Producers should begin their annual tax planning

With tax season right around the corner, now is a good time for producers to start thinking about their taxes and begin to form a tax plan.

“It is that time of the year again to think about year-end tax planning,” said Ron Haugen, North Dakota State University Extension farm management specialist.

Tax season can be a stressful time for farmers and ranchers, having many more variables to their operation than most traditional businesses do.

“Farmers have variable income compared to most businesses, but of course in this pandemic there are a lot of businesses that are struggling quite a bit. But agriculture producers always struggle with their wide range of incomes because it is dependent on crop prices, input prices and weather,” Haugen said.

Many producers received government payouts this year as well, something producers who received these payments should keep in mind when planning their taxes.

“This year was especially interesting because we had an influx of farm payments, CFAP 1 and CFAP 2. We had two programs that had quite a bit of money that was paid out to producers this past year and most all of that money is taxable in the year received,” Haugen said.

North Dakota farmers and ranchers received over $700 million worth of aid from the programs, Haugen said.

Haugen also said producers should always remember that if they have deferred any income in the tax year, they shouldn't forget about doing so when planning for their taxes.

“That is one important thing to remember,” Haugen said.

While some people may opt to complete their taxes themselves, ranchers and farmers should think long and hard about that decision. In addition, Haugen encourages producers to be proactive while tax planning, urging people not to put their tax planning on the back burner.

“It's always a good idea to contact your tax professional and most producers have a tax person that they use. Most producers do go through this at the end of the year. But, a lot of times they do it at the last minute. So that is why we encourage people to get a handle on this and ahead of the game,” Haugen said.