It's time for farmers to plan their tax strategy before the year ends. Purdue University Agricultural Economist George Patrick reminds producers that there are a lot of what he calls fairly minor changes to the tax laws. Patrick says producers may want to plan on spending a few extra minutes reviewing with their tax professional whether they might be eligible for some of the changes. Patrick points to new energy credits and some changes in educational credits, as examples.
As for farmers who face losses this year, Patrick says there are some pre-existing tax laws that could prove beneficial to farmers. For example, if a farm has experienced a net operating loss, it can be carried to previous or future years to reduce taxes. And if you turned a profit in 2009, farmers can offset taxable income by purchasing some of next year's inputs before the end of the current tax year.
When farmers purchase farm equipment, they also are generally eligible for writing off the expense. Farmers can take 50% of the cost of a new farm item as depreciation in the first year. In addition, they can continue to take the normal depreciation on the remaining 50%, which Patrick says gives farmers the opportunity for potentially large write-offs. If large write-offs are not needed, farmers can elect not to take the additional first year depreciation.