Tax Tips: How Deferred Payment Contracts Work

December 26, 2016 12:00 PM
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If farmers end up prepaying too much on farm expenses, they might consider taking advantage of a deferred payment contract, says Paul Neiffer, CPA and principal at CliftonLarsonAllen, and’s The Farm CPA blogger.

“If he sells his crop in 2016, the deferred payment contract is going to call for payment in ’17. But the tax law allows us to either report that … in 2017 … [or] elect to bring it into income in 2016. In certain situations, that makes a lot of sense.”

That’s because the mechanism allows farmers to “bring that income into 2016, offset those expenses and hit our optimum tax liability.”

For producers who owe money, Neiffer says, several options are possible to reduce tax liability including:

Prepaying some of next year’s input expenses for things such as fertilizer, seed, gasoline and diesel

Purchasing equipment to take the Section 179 deduction of $500,000

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