You may think it’s too ea rly to start thinking about doing your 2000 taxes, but actually now is a perfect time. You still have about four months to document any changes in your business and personal life that could affect your tax liability for the year.

The first thing to do is sit down with a professional tax preparer before Dec. 31, to ensure that you’re maximizing your deductions. A financial computer program can help you make easy work of this and track all of your income and expenses.

Keep in mind if you’re paying debt, the principal reduction on the debt is taxable income, says David Sousa, certified public accountant for Sousa and Co., Tulare, Calif. For instance, you can spend $20,000 to reduce debt or buy feed. In both cases, the money is still gone, but you can deduct the $20,000 for feed costs, but not for debt repayment.

“Before completing a business transaction, you should consider the tax consequences,” says George Patrick, Purdue University professor. “This is especially important when it comes time to sell the farm.” You can save yourself a lot of hassle, and a hefty capital-gains tax bill, if you trade your property for other farmland or investment real estate rather than accept cash. These trades between owners of “like kind” assets are nontaxable, he notes.

Plus, the tax code allows producers a substantial estate tax break. Under current law, you can take advantage of an exemption amount, special use valuation of farmland and family owned business interest deduction, and avoid inheritance taxes on an estate worth up to $2.07 million. If assets are divided between husband and wife, the tax-exemption amount jumps to $4.14 million.

Internal Revenue Service Form 4835, “Farm Rental Income and Expenses” covers income you receive from crops or livestock raised by others on your land through a share lease. Income derived as a “non-material participant” is not subject to self-employment tax.

Here are some other tips from the tax professionals:

Look at equipment purchases. Recent changes in depreciation rules favor trading equipment with a value greater than its book value. You depreciate the book value on the new equipment and continue to depreciate the equipment traded in. The depreciation you claim lowers both your taxable income and self-employment earnings, says Patrick.

Or if you’re getting rid of old equipment and the book value is more than you’re getting for it, Sousa recommends selling it and taking the loss on the disposal.

Consider pre-paid contracts toward the end of the year. Pre-paid feed contracts can lower tax liability. Before signing any contract, have your tax advisor review it with you. “You can’t merely make a deposit, you have to buy something,” says Sousa. “You can’t get paid interest, but it’s okay to get a price reduction. This can be negotiated with your feed supplier.”

Determine your year-end income. Time your income at the end of year and defer to the next year if you’re making a profit, suggests Sousa. Or if you’re looking at a loss, try to accelerate income. You could hold off paying bills until after Jan. 1, so the loss won’t count against you during this tax year.

There is an exception to this rule. If you started a new business recently, you may want your records to reflect a big loss.

Take a deduction for purchased animals that die, are lost or stolen during the year. Usually it is the purchase price minus depreciation that equals the adjustment, but it also depends on how much you paid and when you bought the animal.

Set up charge accounts at your local hardware store, grain elevator and other merchants where you conduct business. This way you’ll have a detailed record of all your expenditures.

Conservation Reserve Program payments are taxable for active producers and materially participating landlords.

Adjust your withholding. If you have a large tax refund or tax bill, you’re having too much or too little withheld from your wages. This is a good time to project your 2000 income and adjust your withholdings. A tax refund means you made an interest-free loan to the government; an under-payment puts you at risk of incurring a penalty.

Review your itemized deductions: If you itemize, see if you can group together any of your tax deductions. You have to spend a certain amount for you to claim certain itemized deductions.

For instance, you can only deduct medical expenses that exceed 7.5 percent of your adjusted gross income.

If the amount doesn’t matter, try to time the expense so that you can get the biggest tax break.
Invest in your IRA. Fund a traditional Individual Retirement Account or a Roth IRA this September instead of next April, and you’ll enjoy seven extra months of tax-free compounding. Also, if you’re a small business owner and want to open a Simple IRA, you must do so by Oct. 1, although you don’t have to fund it until April 17, 2001.

Review your investments. Although taxes shouldn’t be your top priority for investing, this angle is worth considering. If you’ve already sold some investments for a profit, you may want to consider selling some others ata loss to offset that profit. Or, consider the opposite with other investments or securities to gain back some of the losses you have incurred.

Generous. If you plan to give your child or grandchild cash or securities this year, do it now. The cap is $10,000 per child per parent or grandparent. It will generally be taxed at the child’s lower tax rate.

Plus, if you plan to donate to a specific charity and you itemize, think about donating a larger amount this year to give you a bigger tax advantage instead of splitting up the donation. For instance, give $3,000 this year instead of splitting it up over a two-year period.

The bottom line is to get started on tax planning now. The longer you put it off, the greater chance you have of forgetting expenses, paying more than you need to and wasting valuable time.