Ag Producers Should Do 2023 Year-End Income Tax Planning

“It is the time of year to think about year-end tax planning,” says Ron Haugen, North Dakota State University Extension farm management specialist.

“When tax planning, it is best to start with year-to-date income and expenses and estimate them for the remainder of the year,” says Haugen. “Estimate depreciation and include any income that was deferred to 2023 from a previous year. It is best to try to spread out income and expenses so producers don't have abnormally high or low income or expenses in any one year.”

Farmers and ranchers have until March 1, 2024, to file their 2023 income tax returns without penalty if they have not made estimates.

“Qualified farmers have until April 15, 2024, to file without penalty if they have paid their estimated tax deposit by Jan. 16,” says Haugen, “I would encourage producers to think about making a deposit by Jan. 16, 2024, if it looks like that will have a tax liability. That would give them more time to prepare their return and file on April 15.”

Here are several items to note for tax planning:

Agricultural producers are allowed to use 200% declining balance depreciation for 3-year, 5-year, 7-year and 10-year property. A 150% declining balance is required for 15-year and 20-year property.

For most new agricultural machinery and equipment (except grain bins), the recovery period is five years.

The Section 179 expense has increased. It generally allows producers to deduct up to $1,160,000 on new or used machinery or equipment purchased in the tax year. There is a dollar-for-dollar phase-out for purchases in excess of $2,890,000. Equipment must be above 50% business use to use Section 179.

The additional 100% first-year bonus depreciation has been phased down to 80% for the 2023 tax year. It is available for used as well as new property. It is equal to 80% of the adjusted basis after any Section 179 expensing. This provision is scheduled to phase out over time. For 2024 it is scheduled to phase down to 60%.


Source: ndsu.edu

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