Darren Frye answers questions from our readers in each issue of Farm Futures.
It seems like there are always "surprises" — not good ones — when we find out what our farm's tax bill will be. I know we can do a better job of planning, but our accountant doesn't really keep us up to date or talk with us until we need to send our financial information. I should probably be asking him questions throughout the year, but it's not top of mind for me with everything I juggle in our operation. What can I do to plan better for our farm's taxes so we don't keep getting "surprises"? – K.M., Ill
You're right; taking time to plan in advance for taxes can help reduce the chance of seeing an unanticipated number. But don't blame yourself entirely — both you and your tax adviser need to regularly check in with each other throughout the year for a more strategic approach.
Here are some actions you can take. As you consider large purchases, trades or sales — around assets like equipment, land or building improvements — give your tax adviser a call to talk through the tax implications. Then your adviser can take a look at whether you may be able to structure your decisions in a particular way for a more favorable tax impact.
Also, clear, complete recordkeeping can help your adviser figure out the best tax strategy for you — in advance. Document any spending or sales of items, such as equipment purchases or trades, land transactions, and building improvements.
Regularly checking in with your tax adviser, combined with good recordkeeping practices, can make a big difference come tax time. Ideally, you want to work with a tax adviser who proactively calls you to talk about what's going on in your operation, so he or she can help you make decisions.
If you feel you don't have that type of relationship with your adviser, first have a conversation with him or her about the current situation, and how you've felt in the past. Find out if your adviser views the "surprises" differently than you.
Try to assess the adviser's willingness to work with you in a more proactive way throughout the year, not just at tax time. If you find your current adviser isn't willing to work with you in a way that will keep both of you more informed, then you need to find one who will.