As the end of the year approaches, farmers are starting to turn their attention from the harvest to strategic tax and business planning.
“This is the time of year when you need to figure out a tax management strategy,” says Erin Herbold-Swalwell, an attorney at the Brick-Gentry Law firm in Des Moines who specializes in agricultural law.
There is no one perfect financial or tax strategy that will work for every farmer, she stresses. Instead, each farmer needs to take the time to sit down with an attorney or accountant to look at his or her financial situation.
If there is a difference this year, it is that there are new tax laws in place. The U.S. Congress passed a tax bill last December, and in Iowa, the legislature also passed a tax bill last spring.
That means every farmer should have a discussion with an expert about whether those tax code changes will impact their financial plan for their farm business.
“One of the things we’re dealing with in agriculture is that in the midst of major tax reform there is also a lot of uncertainty with the economy,” Herbold-Swalwell adds.
That uncertainty and general drop in farm income means farmers may want to look at a variety of items. For some, it may mean deciding whether to keep deferring income from one fiscal year till the next. For others it may mean looking at new tax brackets or considering whether it works to take advantage of Section 179 changes.
One recent announcement could impact farmers, according to officials at the Center for Agricultural Law and Taxation (CALT) at Iowa State University. On Nov. 20, the Internal Revenue Service issued a proposed rule providing that individuals who make gifts while the basic exclusion amount (BEA) is temporarily doubled will get to take full advantage of that increased BEA even if the BEA is eventually lowered at the time the donor ends up dying. This “clawback” provision points toward a change in the tax law last year that increases the BEA from $5 million to $10 million in 2018. That provision sunsets in 2025.
And those who are gifting small amounts to children or grandchildren should know the annual exclusion for that type of gift is $14,000 for 2018.
Meanwhile, this is the time when farmers and other individuals are making end-of-year donations to charity and are making any end-of-year purchases or pre-paying inputs.
Again, the key is to talk to a professional about the changes in both the tax law and your own individual financial situation this year, Herbold-Swalwell says.