4 Year-End Tax Tips for Farmers from Paul Neiffer

Before you flip the calendar to 2023, cross a few important tax to-dos off your list, encourages Paul Neiffer, CPA and principal with CLA.
Before you flip the calendar to 2023, cross a few important tax to-dos off your list, encourages Paul Neiffer, CPA and principal with CLA.
(iStock)

Before you flip the calendar to 2023, cross a few important tax to-dos off your list, encourages Paul Neiffer, CPA and principal with CLA.

1. BE SPECIFIC WITH PREPAID EXPENSES

Supply chain struggles have put a damper on prepaid expenses. To obtain a valid prepaid expense, a farmer has to request a certain quantity of a product. If a supplier can’t provide that quantity, it isn’t a valid prepaid expense for the year.

“So many farmers think they can go down to the co-op and put a deposit down on a product for large sums of money,” Neiffer says.

“We’ve had several clients go through audits and fail on that front, despite our warnings. It just doesn’t work.”

2. STAY OFF THE TAX TREADMILL

Farmers sometimes climb on a tax treadmill ride that can last for decades. With COVID-19 aid, it might be even harder to hop off in 2022. Plus, farmers have received Emergency Relief Payments this year. These types of payments are similar to crop insurance, but you can only defer to the year after damage was incurred.

“These payments are for damage that occurred in 2020 and 2021,” Neiffer says. “2022 is the latest you could defer 2021 payments, and since producers collected them this year, they’re stuck with reporting these payments in 2022.”

3. DRAFT A PLAN FOR UNWANTED REVENUE

With the drought in the West, some cattle producers have been forced to downsize their operations. If you fall into this camp, consider a deferment. 

“If a producer normally sells 500 head in a year, and this year they sold 1,000 head, they get to take that extra 500 head and either defer for one year, or up to four, five or six years — depending on how long the drought goes on,” Neiffer says. 

4. COUPLE EQUIPMENT PURCHASES WITH TAX PLANNING

If you’re planning to buy farm equipment before the end of the year, here’s a refresher on two tax tools you can use.

  • Section 179: For 2022, the Section 179 deduction limit is at $1.08 million with an equipment spending cap phasing out beginning at $2.7 million. It can be used for new and used equipment.
  • Bonus depreciation: Bonus depreciation provides a 100% additional first-year depreciation deduction for qualified property through 2022. 

For example, if you buy a new piece of equipment for $300,000, you can depreciate that amount this year. Or you can depreciate the asset out over its useful life, Neiffer says. For example, a new combine can be depreciated out over five years.

“If you pay cash for equipment, deducting all of the depreciation up-front is fine,” he says. “But if you are financing 100%, you may want to elect out of full depreciation and match up the yearly depreciation amounts with your loan payments.” 


Jenna Hoffman is a content creator who investigates the issues in Washington, D.C., that matter most to farmers.

 

Latest News

How new research could prevent frost damage in orchards
How new research could prevent frost damage in orchards

In this podcast episode, Advanced Agriscience's Collin Juurakko shares interesting discoveries he's made about how frost crystals form and how that lead to a potential solution for tree-fruit growers across the globe.

Cool Creations previews new products at AWG show
Cool Creations previews new products at AWG show

North Kansas City, Mo.-based Cool Creations LLC had two new products to show off at the Associated Wholesale Grocers' seventh annual Innovation Showcase, March 25-26.

Dole, Fresh Express nix sale of fresh vegetables division
Dole, Fresh Express nix sale of fresh vegetables division

Following Department of Justice concerns about competition in the packaged salad market, the companies have abandoned the proposed $308 million deal.

Fresh Del Monte named to most trusted companies list
Fresh Del Monte named to most trusted companies list

Fresh Del Monte is among the honorees on the Most Trustworthy Companies in America 2024 list, recognized for a commitment to quality, sustainability and innovation in fresh produce.

Improved conditions for West Mexico produce may arrive with spring
Improved conditions for West Mexico produce may arrive with spring

West Mexico growers faced a tough fall/winter season, but distributors believe things are looking up for spring with increased supplies and more reasonable prices.

What’s next for retail foodservice: Retailers dish up insights in free webinar
What’s next for retail foodservice: Retailers dish up insights in free webinar

"Impact Retail Foodservice 2024" will gather industry experts to discuss opportunities and challenges, as well as share insights for driving growth in the year ahead in one of the hottest departments in grocery.