[Editors: This story will not be valid after Jan. 1.]

Agricultural producers should make tax planning before the end of the year.

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

“This year has been another year of big government payments to farmers and ranchers,” Haugen said. “Generally, all or most of the money earned by farmers and ranchers during the year must be reported as income in the year received. These include the Emergency Livestock Relief Program (ELRP) and the Emergency Relief Program (ERP) payments. These payments are for the previous year and must be reported this year. “

Haugen added, “When doing tax planning, it’s a good idea to start with the income and expenses for each year and estimate them for the rest of the year. Estimate the depreciation and include the deferred income in 2022 compared to the previous year. It is best to try to spread the income and expenses so that the producer does not have an abnormally high or low income in a year.”

Farmers and ranchers have until March 1, 2023 to submit their tax returns for 2022 without penalty if they did not make assumptions.

“Producers have until April 15, 2023 to file without penalty if they have paid their estimated taxes by January 15,” said Haugen, “Also, I encourage producers to consider making a deposit before January 15, 2023, if it looks like there will be a tax payment. This will give them more time to prepare their return and file by April 15.

Here are a few things to keep in mind when planning your taxes:

  • Agricultural producers are allowed to use a 200% reduction in the balance of three, five, seven and 10-year properties. A 150% down balance is required for 15 and 20 year properties.
  • For most new agricultural machinery and equipment (except grain mills), the recovery period is five years.
  • Section 179 Expenditures have increased. Generally, producers can deduct up to $1,080,000 of new or used machinery or equipment purchased in the fiscal year. There is a dollar-for-dollar discount on purchases over $2,700,000. The equipment must have more than 50% commercial use to use section 179.
  • An additional 100% first year discount applies. It can be used for new properties. It is equal to 100% of the adjusted basis after section 179 expenses. This provision is scheduled to decrease over time. For 2023 it will be 80%.
  • Non-operating loss carryback (NOL) rules apply. Producers can recoup losses to offset income.
  • A similar exchange cannot be made for personal property but can be made for real property.
  • The average income can be used by the producer to spread the tax allowance to reduce the income tax for the last three years. This is done in Schedule J.
  • Producers may also use Form ND-1 FA (average income) to calculate North Dakota income tax.

Other things about tax planning to note:

  • Crop insurance premiums can be deferred to the next fiscal year if the producer is a taxpayer and can show that the revenue from the damaged crop is generally included in the fiscal year. credit following the damaged year. This includes preventing the company from paying insurance.
  • There is a deferral of livestock income for those whose livestock were forcibly sold due to weather disasters. This is especially important for producers who have had to sell livestock because of the drought. The IRS has two deferral requirements. The first is IRC 1033(e) which allows a livestock producer to sell more drafts, livestock or livestock than usual due to weather-related conditions may delay the recognition of profits up to two years. A disaster declaration is not required, but if there is a federal disaster declaration, the replacement period is four years. The second provision is IRC 451(g) which allows livestock producers using the income method of accounting to elect to defer for one taxable year the income from qualifying livestock sold because of weather conditions.
  • Pay your farm expenses in advance. Feed, fertilizer, seeds and similar expenses can be paid in advance. Generally, the discount is taken by paying these expenses in the fall. Producers can deduct prepaid expenses that do not exceed 50% of other deductible agricultural expenses.
  • Income is deferred until 2023. Sales of produce and livestock can be deferred to subsequent years through deferred payment agreements. Most grain elevators or livestock farms will delay sales until next year. Producers should be aware that they are at risk if the company becomes unstable before receiving the checks and cash.
  • Buy machinery or equipment. The purchase of machinery or equipment can be made before the end of the year to obtain a discount or discount under section 179 in 2022.
  • Participate in a retirement plan such as an employee pension plan, employee incentive matching plan or individual retirement account.

Information on agricultural topics can be found in the Farmers’ Tax Guide, Publication 225. It can be obtained from any IRS office or ordered by calling 800-829-3676 .

Additional questions on this topic should be directed to the IRS at 800-829-1040 or https://www.irs.gov. Questions about North Dakota income tax can be directed to the North Dakota Department of Taxation at 877-328-7088 or https://www.nd.gov/tax.

NDSU Agriculture Communication – December 8, 2022

Source: Ron Haugen, 701-231-8103, ronald.haugen@ndsu.edu

Editor: Kelli Anderson, 701-231-6136, kelli.c.anderson@ndsu.edu

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