Tax season can get a little complicated for farmers and ranchers, but it doesn't have to be. Jeff Bowman, Grimbleby Coleman CPAs Ag team leader, offers several of his best tax and financial management tips. To learn more, please give Jeff or any of the members of the Ag Team a call.
Understanding Crop Profitability
Your tax return will not disclose the profitability of your crop; in most cases it will only list your cash in and cash out over the course of the year. Your banker is going to want to know the profitability of your crop - oftentimes down to the acre.
People do their taxes based on the calendar year, and most farmers report on a cash basis. What you're missing is a "crop income and expense" report. To create this, you'll need a reasonable projection of crop income based on the estimate of current prices or future expectations. Any unpaid expenses that pertain to the current year crop should also be added to your report. When finished, the difference between current crop income and expenses will be the amount of profit or loss on this crop. While it may not be exact (
its tough to get perfect estimates!) it will certainly give you a better understanding of how your crop management decisions impacted net profit. It's tough to get this kind of info from a tax return by itself.
Take a Strategic Long-Term Look
Take a look at your long-term strategic planning. Has your orchard run its 25-year lifecycle? Is it time to pull out trees? Anticipating upcoming expenses isn't critical for your current-year tax return, but will save you money in the long run. Give our Ag team a call to talk about your plans as it pertains to cash needs.
If you've deferred crop income in the past, you might want to consider cashing some of it in now and paying down cash for capital investments. Most bankers will want to know your five-year plan, as well. And don't forget, it's not always a good thing to pay "zero" tax - it could mean that you're missing out on some of the lowest tax brackets. Again, a longer term cash and investment strategy can bring clarity to some of these decisions.
Paying the Teenagers
If your teenage kids work on the ranch, we recommend paying them a fair wage for the work they perform. You will receive a deduction and they can save the money for expenses such as education. You'll be eligible for a payroll tax exemption if the ag business is family-owned and the worker is younger than 18 years old but above legal working age. The beauty of this concept is that the kids can earn up to around $6,000 without having to pay federal income tax. Financial planning ideas such as putting the kids' "after-tax" funds in a Roth IRA can also be implemented.
Fuel Tax Credits
When it comes time to prepare tax returns, don't forget the fuel tax credit for fuel used in off-road work. When purchasing fuel, the price per gallon includes federal highway taxes. If the fuel is used off-road, then you can claim a rebate (in the form of a tax credit) for a portion of the fuel taxes paid. Keep track of your gallons used for off-road miles, and remember that fuel is tax exempt for tractors and other machinery used in the field. Here's a tip: Farmers can purchase red-dye diesel (at a lower price) for use in dedicated off-road machinery and avoid the hassle of keeping records to claim a credit at year-end.
Remember to contact your crop processor and handlers and request information about how much of the prior year's crop was exported. If you don't have an IC-DISC established, accessing export information will help your CPA evaluate if the IC-DISC is a good option for your business.
If you don't have healthcare coverage, you'll need to declare that and pay a penalty on your individual return. Be sure to check out the full Affordable Care Act articles on this website for more information.
If your New Year's resolution involves working on your family succession plan, let us know. Our team is ready to help you make that a reality. We can facilitate family meetings and provide business consulting and financial modeling.
We're smack in the middle of another busy tax season, but you might already be wondering how you can do a better job of tax planning for your construction company next year. Ian Grimbleby - Principal, CPA, and Construction Team Leader - offers his top tips.
Ian Grimbleby, Principal, CPA and Construction Team Lead
It's the most common question Grimbleby hears: "Should I buy or lease a new truck for the business?" Grimbleby recommends carefully tracking the miles, gas, and maintenance per vehicle. Knowing those numbers will make it easier to choose between keeping your old trucks vs. purchasing new ones. Sometimes repair expenses are more expensive than a new purchase, Grimbleby says.
Curious about the second most common question Grimbleby receives? It is a follow-up question about vehicles! "So, if I decide to buy a vehicle, how much can I 'write-off' this year?" Vehicles have very specific tax depreciation treatments, which can be complicated to interpret and worth giving us a call to review.
Saving for retirement is important to most people, and is a common discussion point with our clients. Retirement plans, such as a 401(k) plan, are a great way to reduce income tax now and save for the future; however, knowing what plan type and options to pick for your business can be complicated. In the construction industry, it gets even more complicated if you have government contracts with prevailing wages. We would be pleased to discuss your options.
If you're using a white board or an Excel spreadsheet, you're in grave danger. Those antiquated methods are not a recipe for success in this day and age. The first step to automating the books is to use a tool such as QuickBooks or industry specific accounting software.
