With 2001 almost behind us, you know what that means – taxes. That isn’t a favorite task for anyone, but it can be less painful by having all of your tax documents available.
As you wrap up 2001 and begin planning for the coming year, there are few points to keep in mind, says Darrell Dunteman, accredited agricultural consultant and accountant, Bushnell, Ill. First, determine what is your base taxable income? This depends on several items: how many partners are involved in the operation, as well as the amount of land, hogs, buildings and other assets.
“Tax planning should not be a one-time-a-year process,” contends Dunteman. “You need to take into account your inventories, the prices that you will receive for your production, as well as your expectations for the coming year. Your goal should be to sit down with your tax preparer or financial advisor and establish the average tax bracket for your business, then try to develop a strategy of minimizing taxes over a period of years.” He emphasizes that proper tax planning requires accurate and complete records. “If you have a computerized record system, don’t assume that everything is correct just because the reports are produced by a computer,” adds Dunteman. “If you make an entry into a wrong account, you could get an erroneous picture of your taxable position.” Always take a complete copy of your records with you to your tax advisor.
Here’s a checklist that Dunteman says can help ensure that you’ll have the right documents and information.
1. Make sure that any breeding stock sales of livestock are separated from market animal sales.
2. Do the 1099 Forms you received from the Farm Service Agency match your operation’s records? Is the gain upon your Commodity Credit Corporation loan redemption properly calculated?
3. If you report the CCC loan as income, make sure the loans are reported properly.
4. Are crop insurance and disaster payments correctly reported for the correct year? Make sure that you report carryover from the previous tax year.
5. Are your 1099 Forms for Machine Hire reconciled and properly reported on Line 9 of Schedule F?
6. Did you report the federal gas tax credit and state gas tax refund?
7. Does mortgage interest expense match that on Form 1098?
8. Did you complete the 1099 Miscellaneous Forms for all of your custom-hire operators paid ore than $600 that were not corporations?
9. Check to see that your hired-labor expenses match the W-3 and W-2 forms filed with the Social Security Administration.
10. Are repairs that extend the life of capital assets reported as repair or depreciable items?
11. Did you prepare 1099 Miscellaneous Forms for all rents more than $600?
12. Make adjustments to expenses for personal use such as real estate taxes, fuel, utilities and telephone service.
13. Did prepaid expenses for the current year exceed Internal Revenue Service limitations?
14. Did items added to depreciation reflect their proper lives as detailed by IRS regulations?
15. Does any Section 179 depreciation reflect proper lives as detailed by IRS regulations?
16. Make sure the cost of purchased animals are properly deducted in the year of sale.
17. Were purchased animals added to the depreciation schedule?
18. Did you remove purchased animals and equipment sold during the year from the depreciation schedule?
19. Write off any loan points on old loans that were refinanced during the year.
Once you have reviewed the checklist and collected the proper documents, you will have identified your total assets that can help determine your base taxable income. Dunteman says it’s best to manage your income so that it stays within the same tax bracket for the entire year. One way to do that is to match expenses with net income. You could potentially end up paying fewer taxes. (See tax-planning worksheet.) Another way is to defer some income. For instance, if you’re ready to sell some grain now, ask the buyer to pay you after Jan. 1. Dunteman says this has nothing to do with your operation’s profitability, it’s strictly a tax maneuver. Be sure to get a contract that states you aren’t entitled to the income until after Jan. 1. Be sure to determine the buyer’s financial strength before doing this.
When you start looking at your taxable income, keep in mind that now and into the future, all taxpayers will experience a reduction in existing tax brackets.
After combining the new 10 percent bracket into the bottom of the 15 percent income bracket, rates on existing brackets are phased down. Here’s a breakdown of the reduction schedule:” These rate cuts are applicable only to the person who has income taxed at more than 15 percent,” says Dunteman. From the rate structure noted in the table, the cut affects all income in excess of the amount taxed at 15 percent. For married couples filing jointly, the cut in 2001 applies to income in excess of $45,200; for singles, income in excess of $27,050; and for heads of household, in excess of $36,250.
Along with cutting your federal income tax, lawmakers are trying to encourage taxpayers to save more money for retirement. (For a rundown of how you and your employees can take better advantage of retirement
accounts, see Page 38 in the September issue of Pork.) "There’s very little even the best tax preparer can do if you don’t know your taxable income,” contends Dunteman. “But we have a better chance of hitting income goals if you plan before the end of year, and know where you’re at and where you need to be.” Gathering Your Tax DataH&R Block has put together this checklist that includes information that every taxpayer will need to collect. This is not a legal document nor does every item apply to you. The point is it may save you time by reminding you which tax documents you’ve collected through the year and which ones you still need to track down.
Personal Data- Social Security numbers (including spouse and children)- Childcare provider tax I.D. or Social Security numberEmployment and Income Data:- W-2 forms for this year- Partnership and trust income- Pensions and annuities- Miscellaneous income, such as: alimony received, jury-duty pay, gambling or lottery winnings, prizes and awards, scholarships and fellowships- State and local income tax refundHomeowner/Renter Data:- Residential address(es) for this year- Mortgage interest (Form 1098)- Sale of your home or other real estate (Form 1099-S)- Other payments made this year, including second mortgage interest, real estate taxes, rent, moving expensesFinancial Assets- Interest income statements (Form 1099-INT and 1099-OID)- Dividend income statements (Form 1099-DN)- Proceeds form, broker transactions (Form 1099-B)- Tax refunds and unemployment compensation (Form 1099-G)- Miscellaneous income including rent (Form 1099-MISC)- Retirement plan distribution (Form 1099-R) - Personal property tax informationExpenses- Gifts to charity (receipts for donations of $250 or more)-
Non-reimbursed expenses related to volunteer work and your job (travel expenses, uniforms, union dues, subscriptions)- Family expenses, such as education, childcare, adoption and alimony payments- Investment expenses- Job-hunting expenses- Medical savings accounts- Tax return preparation expenses and feesSelf-employment Data- K-1’s on all partnerships- Receipts or documentation for business-related expenses- Farm income Deduction Documents- State and local income tax: your estimated tax vouchers for the current tax year- Individual Retirement Accounts, Keogh and other retirement contributions- Medical expenses- Casualty or theft losses- Other miscellaneous deductions.