As a farmer, do you know when your tax return is actually due? Is it April 15 like everyone else? March 1 because farmers have “special rules”? October 15 when your extension is up? This topic can be confusing, and while you can always listen to your tax professionals and file when they tell you, it’s good to have an understanding of why a certain rule applies to you. Let’s take some time to build that understanding.
First, recognize that the un-extended due date for individual income tax returns is always April 15, and any other date discussed as a deadline most likely pertains to the due date of an income tax payment, and not an income tax return – because you might be required to send tax payments several times throughout the year, rather than once, when you file your return. These periodic payments are called estimated tax payments, and the law requires you to make them if you expect to owe at least $1,000 in tax for the current year and your withholdings are less than either 90 percent of your current-year tax or 100 percent of your previous-year tax (whichever number is smaller).
If you are required to make estimated tax payments, you’ll need to make them on a quarterly basis with due dates of April 15, June 15, and September 15, as well as January 15 of the following year. If you don’t make these payments on time, or if you fail to make them at all, you could be subject to a penalty. If you meet certain safe-harbors, or if you can be classified as a farmer, you can avoid the penalty.
If you are an individual taxpayer with two-thirds (or more) of your gross income derived from farming or fishing, you are exempt from the estimated tax payment rules described above. Instead, you have one estimated tax payment deadline – and if you pay tax by January 15, in an amount equal to either 2/3 of your current-year tax or 100 percent of your previous-year tax, then you have met your requirements and you are not exposed to any penalties. Alternatively, if you file your tax return by March 1 and pay all the tax due, at that time, you are not required to have made any estimated tax payments at all, and you are not penalized.
The percentages and thresholds for paying estimated tax can be confusing and should not be a farmer’s focus (you can hire a tax professional for that). What should be the focus is that if you don’t wish to pay your taxes quarterly, you need keep your accounting records current, so an estimate of your tax can be calculated and paid before January 15, or so your tax return can be filed promptly before March 1. Taking advantage of this special allowance for farmers can help you keep cash in your pocket throughout the year and avoid unnecessary penalties at year-end.