March 1 is often labeled the “Farmer Due Date.” It’s not a due date for tax returns, but it feels like one. Farmers who file by this date are not required to pay a tax estimate on Jan. 15, but it has become difficult for farmers to meet this deadline.
The fourth quarter (i.e., Jan. 15) estimate is not required if the tax return is filed by Jan. 31. Of course, farmers have special provisions.
Calendar-year farmers who do not pay estimated tax can avoid estimated tax penalties by filing their individual income tax return by March 1. Or, they can pay one estimate by Jan. 15 of at least two-thirds of the current year’s tax or 100% of the prior year’s tax and then file by April 15.
Listen to Paul Neiffer discuss tax timing with Chip Flory on AgriTalk:
A TAX HISTORY LESSON
Tax returns were originally due March 1 (1913 to 1917) then changed to March 15. Farmers received an extra month to prepare the 1954 tax returns as part of the changes in creating the 1954 Code. Changes over the years have compressed the time frame. Require-ments to e-file prevent filing until the IRS opens the system in late January.
W-2 forms often are not released by employers until near Jan. 31. With new technology, wealth and investment opportunities, more farmers have invested in partnerships, which are not due until March 15 and are typically extended until Sept. 15.
UNDERSTAND THE COSTS
Too many farmers, even large-scale operations, insist on filing their individual tax returns by March 1. It’s the date their parents and grandparents filed. They are proud to be part of an exception, but it comes at a cost.
The opportunity to participate in a partnership should come with the understanding a Schedule K-1 will not be received in time to prepare the individual income tax return by March 1. The filing of an amended return increases IRS audit risk and adds preparation cost. Plus, responding to IRS letters increases anxiety and cost.
Paying a Jan. 15 estimate allows at least 45 more days to file the individual tax return, which is more efficient. If this year’s tax is high and the prior year’s is low, paying the Jan. 15 estimate can earn the farmer a healthy return.
For example, if 2021’s tax was $1,000 and this year’s tax is $200,000, the earnings on $199,000 for 45 days can be substantial (6% interest equals $1,472).
NOT PRACTICAL OR POSSIBLE
Farming has changed since 1955. March 1 filing might have been appropriate in 1955, but it is not practical (and often not possible) today.
Read more from Paul: The Farm CPA blog.
Hear more from Paul on the Farm CPA Podcast.
Paul Neiffer is a tax principal with CLA and author of the blog, The Farm CPA. He grew up on a farm in central Washington and still resides in the state.
