Economist: When it comes to taxes, farmers create own breaks

October 25, 2004

Economist: When it comes to taxes, farmers create own breaks

WEST LAFAYETTE, Ind. - Farmers can't control the weather or the prices they receive for their crops, but they can exert a strong influence over what they owe Uncle Sam at tax time.

Tax laws allow agricultural producers the same deductions that small businesses enjoy, with a few added benefits, said George Patrick, a Purdue University agricultural economist and tax specialist.

"A farmer who has made capital investments has the ability to write off a tremendous amount of that investment in the year of purchase," Patrick said. "But the way our tax laws are set up with the standard deduction and the personal exemptions - if you've got children under the age of 17, there's a tax credit - you're probably better off taking advantage of those as much as you can. You should not, however, take your taxable income down so low that you don't get those tax benefits.

"As a producer, you need to look at what will minimize your taxes over time. Or, as I prefer to look at it, what's going to maximize your wealth after you pay taxes."

Understanding new tax laws and regulations and taking full advantage of what the federal tax code permits is a central theme of the annual Purdue Income Tax School and Agricultural Tax Workshops. The meetings take place at various locations across Indiana in November and December.

A recent change in the tax code raised the amount farmers can deduct for certain farm-related purchases. In some cases, producers can avoid paying tax altogether - at least for the current tax year.

"This is the last year that an additional first-year depreciation will be available, where an individual can deduct up to 50 percent of the cost of something new that they've purchased," Patrick said. "Also, Congress has extended the Section 179 expensing allowance through 2007, which allows a farmer or businessperson to write off a purchase of up to $100,000 in the year the purchase is made."

Because farmers often sell grain months after crops are harvested, their income can fluctuate from year to year, Patrick said. Such fluctuations have tax ramifications.

"The thing we need to remember is that most farmers use a cash method of accounting, so it's when they buy and sell things that determines their income," he said. "If farmers delayed making sales from the 2003 crop until they got some of those high prices back in the late spring and early summer, they may have a tremendous taxable income. They will need to do some year-end tax planning to, maybe, buy some inputs for the 2005 season to manage that taxable income.

"It's going to be important for every farmer to see where they stand financially and run the year-to-date numbers on income and expenses."

The Purdue Income Tax School addresses those issues, as well as tax laws in general. The two-day schools are geared toward professional tax preparers. Speakers include Patrick, Internal Revenue Service specialists, Indiana Department of Revenue representatives and certified public accountants, among others.

The school schedule includes:

• Nov. 3-4 - Hulman Memorial Student Union, Indiana State University, Terre Haute.

• Nov. 15-16 - Walb Union Building, Indiana-Purdue Fort Wayne, Fort Wayne; and Horizon Convention Center, Muncie.

• Nov. 18-19 - Century Center, South Bend; and the Union Building, Valparaiso University, Valparaiso.

• Nov. 22-23 - Stewart Center, Purdue University, West Lafayette; and Marriott Hotel, 7202 E. 21st St., Indianapolis.

• Nov. 29-30 - American Legion Post No. 89, Seymour; and Vanderburgh County 4-H Center, Evansville.

• Dec. 2-3 - Adam's Mark Hotel, 2544 Executive Drive, Indianapolis; and Johanning Civic Center, Kokomo.

Registration begins at 8 a.m., with programs running from 8:30 a.m. to 4:30 p.m. All times are local.

The registration fee is $279 and includes the 2004 National Income Tax School Workbook. Registration can be completed online or by calling toll-free at (800) 359-2968.

The Purdue Agricultural Tax Workshops provide in-depth discussion of farm-related tax issues, including deductions, self-employment taxes, government payments, conservation and cost sharing. The half-day programs are appropriate for tax preparers and farm managers.

Trenna Grabowski, a certified public accountant and a contributor to Farm Progress Publications, will lead the workshops.

Workshops will take place Nov. 8 at the Vanderburgh County 4-H Center, Evansville; Nov. 9 at Adam's Mark Hotel, 2544 Executive Drive, Indianapolis; and Nov. 10 at Ramada Inn, 2519 E. Center St., Warsaw. Registration begins at 8 a.m. local time, with workshops slated from 8:30 a.m. to 12:30 p.m.

Registration is $135, or $85 for those also attending the tax school. Online and phone registrations can be made through the Web address and toll-free number listed above.

For additional information about the tax school or workshops, contact Patrick at (765) 494-4241, gpatrick@purdue.edu.

Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu

Source: George Patrick, (765) 494-4241, gpatrick@purdue.edu

Ag Communications: (765) 494-2722; Beth Forbes, forbes@purdue.edu
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