A common management practice for most farm operations is to do year-end tax planning in November and December each year to manage the farm’s financial position. For 2013, Michigan State University Extension farm management specialist Dennis Stein recommends that you begin your tax planning now, as this is going to be a transition year for many farms in the Saginaw Valley area. It is clear that there is a commodity market shift in place, and this year’s crop is on track for some major reductions in yields in many cases, with the potential for a major income drop in 2014. Income and tax planning can buffer this downturn.
A large number of farms carried the majority of their 2012 crop and livestock production sales into the winter of 2013. During the winter of 2013, many Saginaw Valley farms were able to take advantage of very good 2012 crop inventory amounts and commodity market prices that were very good. This situation pushed 2013 income to higher levels than in past years and increased the need to now manage that income with expenses and inventory management.
By putting together a multi-year plan of action now, a farm has more time to balance out commodity sales and purchases of inputs, and re_ ne plans for inventory management of the commodities that will be harvested and produced over the remainder of the year. A simple tax worksheet is available if you do your own tax planning. The worksheet is set up for 2012 but should be a close estimate to where you may be in 2013. For most farms that have not been active in forward pricing of commodities, the projected market prices for the 2013 crop will generate much lower income for farms over the fall and winter marketing season. Farms should look to balance year-to-year net income as a management tool to manage tax liabilities and avoid huge fluctuations from year to year. Farms that maintain a reasonable profitability for their farming operations year to year find debt management and service of family living needs a reasonable task.
Additional tax planning information and resources are available at the Farm Information Resource Management webpage at farm. msue.msu.edu/agricultural_taxes.