Farm income for 2011 has the potential to be very good for many farms and that increases the need for earlier tax planning, notes Dennis Stein, Michigan State University extension business management educator. Most farms will have a tax-planning session in December with their tax advisor to do a last-minute check of the year’s income and expenses to get a handle on potential tax liabilities. At that time, some additional income or expenses may be recommended to balance the farm’s taxable income to fit the farm’s desired tax situation.
“Over the years, I have found that the time farms spend on doing real income tax management has had a net return to the farm business of more than $5,000 per hour,” he says. “Where else can a farmer invest time and get that kind of return? And the earlier the planning, the greater the potential return.” Therefore, consider beginning this process now since waiting much longer can limit your options. You currently have to manage income by increasing or using deferred sales for this fall’s crops. The other side of tax management may be to increase or decrease input costs to manage the farm’s taxable income. Just going out and buying big-ticket machinery may help in tax control; however, it may not be the best management strategy to position your farm for the challenges of 2012.
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