Now that harvest is wrapped up and the holidays just past, farmers must redirect some of their time. And, especially with higher milk prices, experts advise to meet with your accountant and lender to conduct tax prep work.
Virtual bookkeeper, Mary Mackinson Faber of Mary T Faber Solutions, based out of her home office in Pontiac, Ill., says farmers should do three things before going into tax season.
Collect and record all the documentation for capital projects. This includes new purchases, like a skid steer or tractor. Remember you must have all the paperwork to document that purchase. If you built this year, you will need all the invoices from the builder so they can be added to your depreciation schedule. Also, gather all paperwork to document any purchase of breeding stock, as this can also be added to your capital projects column.
Make sure you can explain any differences or changes between 2023 and 2024. For example, why did your feed costs significantly increase? It may be as simple as the increase in input cost or because you are feeding more cattle. Why is there a huge increase or decrease in your repair bill? Well, maybe in 2023 you had a bunch of your equipment that needed to be repaired and those repairs worked in 2023 and your repair bill in 2024 is significantly lower. Also, elaborate on the differences and changes if something in 2024 occurred that is new. The easiest way to explain is by having a paper trail that documents everything. Anytime you see something of interest, write a note (digital or actual) and include it in your files, so that way you can easily recall if you get questioned later by your accountant.
Have a list of questions. Write any questions you may have down to ask either your tax preparer or accountant. Maybe you’re not exactly sure what can be depreciated or what counts as a capital project or what can be considered a repair or an improvement. Write these questions down and remember there is no such thing as a dumb question.
Jim Moriarty, director of dairy at Compeer Financial, shares that there are several reasons why producers should get started on their financial planning soon.
“With high milk prices this year, most farms are seeing solid profitability and cash flow. As we look ahead to next year, margins may be much tighter as milk prices soften and feed and other costs stay high. Proper planning with your tax advisor can enable smoothing out taxable income between years by prepaying expenses and deferring income,” he says.
Furthermore, Moriarty says to discuss income deferral as well as prepay as part of your strategies to balance taxable income between years.
Time is running out in 2024, so push pause soon to discuss 2024 taxes with your financial team that can help set you up for success later on.
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