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Tax time tools for the farm
A tax expert says there are things farmers should consider doing to reduce their tax burden next January.
Eric Gullicksrud with Compeer Financial says it starts with good, accurate recordkeeping. “In order to really kind of project out that last month, we’ve got to know exactly where the first ten or eleven months were in able to project that.”
Gullicksrud tells Brownfield they had several people who believed they wouldn’t have a 2023 tax problem but had to find ways to spend money before the new year. “They did a lot of pre-pays, and so when you have prepaid three months of your feed bill into 2023, your expenses are actually down then, and so quite a few of them got shocked that they had to do as much pre-pay again this year.”
And for farmers and others that crossed into the new year but still need a way to lower 2023 taxes. “An IRA, Individual Retirement Account, or an HSA, Health Savings Account, and these are both very great tools for helping not only bring your taxes down but just save taxes overall for the farmer and our clients.”
Farmers that recently purchased or inherited new farmland might have an additional tax deduction hiding in the soil. Gullicksrud tells Brownfield if that new land was not previously rented by the farmer, the fertilizer is an additional asset. “Two years ago when the price of fertilizer was so high, we saw easily twelve hundred dollars to fifteen hundred dollars per acre residual fertilizer value that they could then use as a deduction on their tax return.”
Gullicksrud says proving what’s in the newly-owned soil is the key to this tax break. “So, if you’ve purchased new piece of property or land, we can have oil sampled. There’s a couple of firms out there that actually do this and give us the report to the tax people on what that residual fertilizer value is.”
Gullicksrud says the residual fertilizer value provided some of their clients a large benefit in 2023 when fertilizer prices were very high.
farmers will need to pay attention to changes in depreciation limits that were just enacted.
Eric Gullicksrud with Compeer Financial tells Brownfield the Section 179 limits are up to a million, 220 thousand dollars, but start to phase out at three million 50 thousand dollars, and it’s not hard for farmers to hit that limit. “If I had that 300-thousand dollar used combine I traded in and go for a 600-thousand dollar combine, then I had 300-thousand as a new asset. Being that we can’t do that like-kind exchange anymore, we actually get to show the new asset at that 600-thousand however, with the old asset we traded in, we have the sale of 300 thousand.”
And he says with big-ticket items like a new tractor or combine, it doesn’t take long to go over the limit, so leasing some equipment might help farms get the most of the deduction.
Gullicksrud says bonus depreciation is now at 60% for 2024 on new and used assets, which can also help reduce taxable income.
Gullicksrud says a tax benefit many farmers miss out on involves hiring their children. “It’s a legal deduction for the farmer to be able to pay their children under 18 and not have to pay any Social Security tax, so it’s another great tool because the kids are going to need money for school lunch and clothing anyway, so it’s a great way to lower your tax burden and keep the money at home.”
Gullicksrud says working with lenders and tax professionals now to plan for 2024 can reduce taxes and improve the farm’s bottom line.
Tags: Compeer, Eric Gullicksrud, farm taxes, Taxes
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