IT CONTINUES TO BE
A TAXING SITUATION
JESSE G. COOPER
Farm Management Extension
If you or your ” v
tax preparer had a ( \
rough time pre
paring your feder
al income tax
return this year,
what better time
than now to do nHI
some tax planning, and even make
changes so things will go better
next year.
Here are a few do’s and don’t’s
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that occur to me as I reflect back on
some of the most common farmer
tax problems I had to deal with this
past season.
If you are not doing so already,
take the necessary time come next
October to make a fairly reliable
estimate of what your total farm
income and expenses will be for
the entire year. Add in any non
farm income, expenses, adjust
your personal deductions and
exemptions for 1988 rates and cal
culate your tax bill. Knowing what
your year’s taxes are likely to be in
October is certainly preferable to
being in the dark till February or
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rur
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Dosi§nors of QiiolHy System for Poultry, Swino ond Groin Hondiing
March, when it’s too late to make
many adjustments in the previous
years business - and your only
recourse may be a quick call to
your banker with the object of bor
rowing enough money to pay an
unexpectedly large tax bill.
That leads directly to my next
suggestion. I’m well aware that
there are many, many farmers
across the State who are fiercely
independent, and unwilling to
share much information about
their farming operations with any
one (especially financial informa
tion). That has to change. Few far
mers are complete masters of
every aspect of their profession,
and they could measurably
improve their operations if they
would on occasion seek advice or
help from other qualified people in
the community. This may be a
neighboring farmer, your farm
accountant, banker, extension
agents, a fieldman for your
cooperative or other family mem
bers. More and more farmers who
in the past hired accountants to “do
their taxes,” are leaning on them
not only for tax management
counseling but assistance in eva
luating other farm financial deri-
SYCAMORE INO PARK
255 PLANE TREE
DRIVE
LANCASTER. PA 17603
(717)393-5807
sions as well. Remember that the
final decisions are still yours to
make, but it doesn’t hurt to have
someone help you think things
through on occasion.
All too often, tax problems arise
when farms are sold. Part of the
problem arises because under the
new tax law all of the capital gain
on these sales is now taxed at a
maximum rate of 28 percent. How
ever, not every seller has adequate
records to verify how much he
originally paid for the property.
Adequate information is often
lacking also on depreciation of
assets. Lacking these and other
records, the seller ends up paying
more to the IRS than would have
been necessary had this informa- *
tion been available. Make sure that
you have the tax information you
would need should you sell your
property. Again you might want to
check this matter out with a tax
, accountant NOW - not after the
farm has been sold.
Somewhat to my surprise, most
families with young children have
applied for or gotten Social Securi
ty numbers for their youngsters.
Members of the Amish and other
Route 30 West
at the
Centerville Exit.
Lancaster Farming Saturday, May 14, 1988-Dl7
religious sects should also know
that there is a special Form 4029
they can fill out to exempt their
children from the need to acquire a
Social Security number.
Any discussion of the new tax
law as it causes problems for far
mers cannot ignore the matter of
preproductive expenses for lives
tock requiring over two years to
bring into production. The ques
tion of whether or not a dairy far
mer should continue to write off
his calf raising expenses as a cur
rent deduction on his schedule, or
accumulate and recover these costs
as depreciation once the heifer
comes into production, is a sticky
one. This decision has to be made
on an individual basis, since it
depends on the situation. Deduct
ing heifer raising costs currently as
has been our practice is obviously
the easy way out, and perhaps
when everything is weighed, the
best way for most farmers to go.
You may be the exception. I can
only wonder how many IRS audi
tors will have the courage to take
on a farm audit and responsibly
question the capitalization
approach a particular farmer
chooses to use.
By the way, it is possible to get
an extension of time to submit a
completed tax return. You must,
however, have a good reason for
your request, such as information
needed to complete your return not
being available yet; death or health
problems in the family, or a major
disruption in your business - a fire,
for example. The request for an
extension must be filed prior to
April 15 and must be accompanied
by payment of the total amount of
tax you expect to owe when the
completed tax return is finally
submitted.
Belated discovery of additional
expenses or income (or a 1099 you
overlooked), even a mistake in
addition, are all solid reasons why
you should not hesitate to fill an
amended tax return. It may be a
smart move on your part to have a
reliable lax preparer do it for you.
I have one final suggestion
related to our Pennsylvania incom
e tax system. Our State has a parti
cular feature on its PA 40 known as
an SP that permits a reduction in an
individual’s state taxes under cer
tain conditions. Its primary pur
pose is to reduce the state tax that
must be paid by folks with limited
taxable income and little financial
support from other sources such as
relatives. Nontaxable pensions and
Social Security payments also
need to be known to calculate the
SP credit. Perhaps you know
someone that could use an SP to
save some tax dollars. Check it out
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Reprinted from April 18 issue of