At the Women In Agriculture Conference, Stevie White spoke with American Exchange Bank Market President Julie Stovall about understanding tax strategies and deductions for agricultural enterprises.
Stovall said that understanding your goals is the first step in choosing the best form in which to operate your business, whether that be as a Sole proprietorship, Partnership, Corporation, S corporation, or Limited liability company (LLC). “Are you wanting to leave a family legacy and build your business for generations to come, or are you building a business to sell to enhance your retirement income and maybe build another business after it sells?”
When choosing an accounting method, Stovall said that most farmers use the cash method because it is easier to track income and expenses. Other accounting methods are various types of depreciation to reduce their tax liability.
Section 179 of the IRC allows businesses to take an immediate deduction for a product at the time it is purchased. “It helps in a year when you have had a lot of income and will have a huge tax liability but be warned that you don’t want to completely deplete your income to where you wouldn’t be able to borrow money from creditors. Also, know that if you use that, you won’t be able to depreciate that item anymore in the future like you would if you had depreciated it out over five years.”
As far as tax advantages go, she said that the kiddie tax allows children to earn $1,250 per year in interest or dividends that would be tax free. “You could also pay your children $600 per year to work for you. You could expense that $600, then put that money in a Roth IRA and get tax credits. You could also put it in a 529 saving plan, which is an Oklahoma tax deduction, and if the money stays there for at least fifteen years, it can be rolled over into a Roth IRA without any tax liability whatsoever.”
Stovall would like to help you with your tax questions, so feel free to contact her using the information on the picture below.
