Farm Management Tools
July 31, 2013
MSU Extension Farm Management Educators offer help for farm families to manage their farm financial records and to make decisions using the Telfarm system. The Telfarm system helps farm families maintain control of their business by working with them to ensure they have complete, accurate records to use in making relevant decisions for their business. The Telfarm system also helps farm families generate records needed to complete income tax forms, including a depreciation schedule.
Software packages available through the Telfarm system include: accounting, check writing and payroll programs.
Clients enrolled in the Telfarm system receive phone support to answer questions and meet other needs from the Telfarm Center on the MSU Campus. Clients also receive on-farm assistance form Farm Management Educators.
An important component of the Telfarm system is year-end income tax management and business analysis assistance from Farm Management Educators. You may read more about these services in other sections of this site.
The end of the year is an important time for farmers to evaluate their potential income liability and gather information for financial documents. With the ups and downs of crops and livestock prices, you may find that your taxable imcome is higher or lower than anticipated. Careful planning now can help lower your tax bill.
The basic tax management strategy for farms is to avoid wide fluctuations in taxable income. Uniform income from year to year results in the lowest income tax and largest homestead and farmland preservation credits over time. To minimize the net taxes paid over the long run, if possible, you want to have taxable income high enough to take advantage of your standard deductions and personal exemptions. Keep in mind that even in a low income tax year you should try to have enough income to utilize your personnel exemptions and the standard deduction, if you don't use them you lose them.
A good set of financial records helps to insure that all expenses are taken. Small expense items are often forgotten. A good record keeping system is essential for end-of year tax planning as well as working with your lender.
Once you have your records in order then you can do a tax estimate. Add up all your receipts, and subtract expenses including depreciation. Add in all your gains and nonfarm income and subtract out your deductions for IRA's, medical insurance, and half of your social security tax. Then take out the standard deduction and exemptions to get your taxable income from which you figure your tax. Your tax preparer can help you with this. If you wish to do it yourself, MSU Extension has two tools to help you. One is the "The Form for Estimating Income Tax Liability", which you can fill out by hand, complete with tables to help you do the estimate. For those with computers, MSU Extension has a computer program that can do the same thing.
Dependong on your tax estimate and situation, you may wish to reduce or increase your net income. If taxable income is over $62,550 married ($42,500 single), the Alternative Minimum Tax (AMT) may apply and must be calculated to see if it increases your income taxes.
Some ideas for evening out your income include buying or delaying the purchase of supplies such as fertilizer, seed, small tools, etc. On depreciable purchases like machinery, you may elect to direct expense up to $108,000.
A recent (2005) tax change is the Domestic Production Activities Deduction that is available to farmers if you hire labor. It amounts to 3% of qualified production activities income.
Watch timing of livestock or crops sales. Pay your children wages for work actually performed on your farm. Don't forget expenses for educational purposes, travel connected with your business or entertainment expenses that further your business.
Tax planning now can make tax paying easier later on. MSU Extension released a helpful document on the topic, called "Tax Management Tips for Farmers."
When farm families begin thinking about estate planning and business succession, it can be an emotionally trying time. These topics become easy to avoid.
Farm Management Educators help farm families initiate discussions, take stock of assets, develop objectives, and consider alternatives. Farm Management Educators are also familiar with the intricacies of farm businesses; when we provide information, we remember that we are working with farm families, and we help develop a plan that will meet the financial objectives of all families that may be involved.
The information and ideas provided by Farm Management Educators can help streamline discussions with legal professionals who will ultimately draft the estate plan or business succession papers.