Year-End Tax Planning
It seems like just yesterday I was writing my column kicking off the new year with tips on how to update financial statements and budgets. Fast forward, we are now heading into the holiday season with all the hustle and bustle upon us. As you know, the year 2020 has been anything but “normal” and I cringe thinking about it, but the next big hurdle we tackle in addition to gift giving is… tax season. I’m sure you are thinking why worry about taxes now?
Don’t wait until the last minute; 2020 taxes could be tricky. Generally, you will have your expenses and income, but this year we also have various forms of government payments from federal aid such as Coronavirus Food Assistance Program payments. This fall may be one of the more crucial years to meet with your tax adviser early and often to review your cash flow and tax situation. I highly recommend scheduling a time to review your cash flow needs, including principal and interest owed on debt through the end of the year, and calculate the tax consequences of selling grain and livestock before year end. Year-end tax planning is one of the most valuable exercises to go through. It’s also important to remember, what works for one operation might not work for yours, so you have to decide what is best for you. By planning now, you can take advantage of strategies to hopefully lower your tax bill far in advance of filing.
When necessary, include your lender in these conversations, too. Good ag lenders understand the tax game and may be able to help with a short-term operating loan extension, allowing you to prepay some input costs before year end. Lenders may also help calculate capital debt repayment requirements for the next year or determine how much cash you need on hand to meet your current debt obligations. This will allow you to sell what you need to sell and carry over what you can to the next year. Ag lenders want to know that you have a certain level of financial understanding to operate and run your farm. Being able to have the conversations about your farm’s financials gives lenders the confidence in your ability to run a successful farm business. Also, talk about your financial goals. Are more cattle or acres in your future?
Another area I urge customers to dive into is their insurance policies and coverage. Sit down with your insurance agent and make sure all the changes in your balance sheet are reflected. Did you trade tractors? Did you build a new barn? Are they covered? Are your life insurance policies enough to cover all of your debt and provide for your dependent’s future? Also, verify your beneficiaries on bank accounts to ensure correctness. Taking the time to review these small things can help alleviate risk in the future.
On a final note as we head into the holiday season, I urge each of you to share the positivity in our industry. There is so much to be excited about when it comes to the future of agriculture. The more we focus on the positive bright future of the industry, the more we progress. I urge each of you to speak up and tell your story of how great farming is for raising a family, sustaining your community, and feeding the world.
I’d like to wish each and every one of you a Happy Thanksgiving, Merry Christmas and Happy New Year!
Erin Harvey is a CRCM, Vice President at Community National Bank & Trust
in Lamar, Mo. She can be reached at email@example.com