property tax reduction - CAUV / OFTL

Farmers tend to think that tax planning opportunities are only available in high-income years or when they close on a big transaction (selling your property, selling a large amount of stock for a capital gain, etc). However, just as tax planning is essential in those situations, it is also critical to consider tax planning strategies during a down year. One of the major goals in this scenario is to avoid a tax loss for the year because the new loss rules in effect for farmers are much different than they were before the passage of the Tax Cuts and Jobs Act of 2017.

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The goal for a farmer in a down year should be to avoid a net operating loss and to at least break even. There are a few different tax planning opportunities available to farmers to increase current-year earnings. First, farmers can choose the tax year an insurance claim payment is recognized and counted towards your taxable income. 

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Another way to increase taxable income for the year is to try to accelerate the recognition of revenue if the farmer is a cash basis taxpayer. If using the cash basis, income is recognized when cash/payment is received. Therefore, to increase profits for the year, perhaps a farmer could attempt to receive cash payments earlier than previously expected. Issuing a discount to a purchaser to pay for goods before year-end is a simple, but effective way to increase earnings. It’s common for farmers to have existing deferred payment contracts as well. These contracts allow great flexibility in determining which tax year to assign a sale. If the farmer is not able to adjust the timing of revenue, a farmer who uses the cash basis of accounting could also defer expenses (including any potential conservation easement deduction) to 2020 to reduce the amount of the current-year loss.

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Because of the complexity of the loss rules and the potential delay to receive any benefit of the loss (if carried forward), farming taxpayers should attempt to avoid generating losses at all costs.