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Should Farmers Pay Quarterly Estimated Tax or File by March 1st?

Dec 04, 2018
Agribusiness

You may have heard that farm tax returns are due by March 1, but you also may have heard that farmers are required to pay quarterly estimates. So which guideline do you need to follow?

Most people are required to pay their taxes as they earn their income all year long, either through income tax withholding from their wages if they are a W-2 employee or by paying quarterly estimates. If someone fails to pay in the required amount, they may be subject to underpayment penalties and interest with their tax return, even if they pay the total amount due with their return when filed by April 15. The required amount is based on either paying in 110% of the tax in the previous year (100% if your income is below $150K for married filing joint) or 90% of the tax owed for the current year.

However, there is a special provision for farmers. The provision qualifies farmers if more than two-thirds of their gross income comes from farming in either the current year or the prior year. This allows farmers an exception to paying quarterly estimates by either paying a single estimate by January 15 of the following year (a fourth quarter estimate) or by filing and paying their taxes in full by March 1.

In recent years, it has been problematic to file and pay taxes by March 1 for a variety of reasons. The first reason is many brokerage statements are not received before March 1, and when they are received, many of them are subsequently amended. A second reason is that with so many changes in the tax law, often the IRS has not released final forms by March 1. I would expect this to be an issue this year with the magnitude of the changes effective in 2018. In addition, because of these changes, we will likely continue to see final regulations and new guidance being issued well into 2019. If your return has already been filed, it could result in the need to file an amended return to take advantage of a provision or comply with a requirement.

These issues make a strong case for year-end tax planning with your tax professional, especially considering the large changes in the tax code made by the Tax Cuts and Jobs Act (TCJA). I would highly recommend making an estimated tax payment by January 15, 2019. This will allow you to avoid any underpayment penalties and take the pressure off to allow you to file your tax return by April 15 (or October 15 if you file an extension).

If you have any questions or would like one of Wipfli’s qualified tax professionals to calculate an appropriate estimate for you, please contact us today.

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