"Every company is unique, however, as a general rule, once a construction company reaches the $10 million annual revenue mark, it is time to invest in specialized construction software tools," Grimbleby says. "The software will provide project management, profitability per project, benchmarking, reporting and tax preparation assistance."
Grimbleby also notes that "$10m in revenue is also the point when you can no longer be taxed based on 'cash' books." Several highly regarded construction software tools to look into are Dexter + Chaney, Jonas, Foundation Software, Sage and Viewpoint.
Please contact Ian Grimbleby and the Construction Team to learn more tips and recommendations for implementing savvy tax preparation tips into your business practices.
If you're a taxpayer and have an email address (that leaves very few of us out!), you could be on the receiving end of a new malicious "phishing" attempt, wherein scammers send official- looking emails, purportedly from the IRS, hoping to lure unsuspecting victims into sharing confidential information. (Learn more about phishing here.)
The emails include the subject line "Tax Exemption Notification" and request that recipients complete a form to re-certify their exempt status (click here to view a copy of this email). Attached to the email will be an official-looking document titled "IRS Form W-8BEN" (click here to view a copy of this form), which recipients are instructed to fill out and return to the sender. Should you receive this email, or one similar, we encourage you to report it by forwarding a copy to the IRS at firstname.lastname@example.org.
As time goes on, "phishermen" are becoming far trickier, and it can often be difficult to identify malicious emails. If you receive an email and aren't certain if its fraudulent, there are certain giveaways you can look for:
- Requests for confidential information. The IRS generally does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages or social media channels.
- Suspicious attachments. Attachments can often contain viruses, worms, trojan horses, and bugs, all items used by spammers to obtain information or access to your computer. If you aren't expecting to receive a document via email, don't open it. Files ending in .exe and .zip are particularly dangerous.
- Typos and Threats. Official communications rarely include misspelled words or highly emotional warnings threatening disastrous consequences if you fail to click on a link.
- Odd sender email addresses. Official IRS emails will come from an address ending in @irs.gov. If you don't recognize the sender, think twice before responding, clicking links, or opening attachments.
If you are still having difficulty determining the legitimacy of an email, a quick Google search can often help. For example, when we searched for "Tax Exemption Notification email", a warning about the phishing scam was at the top of our results.
With the world becoming more electronically driven and much modern business being conducted online, avoiding emails all together is nearly impossible. By staying vigilant and closely examining emails and their attachments, you can avoid falling victim to scammers. Should you have any questions or need assistance determining the legitimacy of an email, one of our team would be happy to assist. Contact us at 209/527-4220 or email@example.com.
As you or your student prepare the paperwork for college, don't forget to fill out a FAFSA - it could save you thousands of dollars over the coming years.
The Free Application for Federal Student Aid (FAFSA) is the central clearing house to determine eligibility for federal financial aid. The deadline to fill out this free application is February. 28, 2015."FAFSA is a task to prioritize in order to get any type of collegiate financial assistance," Principal and CPA Colleen Meenk says. "This includes music, athletic, and academic scholarships, as well as need-based aid."
Colleen Meenk, Principal and CPA
Many people think they're not eligible for government-based aid, Meenk says, and fail to fill out the FAFSA. But the FAFSA is critical for any type of scholarship and highly recommended for students who are planning to finance their education through student loans.
You'll need to include information about your federal tax return with your FAFSA. If your return is already completed and filed, you'll need to let the government know; if it has not been filed,
you'll need to give the government an estimate of the amounts to be reported and update with final information on completion.
Here are a few fast FAFSA facts:
- Applications are accepted any time between Jan. 1 - Feb. 28
- The application is contingent upon your tax return file
- Both student (dependent) and parent information will need to be reported
- You will need to reapply every year you're in college
- Apply online - it's faster and easier
Ready to get started? You'll need the following information:
- Amount and source of your personal income
- Income tax return
- Access to other funds
- Value of your home and other assets
Meenk recommends tackling the FAFSA right away. Completing the application, especially for the first time, can be time-consuming. If this is your first time completing the FAFSA, you will need to create a personal identification number (pin) that is household-specific. Keep track of your number, because you'll use it for all future applications; in fact, next year, you will only need to update your yearly tax information.
In January, Principal and CPA Lisa Mazza attended the Consulting Accountants RoundTable (CART) workshop in Phoenix. CART, lead by renowned thought leader Edi Osborne, is often referred to as the "ultimate 'Think Tank' for accounting
professionals and small business advisors." Many topics were covered, however Lisa's top takeaways came from the Consensus Workshop and Facilitation Skills portion, where the topic of change management was intensely discussed. Attendees learned to help clients execute change by embracing resistance, friction, and conflict. Effective change facilitation techniques, procedures and follow-through were emphasized along with the importance of asking the right questions and employing active listening.