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Linda Schuster

It’s Never Too Early to Start Preparing Year-End Records

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While harvest is still in full swing, it is never too early to start compiling year-end financial and production information to prepare for 2022. It seems that every year goes by faster and getting important financial records organized is often left to the last minute. But getting organized will help prepare records for tax planning, farm profitability analysis, and preparing for next year’s financing.

2021 is unique (like every other year) and tax planning will be especially important this year. Government payments in 2021 may be significant due to drought but also remember that half of the WHIP+ payment for 2019, “CFAP 3”, and Quality Loss Adjustment (QLA) payments were also made earlier in the year. These will need to be considered for tax planning purposes. In addition, remember that crop insurance proceeds can only be deferred if the loss is due to production, not revenue, and that the entire payment must be deferred, or none can be deferred.

Tax planning when selling livestock during a drought is important. The IRS will allow livestock producers who were forced to liquidate or sell extra animals the option to defer taxes for a year after the drought. Producers are also given the option of not having to pay capital gains tax on the sale of cows as long as the animals are replaced within a specified time period. The number of animals liquidated must be greater than normal number of sold or culled animals. It is important to get accurate records compiled so that a reasonable tax estimate can be provided before the end of the year and a plan is in place to manage taxes in a drought year. NDSU Extension is hosting an Income Tax Management for Ag Producers Workshop on November 30, 2021 via Zoom where these topics and more will be discussed in greater detail.

With harvest progressing rapidly this year, there should be plenty of time to get everything together to analyze farm profitability for 2021 and prepare for 2022. Lenders appreciate having actual records put together early so they can work to get your financing ready for the next year without being rushed at the last minute. Getting everything in order early takes a lot of stress off everyone!

Jason Fewell, Ph.D.
Farm Business Management Instructor