Get a head start on tax season
Tax season is approaching and now’s the time to start preparing.
“I like to meet with my clients before their year-end,” says farm tax advisor Chris Annis of Allied Associates in London, Ont. “An interim check-up allows us to review the farm’s position for tax purposes by summarizing year-to-date numbers and projecting the transactions to year-end.”
The process helps manage year-end sales as farmers are allowed to report their farming income on the cash basis when filing their tax returns. This is true for individuals and corporations, Annis says.
When undertaking tax reviews with clients before the calendar year-end, Wheatland Accounting Services’ president Kelvin Shultz primarily considers the possible need to defer and pre-buy, family salaries and overall management of the tax brackets farmers are in.
“Whether it’s reasonable to keep them in a low bracket, or, as they move up, trying to keep them within a reasonable taxation range,” Shultz says from his office in Saskatchewan. “And if they get beyond that, then we start looking at incorporation.”
Managing tax payable
Tax strategies to manage income tax payable include paying wages to spouses and/or children to reflect their labour contributions and retirement saving plan contributions, Annis says.
“Our targets are often linked to the different tax brackets to manage personal income tax and CPP contributions, or for pensioners, qualifying for the Guaranteed Income Supplement or avoiding repayment of the Old Age Security,” Annis adds. “For corporations, managing remuneration to shareholders with dividends, wages, or a mix of both is completed.”
Pre-buying and deferring
Pre-buying seed and fertilizer allows farmers to take advantage of discounts, but also to deduct those next-year items this year.
“Farmers tend to pre-buy and they tend to defer [income] and they finally do that continuously for a few years to the point where it’s almost no longer manageable to keep their income in a reasonable bracket of taxation,” Shultz says.
After pre-buying and deferring as much as one can, the best alternative, depending on individual circumstances, may be to incorporate, Shultz says.
A meeting between farmers and advisors before the end of the calendar year also helps advisors plan for downsizing or expanding operations, depending on circumstances, as well as cash flow, budgeting and addressing financial needs for the upcoming year, Annis says.
An advisor can also plan for farmers to take advantage of tax-free rollovers to family members and ensure all government accounts are in good standing prior to year-end, he adds.
Getting your financial ducks in a row before year-end will help with upcoming tax season and next year’s planning.
Article by: Richard Kamchen