ND Farm and Ranch Business
Management Education Association
ND Farm and Ranch Business
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Tax
Planning is a Must Jay Olson, It is never too early to consider the tax ramifications of the financial decisions being made. As in most years, 2007 appears to have a great deal of variability in net farm income. Because of weather extremes, some of this variability may be out of our control. However, most farmers use a cash method of filing their income taxes to even out these extremes in income. Many commodity prices are at higher levels than we have seen in recent years. In addition, there have been significant increases in cash input costs as well as increased operating loan volumes. For these reasons, farmers may want or need to generate greater than normal cash sales at harvest this year. The generation of additional cash sales can lead directly to increased tax liabilities if not managed properly. A potential problem of some farmers can also be of taxable income being too low to take full advantage of all personal exemptions and standard deductions. There is also a 10% bracket, up to $15,650 for those married filing jointly that can be taken advantage of with adequate income. A few minor annual changes have taken place for 2007. The 15% bracket for those married filing jointly has also been raised to $63,700 with a 25% bracket to $128,500. The standard deduction for married filing jointly has increased to $10,700 ($5,350 for single) and the personal exemption has increased to $3,400 per person. The self employment tax maximum has also been raised to $97,500. The concern of most farmers however, is that they might have a tax liability that surprises them. There are a number of tax tools that can be utilized to manage the eventual tax liability. Some farmers will elect to take advantage of the Section 179 expense option, up to $112,000 in 2007, to purchase equipment or breeding stock and take a quick depreciation on these assets. Other farmers will income average to effectively distribute income back 3 years in an attempt to bring income from those of high income into years of lower income to avoid higher marginal tax brackets. There are a number of other tax credit and deduction tools that are available to farmers if they plan ahead and have accurate information to make good decisions. Good records are a must to properly manage and project taxable income. Record keeping is not something that many farmers are interested in doing especially in a busy time of year. However, without this accurate and timely information, good tax planning is not possible. When next February comes around, we will likely have some farmers that will wish they had taken a couple of hours during a less busy time to get the needed information compiled. A word to the wise, get the needed information accurately compiled and sees your tax professional early. For further information concerning the North Dakota Farm Business Management Program and its various reports and materials, you may go to the website at www.ndfarmmanagement.com. You can also contact Steve Zimmerman, state supervisor for agricultural education at the North Dakota State Capitol (701-328-3162). The Farm Business Management Program is sponsored by the State Department of Career and Technical Education.
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