Six Year End Tax Tips for Farmers and Ranchers
With the weather turning colder, the days growing shorter and family traditions filling your calendar, it can be tempting to forego financial and tax planning during this busy season. However, a little time spent planning now will put you ahead in the year to come.
Here are six tips to follow before the end of the year to limit tax liability and prepare for 2016:
1. ‘Tis the season for a meeting with your financial advisors.
By beginning to get your financial house in order now, your CPA will be able to produce financial statements shortly after year-end. In addition, your CPA will have more time and energy now than if you wait until February, which means that you’ll be able to do some strategic planning before the new year even starts, rather than once you’re already behind.
2. Benefit plan contributions must be funded before year-end to reap a tax-advantage.
If you are contributing to your company retirement plan, then your 401(k) contributions ($18,000 or $24,000 if age 50 or older) need to be funded out of your business payroll before December 31, 2015. Be sure to maximize your retirement plan contributions for 2015 in order to receive the greatest tax benefit possible.
3. Use a clean set of books to plan ahead.
Your up-to-date financial statements will transform your “gut feel” for the health of your business into concrete metrics. This year-end financial data will allow you to evaluate revenue streams, operational efficiency and financial controls. You’ll make more informed investment decisions with respect to the business, such as the purchase of new equipment, and be able to institute strategies, take advantage of growth opportunities and make process changes to render improvements in 2016.
4. Beware of boilerplate tax savings recommendations.
You may already be familiar with the standard set of considerations based on past years’ experience and/or this year’s tax planning newsletters, but these are not always applicable to your specific circumstances. While you don’t want to miss an opportunity for tax benefit through year-end action, you also don’t want to shoot yourself in the foot in the spirit of good intentions. Let the experts help you make the right calls. And while they’re at it, they’ll give you a “head’s up” on cash requirements to meet your upcoming tax liabilities.
5. Examine missed opportunities to find financial success in the new year.
Did you just realize that you’ve been paying the 3.8% net investment income tax on your self-rental income or interest income earned as the farm’s creditor? Your tax advisor may be able to amend previous years’ returns before too much time lapses. Did you run out of time to set up an IC-DISC to lower the effective federal tax rate on exported crops? Establish this separate corporate entity now so that you lower your federal taxes in the new year. Have you missed the opportunity to take advantage of lower tax rates from prior years through income averaging? Your tax advisor may be able to amend previous returns to lower your federal income tax liability.
6. A little planning now will mean less work later, for both you and your CPA.
During a year-end conference with your CPA, take the opportunity to outline your anticipated financial reporting requirements and schedule your collective resources when it makes the most sense for your business. Outline your mutual obligations to ensure a thorough and professional audit and tax filing with the least effort on both sides of the table.
Without a doubt, these final weeks of 2015 can deliver more value from a planning perspective than any other time of the year. The insights that you glean can inform actions that will benefit your business in the coming year and save you money during tax season.