There are some comments about taxes that make me shudder. Here are five that cause me concern.
"I enjoy preparing my own return."
It's rare, but on occasion I encounter that farm producer who does his own return. Today's tax system is insanely complex, especially when business activity is in the mix. You need to understand both the tax law and the intricacies of tax prep software. Heck, I don't even prepare my own return. I may be knowledgeable about our tax system, but I don't work with that complex tax preparation software on a daily basis. Unless you enjoy overpaying taxes or receiving IRS notices, hiring a tax pro today is a no-brainer. You're paying for two benefits: Knowledge of the system and access to that sophisticated software.
"I just handled that IRS notice on my own."
Those computer-generated letters from IRS Centers are ticking time bombs. They need to be handled promptly and with clarity that ends the inquiry, or they can explode into much bigger trouble. The IRS is increasingly moving toward automated systems and verifications from distant Service Centers. At times, these notices and assessments are flat-out erroneous. Be sure to use your tax professional if these come your way.
"I don't trust e-filing; I paper file my return."
This person must have great trust in the U.S. Postal Service and that the IRS keypunchers will perfectly enter the hundreds of bits of data from the paper return into their computer system. I don't share that confidence. An e-filed return moves directly from your tax preparer's computer into the IRS computer system. E-filing eliminates three separate touches that the taxpayer can't control plus assures that timely filing has occurred. It's another no-brainer.
"I can skip year-end planning this year."
This bit of folly usually arises in a low-profit year. The assumption is with income down, taxes aren't an issue. But in a lower income year, there's still tremendous opportunity. There may be income from a prior year that could be electively amended into the current year to a lower rate, prior year deductions pushed ahead via Section 179, and more. That November or December meeting with your tax professional is absolutely the most valuable and productive use of their skills. It should be a lock every year.
"I'm retiring this year; what about taxes?"
Instead of three months of advance notice, tax planning should be three or four years ahead. Retiring from a cash-method farming business is costly tax-wise and is best managed with a multi-year plan. A good tax adviser can do some terrific planning with sufficient time. Techniques such as loading retirement plans, use of split-interests and maximizing income averaging can't be done well at the eleventh hour.
EDITOR'S NOTE: Andy Biebl is a nationally recognized CPA and tax principal who specializes in agriculture with CliftonLarsonAllen LLP in Minneapolis and New Ulm, Minnesota. He writes tax columns for DTN and its sister publication, The Progressive Farmer magazine. To submit questions for future columns, email AskAndy@dtn.com. Subscribers can always find Biebl's columns in Town Hall, on the Farm Business page or online using the Search feature under News.
© Copyright 2015 DTN/The Progressive Farmer. All rights reserved.