers should pay taxes in the 15% bracket while soaking up exemptions and itemized deductions. Farmers can also capitalize fall fertilizer they apply for the 2016 crop, meaning they deduct those fertilizer expenses in 2016 rather than this year.
- Pay Appropriate Wages. If you operate as a sole proprietor, use this time to verify you have paid appropriate wages to children under 18.
- Review Pre-Paid Expenses. Understand the rules for these expenses, Neiffer advises. “You can’t simply go down to the co-op and put a deposit down,” he says. “It needs to be for a specific item, a specific cost and a specific quantity.”
- Consider Estate Gifts. If you have a high-value estate operating with limited liability entities, you might consider making gifts of cash to your beneficiaries. The federal annual gift exclusion for 2015 is $14,000 per person. Be sure to document the transfer of the gift before the end of the year, and make sure the check is cashed in 2015 or else you will not be eligible.
- Examine Retirement Vehicles. For producers reaching retirement age, review Social Security benefit elections with your adviser before year-end to ensure you don’t miss financial opportunities.
Paul Neiffer explains further: