Although fall harvest is underway and far from complete, it is never too soon for farmers and land owners to begin tax management planning, said Jason Fewell, an assistant professor with the University of Tennessee Department of Agricultural and Resource Economics.

“Farmers often wait until the last minute to assess their anticipated profits or losses and how they can manage their income taxes for the year,” said Fewell. “However, farmers should at least start making plans for meeting with their tax advisors to consider their tax management plans for the year, and follow through with a meeting no later than Dec. 1 to finalize any tax planning strategy for 2013.”

The financial expert says farmers have many options to reduce their 2013 tax liability. “Those using a cash-basis accounting method can pre-pay expenses for seed, fertilizer and chemicals to manage their tax liability for this year. Since 2013 is shaping up to be a profitable year for many farmers, it may make sense to pay ahead on next year’s inputs and put off tax payments to the following year,” he said.

Deferring income from 2013 crops and livestock can also help manage tax payments for 2013 and help average income over time. Fewell said this strategy can help farmers who use cash-basis accounting manage their income while matching expenses, thus distributing their tax burdens evenly over time.

“An important consideration for farmers planning to purchase new capital assets such as equipment, computers or software is the Section 179 expense option. 2013 may be the last year of increased limits on the amount a farmer can expense with this tax management tool,” Fewell noted. The Section 179 expense tool allows businesses to write off up to $500,000 of purchases for equipment rather than depreciating these assets over time, subject to a $2 million limit on capital purchases. In addition, a 50 percent bonus depreciation is available for new equipment purchases. The assets must be put into use between Jan. 1 and Dec. 31, 2013.

Fewell reminded producers to consult their lender and accountant or tax advisor before making any purchases and planning a tax strategy. “Always contact tax professionals for advice before making any important changes in financial planning. Penalties can result if farmers attempt to employ tax management strategies not defined precisely by IRS rules,” he cautioned.

UT Extension provides a gateway to the University of Tennessee as the outreach unit of the Institute of Agriculture. With an office in every Tennessee county, UT Extension delivers educational programs and research-based information to citizens throughout the state. In cooperation with Tennessee State University, UT Extension works with farmers, families, youth and communities to improve lives by addressing problems and issue at the local, state and national levels.



Dr. Jason E. Fewell, UT Department of Agricultural and Resource Economics, 865-974-7410