Thank you 4-H Council
I want to start off with thanks to the 4-H Council for all their hard work putting on the Cherry County 4-H Family Fall Festival. It was a beautiful day and the kids all looked like they were having a blast.
2014 is turning out to be a pretty good year for most ranchers. High cattle prices, plus the fact that Uncle Sam is finally getting around to making disaster payments for the drought of 2012, means this year will be a high-income year. That means that you will get a chance to heal up your balance sheets, but it also means taxes.
There is a new article on the beef.unl.edu website called Tax Planning for High Income. Tina Barrett, Executive Director of Nebraska Farm Business, wrote the article. She specifically addresses handling livestock disaster program payments, as well as common strategies for reducing your tax burden.
Pre-paying expenses is a common practice for periodic high-income years. The problem is that might not work so well if next year turns out to be a high income year also. Which 2015 may be if beef demand holds up under these very high prices.
Capital purchases are another favorite strategy. Unfortunately the very favorable first year depreciation writeoffs of recent years have gone away. We are back to pretty much regular depreciation rates, unless congress takes action. Since they don’t appear to want to do anything until after the election, that doesn’t leave you much time to decide what you need to do.
Tina also discusses income averaging, which you all are very familiar with. It is an important tool that you use to weather the ups and downs inherent in ranching.
She also discusses other strategies, like finally paying for all that unpaid labor your family does. She says, “You must pay a reasonable wage for the work done, but many kids do considerable work around the ranch and can be paid. This expense reduces your farm income and could be tax free if the kids total income is under the standard deduction.
This also gives the kids earned income that they could contribute to a Roth IRA. These funds can be used to pay for college expenses but are not looked at for Federal Financial Aid purposes.
The bottom line for this year is that you need to be talking to your tax professional earlier rather than later. Some of these strategies take a while to implement.
As always, you can call the extension office at 402-376-1850 for more information.