Tax planning earns farmers big returns
Early income tax planning for 2011 can pay big returns.
Farm income for 2011 has the potential to be very good for many farms and that increases the need for earlier tax planning. Most farms will have a tax planning session in December with their tax advisor to do a last-minute check of the year’s income and expenses to get a handle on potential tax liabilities. At that time some additional income or expenses may be recommended to balance the farms taxable income to fit the farms desired tax situation.
Over the years I have found that the time farms spend on doing real income tax management has had a net return to the farm business of more than $5,000 per hour. Where else can a farmer invest time and get that kind of return and the earlier the planning the greater the potential return?
Waiting until December can limit your options. You currently have to manage income by increasing or using deferred sales for this fall’s crops. The other side of tax management may be to increase or decrease input costs to manage the farms taxable income. Just going out and buying big ticket machinery may help in tax control, however, it may not be the best management strategy to position your farm for the challenges of 2012.
You may want to consider using the 2010 Tax Estimate Worksheet from TELFARM. This simple-to-use, one-page form can give you a close estimate of your farms current tax situation, and the information you need to plan forward. The factors and tax tables are for the year 2010 which will be very close to the 2011 numbers (the 2011 version will be available soon). You can also contact an MSU Extension farm management educator to run some of your farms actual numbers and layout possible options and alternatives.
If you want to continue getting up to speed and thinking farm tax management, download thisTax Management Tips information sheet. This information sheet lists various farm tax management tips and tactic’s that farm managers can use to manage farm business and manage the farm’s tax situation.