Top Three Year-End Tax Tips for Farm Businesses

It’s not too late – if you haven’t yet scheduled a strategic tax planning meeting with a tax adviser, there are some very good reasons why you should.

Here are the top three proactive ways you can still maximize tax savings this year:

  1. Consider bunching itemized deductions every other year to maximize the tax treatment of eligible deductions (a great strategy if you are close to the standard deduction).
    • Bunch medical expenses into 2018 if possible, as the deduction is higher than 2019.
    • Accelerate some of your 2019 charitable deductions to 2018 to add to any medical expenses you can accelerate into 2018.

  2. Consider using lower tax brackets in 2015, 2016, or 2017 by electing to income average 2018 income and minimize self-employment tax over a four year period.

  3. Capture the increased Qualified Business Income deductionTaxable income for individuals has a new magic number “$315,000” that relates to qualifying for the tax savings using the Qualified Business Income (QBI) deduction. It is important you understand the impact from this provision and the variety of ways you can push your income up or pull your income down, if needed.
  • Strategies to reduce current year income: Use of accelerated depreciation methods (bonus depreciation, section 179), retirement contributions, treating CCC loans as loans, prepay operating expense within guidelines
  • Strategies to increase current year income: Elect out of installment sale reporting, accelerate grain income from deferred payment contracts, elect out of like kind exchange treatment on real property, treat CCC loan as income, capitalize fertilizer expense, convert traditional IRA to a Roth IRA

You will want to build flexibility into your tax plan to allow for the best position (in case there is late issuance of IRS guidelines related to tax reform) to anticipate any potential changes as to what qualifies as QBI.

If you cannot get to $315,000, investigate other options available to qualify for this deduction.

Year-end tax planning has become more complicated for the 2018 tax year largely due to the new tax provisions under the Tax Cuts and Jobs Act passed last December. The tax experts at K·Coe Isom can help with strategic planning to capture the most short- and long-term opportunities and tax benefits for your agribusiness. Contact a K·Coe Isom tax expert to schedule a tax assessment.

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The views expressed in this article are the author's alone and not those of Farmer's Business Network, Inc., its affiliates or members.