Most farmers usually file their income tax return by March 1 of each year. If a farmer files AND pays their tax in full by that date, they are not required to make any estimated taxes for the year. If they do not file by March 1, then they are required to make one estimated tax payment on January 15, 2015 and then pay in full any remainder tax due by April 15, 2015 (for 2014 tax returns).
Most other income tax payers are required to make four quarterly tax estimates beginning in April and ending in January. A farmer is only required to pay the LESSOR of:
- 66.67% of their 2014 tax liability or
- 100% of their 2013 tax liability
In many cases, it is much better to make this required estimated tax payment and wait until April 15, 2015 to file your 2014 tax return. The best scenarios for this involves a very small tax liability in 2013 and a very large liability in 2014. For example:
Assume Farmer Johnson owed $1,000 in total tax liability for 2013. He is a dairy farmer and for 2014, he expects to owe $1 million of federal income tax. If he pays $1,000 on January 15, 2015, he is not required to pay the remaining $999,000 until April 15, 2015. By using this method to file, he gets the use of the extra $999,000 from March 1 until April 15. Now, let's assume that the Farmer Johnson does not make his estimated tax payment on January 15, 2015, but simply pays the $1 million of tax owed on April 15. In this case, Farmer Johnson is subject to an estimated tax penalty; however, it is only based on the $1,000 that he did not pay on January 15, not the $1 million owed on April 15, 2015. The penalty is simply an interest calculation at 3% and would result in about $8 of extra tax owed. For many farmers, they would probably not want to be bothered with writing a check and filing out the estimated tax voucher for this amount.
Therefore, if your tax for 2013 was very low and your tax for this year will be very high, talk this over with your tax advisor to see if it makes sense to pay an estimated tax payment on January 15 and wait until April 15 to make the final payment.
In many cases, it makes sense to do this even if your tax liability is about the same for both years. This is especially true when you have investments in stocks, bonds and mutual funds or investments where you need to get a schedule k-1. Many of these do not show up until Mid-February at the earliest and in many cases, they are amended later on.