Ag Conversations


3 things to think about at tax-planning time

Dec 07, 2020
By: Justin Van Zuiden

December is here, which means it’s time for farmers and ranchers to do some year-end tax planning. Harvest season is over for many, and attention has turned to reviewing financial results for the year. Here are three things you need to think about with regard to year-end planning.

1.  Your current income level

This is the first thing most people want to review. How much profit have I made this year, or do I have a loss? Farmers have the unique ability to control the timing of their income and expenses more than individuals in other industries or businesses, so this can be used as an advantage.

If your income is lower than in previous years or if you are showing a loss, it might be wise to consider bringing in some additional crop sales in the current year. Alternatively, if your income is higher than in previous years, it might be wise to prepay some expenses or buy some new equipment.

2. What does the future hold?

This is the biggest wild card of the bunch. It’s impossible to predict the future. Will commodity prices rise or fall? What will tax laws look like going forward?

From the CPA side of the desk, we do predict the possibility of increased tax rates in future years. Tax law has been extremely favorable over the last decade, but the government is likely going to want to increase revenue in the 2020s, and that means higher taxes. This might make it wise to accelerate income into 2020 or 2021 before rates go up.

3. Planning for retirement

This can take two forms. If you are a younger producer, it’s never too early to start planning for retirement. Depending on your income level, it might be wise to contribute to some form of retirement account. Analyzing this on the front end prior to year-end can help maximize tax benefits.

If you are of retirement age, this is a key year for retirement tax planning. Required minimum distributions from IRAs have been waived for 2020, so this creates opportunity for potential planning in conjunction with items 1 and 2 above. It also opens the door for potential tax savings for some, with a Roth IRA conversion.

Ready to start tax planning?

Have you made your year-end tax planning appointment yet? We look forward to seeing you to discuss your immediate and long-term goals. Contact us to set up your appointment.

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Justin Van Zuiden, CPA
Senior Manager
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