Tax Considerations Ahead of the New Year

As we approach 2024, there’s one task looming with every new year – tax season. When it comes to your farm or ranch, there can be many intricacies when it comes to filing your taxes. We sat down with Farm Credit board member and CPA, Kim Hogan, to discuss a few need-to-know topics to be consider before ringing in the New Year. 

Keep your box of receipts, but don’t take them to your accountant. 

Add up your receipts ahead of time and bring the total amount to your accountant. This will save them some time (and you money) by reducing time needed to sort through them. However, don’t throw the receipts out. It’s recommended you keep your receipts at least three years from the date of the return in case of an audit. 

Gather your documents ahead of time. 

Your tax professional will be much more efficient if you can bring everything needed at once. When you bring in documents piece by piece, your accountant must pause their work and regroup when items are added. It will save you money and time in the long run if you wait to bring all your documents together. 

Plan ahead.  

Click here to find a farm tax worksheet to help better prepare before meeting with your accountant. The worksheet will help you think through income and expenses on your farm that are needed for your taxes and deductions. 

Consider paying your children for farm labor. 

If your children are under the age of 17, you can pay them a reasonable salary for farm labor without filing an additional tax return. To claim the deduction, you must write a check and clear it to a separate account created for your child – whether it be a checking account, savings, or a Roth IRA. You can pay them up to the standard deduction amount which is $13,850 for 2023. Talk to your local tax professional for a recommendation based on your operation. This deduction only applies to sole proprietorships, single member LLCs, or partnerships owned by the taxpayer and their spouse.  

Don’t purchase items you don’t need for tax write-offs. 

Purchasing assets on average saves $0.25 for every $1 spent. While asset purchases can benefit your bottom line, large purchase decisions should be made because you need the equipment or resource. The tax deduction should be icing on the cake, not the deciding factor.  

Additional factors for full-time farmers to consider: 

• If more than 2/3 of your household income is from farming, you are not required to make estimated tax payments if your return is filed and the tax paid by March 1, 2024. Those who choose not to file by March 1 can make estimated tax payments to avoid an estimated tax penalty.  
• If your farm is consistently profitable and self-employment tax is causing your operation to struggle, talk to your tax professional about the possibility of becoming an S corp and the Arkansas pass through entity tax election (Arkansas PET tax). 
• As of January 1, 2022, Arkansas adopted federal deduction limits of $1,080,000 (formerly capped at $25,000) for Section 179 depreciation. 
• Talk to your tax professional about bonus depreciation which allows you to write off 80% of an asset’s purchase price in the year purchased with the remaining 20% being depreciated over the life of the item. Bonus depreciation is for the federal level only.  

Most importantly – don’t be afraid to ask questions. 

When in doubt, pick up the phone and call your local tax professional with questions. Do not wait until the year is over to inquire about a tax deduction, purchase, or other financial decision. After the calendar year is up, it will be too late to make decisions to affect the outcome of your tax filing.