End-of-year tax planning advice for ag producers

Monday, December 11, 2023

Ron Haugen, a farm management specialist at North Dakota State University, emphasizes the importance of year-end tax planning for agricultural producers. With the end of the year approaching, it's crucial for farmers and ranchers to review their income and expenses, estimate their depreciation, and consider deferred income for effective tax management.

Haugen advises on spreading out income and expenses to avoid significant fluctuations. He notes that farmers and ranchers have until March 1, 2024, to file their 2023 tax returns without penalty if they have not made estimated tax payments. A January 16 deadline exists for making estimated tax deposits, allowing qualified farmers to file without penalty until April 15, 2024.

Key tax planning items include:

Utilizing 200% declining balance depreciation for certain property types, with a 150% balance required for 15-year and 20-year properties.
Recognizing a five-year recovery period for most new agricultural machinery and equipment.
Taking advantage of increased Section 179 expense deductions and the 80% first-year bonus depreciation for 2023.
Understanding Net Operating Loss (NOL) carryback rules and the applicability of like-kind exchanges.

Farmers can leverage tax deferral strategies such as deferring crop insurance proceeds and implementing a livestock income deferral for forced sales due to weather-related disasters. Prepaying farm expenses and deferring income to the following year can also be beneficial.

For machinery or equipment purchases, depreciation or Section 179 deductions can be claimed in 2023. Contributing to retirement plans is another effective strategy.

For more detailed information, agricultural producers can refer to the Farmers Tax Guide, Publication 225, available at IRS offices or by calling 800-829-3676.

Questions regarding specific tax situations should be directed to tax professionals or the IRS at 800-829-1040 (https://www.irs.gov) and the North Dakota Tax Department at 877-328-7088 (https://www.nd.gov/tax).

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