|Dennis Stein, Michigan State University Extension|
Major changes could take place in some of the tax options that farms use to manage their farm business taxes.
One of the first items farms need to be aware of is the scheduled decrease in the Section 179 — Direct Expense option which, over the past few years, has been a major part of farm tax management.
In 2011 the individual farm Section 179 deduction was
Additionally in 2011, farms were able to take a 100 percent bonus depreciation deduction on all qualified new capital purchases which will be reduced to 50 percent for 2012. These two changes may have a huge impact on a farm’s tax planning options unless congress takes action to change these reductions.
Tax planning is one of the most important management tasks a farm can undertake because a good plan can help a farm avoid swings in farm income.
The last two year’s tax planning options are now set at much lower levels for 2012. This will require farm managers to implement a tax management plan for the entire year.
A farm should develop an estimated cash-flow budget for the year and an estimate of the expected profit as the basis for this year’s tax plan. The cash-flow plan can also be the basis for the developing the farm’s marketing strategies for the remainder of the 2011 crop in inventory and the template to determine commodity target prices for the sale of 2012 production.
Taking time to monitor your farm’s financial situation can provide valuable information and allow the farm to reduce some of its continued risks.
Putting together an annual budget can help with management of the monthly cash flow needs and help project when additional funds will be needed.
Having an estimate of cash needs can put some incentives in your farm’s marketing plan which is another important part of the farm management system.
Many farms put together annual budgets for their lender to help them see how the farm will be able to generate income necessary to service debt payments.
You can find a variety of information and user-friendly commodity cost of production templates at Dennis Stein’s web page. These templates can be downloaded as tools in helping with the budget building and tax management plan.
We have seen in the past when farms have a good financial plan they are in a better position to take advantage of opportunities. If a farm can link a good financial plan with marketing and tax management they are moving toward improved risk management and peace of mind.”
|Copyright:||© 2012 Penton Media|
|Source:||Penton Business Media|