Get ahead of farm taxes – before it’s time to file
Many only think about taxes when it comes time to file. However, taxes are something farmers should think about all year long, especially if they want to get the best results for their businesses.
This is particularly important when using the cash method of tax reporting, where income is reported, expenses deducted and transactions done through a bank or credit card account in the fiscal period.
“Cash-basis taxes for farms means you have to look at where you are at before the end of the tax year and ensure expenses are paid by the end of the tax year, so they will count for tax purposes,” says Kimberly Shipley, partner and supply management niche leader with MNP.
Farmers should meet with their tax advisors to help them navigate the system and make the best choices for their individual operations
Here are some other tips from the experts:
1. Check qualified farm status
Qualified farm status for farms gives producers access to the capital gains exemption and inter-generational farm transfers on a deferred basis. This means producers should ensure their assets qualify if assets are owned in a corporation, personally or a partnership. Shipley says large custom work operations, in particular, can put this at risk since custom work is not considered farming.
“As well, large cash or investment balances are not considered farming assets, so changes to the structure of the organization may need to be made to ensure the qualified farm status for tax purposes is maintained,” says Shipley.
2. Use partnerships
Consider the use of partnerships as a platform for transition, income splitting and use of the capital gains exemption. Bring lawyers, tax advisors, succession planners and other experts into the discussion.
3. Meet with your tax advisor
Managing and understanding the complexities of the changing systems is a big challenge for farmers since the rules change regularly and taxes are complex. As a result, farmers should meet with their tax advisors to help them navigate the system and make the best choices for their individual operations.
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