As farmers, we’re all about getting the most value for our money, particularly when margins are tight. You should have the same mind-set when working with your CPA. A client recently reminded me of the old saying, “More money is made with a pencil than hard labor.”
Staying ahead of deadlines is key to making the most of your CPA. If you meet with your tax professional for the first time in February, his mind is already focused on the impending filing date. In February, your CPA is acting as a historian, going through your prior year results to tabulate and organize your data in order to prepare a historical tax return. If you start planning early and schedule a meeting in November or December, your CPA will have a completely different perspective—and more time—when approaching your financial review and returns.
How proactive are you about preventative maintenance in the middle of harvest? Other than greasing equipment, most farmers are too busy to stop for a thorough inspection, let alone anticipate problems. The same applies to tax accountants. As tax returns come in the door, your accountant and his staff are in process-management mode. The time for proactive and effective tax preparation has come and gone. Of course, there are still reporting and deferring opportunities, but many are missed due to a late start.
During harvest, do you carry a pad and pencil to jot down what needs to be done before you park the equipment in the shed? Chances are you don’t. This is why when preparing for harvest, it’s important to have your mechanic perform a maintenance checkup. You must think about your accountant and tax preparation in the same way. In December, your CPA’s thoughts are focused on what can be done before the new year rolls around, both in terms of tax planning and tax savings initiatives. Schedule an appointment with your accountant as soon as you have an idea of where you stand prior to year-end.
In addition to meeting early, challenge your accountant to share tax savings initiatives to implement before year-end and into the new year. Consider the following:
- Do your children work with you on the farm? If so, are you paying them for their services in non-cash commodities or cash wages, depending on their age? If your child is over the age of 18, it might be beneficial for you to pay them in non-cash commodities. If your child is under 18, cash wages are acceptable and will also avoid social security taxes from a parent sole-proprietorship.
- Should your spouse be an employee if she assists you on the farm? If so, what are the implications of compensating your spouse and what fringe benefits are available to her as an employee?
- Look at all of your household expenditures and determine if you can convert those expenditures to a legitimate business expense. When looking at your itemized deduction Schedule A, start with your health and medical expenses. If your spouse is a bona fide employee of your farming operation would a medical reimbursement plan be appropriate?
- Look at your charitable deductions in comparison to your total itemized deductions. Are you receiving a tax benefit for all of your charitable deductions? If not, consider gifting grain to your favorite charity.
- Contribute to your retirement plan, or set up a retirement plan with automatic contributions in 2016.
There are numerous other opportunities for the tax-savvy farmer. You simply have to challenge your accountant—and allow ample time to explore what’s best for your situation.