As the calendar year comes to a close, most operators already have made at least one trip to the accountant’s office. Although nothing has been sorted out on tax reform, year-end tax basics are the same. Here are a few tips from Paul Neiffer, Top Producer columnist and principal at CliftonLarsonAllen.
- Keep Accurate Records. Your accountant can only work with information you provide. If records are incomplete, you could end up paying more taxes than needed.
- Pay Your Kids. “If you are a Schedule F farmer with children under age 18, make sure to pay them what they really earned this year,” Neiffer advises. “Children with no other income can earn about $6,000 this year tax-free (some states might require a little bit of tax). No payroll taxes are owed.” Children can take those earnings and contribute them to a Roth IRA. If your child puts $5,000 into a Roth IRA at age 17 and lets it compound until age 65, it will grow to about $80,000.
- Be Generous. If you do not itemize and plan on giving money to your church or a charity at year’s end, consider giving a commodity gift instead, Neiffer says. This will reduce taxable income as well as your self-employment tax burden if you file a Schedule F or are a partner. Similarly, consider gifting grain to your child. “You reduce your self-employment tax, and if they hold the grain for at least a year after harvest, it will qualify for long-term capital gains treatment,” he says. “Gift a prior year crop, not the current year crop.”
- Sell Some Grain. Consider selling some grain on a deferred payment contract. “This gives you flexibility after year-end if you need to bring income into 2018,” Neiffer says.
- Be Specific. If you plan to prepay expenses to reduce your tax liability, keep in mind those expenses must be earmarked for a specific quantity of a specific product. Ask your input company to give you an invoice.
- Plan Ahead. Determine if it makes sense to make an estimated tax payment on Jan. 15 and pay the remainder on April 15. That could be better for your cash flow than filing and paying your entire tax liability at once.
All Eyes On Possible Tax Reform
Lawmakers are in negotiations over tax reform, but it’s unclear how long the process will take. One thing producers can know for certain is the estate tax is on the chopping block. Avoid making big revisions to your estate plan, says Paul Neiffer, CPA and principal at CliftonLarsonAllen.
“It’s best to wait until this is all sorted out before making major changes,” Neiffer says. There is some concern about step-up in basis being eliminated with the estate tax. “[Farmers] could end up paying more without an estate tax,” he says. Most Washington policy analysts expect tax reform to near completion before the end of the year. The White House says tax reform is on its list of legislative priorities for completion this fall.