Growing Beef Newsletter
December 2024, Volume 15, Issue 6
Need to reduce 2024 income? Here are some ideas
Tim Christensen, ISU Extension farm management specialist
As we enter the final leg of 2024, many cattle producers are looking at higher prices. In many cases that means higher gross income. Now is a good time to look at where you stand with your income tax situation while you still have an opportunity to make some decisions. Here are a few ways to reduce income before the end of the year. Remember, every operation is different.
Prepaid Expenses. If you are running off a cash accounting system, prepaying may be a way to reduce income. Many retailers will allow you to prepay for expenses you know you are going to have in the upcoming year. Many feed retailers will allow you to prepay for some mineral, and often run special pricing this time of year to incentivize it. Net Wrap for the upcoming haying season next spring, if you have a place to store it, can be another option. And, fertilizer for pasture and hay ground in 2025 can be purchased before the end of the year. Thinking ahead to any major projects you may be planning in 2025 and purchasing some of those materials before the end of the year could be another strategy. We all have repairs and maintenance of equipment and facilities that we have put on the back burner during the year, this may be the time to start moving on that.
Deferring Income. If you have other income sources you may want to consider deferring this income until next year. This could include hay sales or selling off cull animals. If you have the ability to hold these until after the first of the year that could help with reducing this year’s income.
Retirement accounts. This is sometimes the last thing we want to think about, but if you find yourself with some extra income this year it may be a good time to start or increase your investment in your retirement. There are many options where this money can be placed pre-tax.
Purchasing Equipment. This can be an effective strategy; however, it is important to make sure you are purchasing something you need or would be purchasing anyway. Buying a piece of equipment that is not needed or does not improve the operation can be counterproductive. It is also important to remember that usually if we’re trading equipment, the depreciated value of that equipment is counted as income. So, trading equipment may not help you as much as you expected.
As I said in the beginning every operation is unique. It is important to sit down with your tax preparer and discuss which, if any, of these strategies are applicable to your operation. It is important that we take advantage of the years that are profitable and help move our operations in a direction that will help us weather the years that are not profitable in the future. In some cases, the best strategy is to take the income, pay our taxes, and put it in savings to help soften the effects of future stress.
Additional resources can be found on Iowa State University's Center for Ag Law and Taxation website and the Ag Decision Maker website.
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