Tax season is upon us, and sometimes, the process can feel like navigating a maze blindfolded. But a little preparation can go a long way toward making your tax appointment a lot simpler. So, before you meet with your CPA or accountant, below are some tips to save you time and hassle.
Here’s a plug for going the software route when it comes to prepping your books: Government agencies often require taxpayers to review their bookkeeping and make comparisons to qualify for various programs.
Those who do their bookkeeping through software programs can access that information quickly and easily. Those with handwritten records have to work a lot harder. So, consider learning a software program such as QuickBooks, Xero, or Quicken.
If you like tracking your bookkeeping by hand, that is fine too. There are many clients that have their records very well organized, and it works just as well. But it was probably a lot of work to keep up on.
You can save yourself some money by having your income and expenses summarized before your tax appointment. Here’s a helpful list:
Summary of income by category
- 1099s: Gather your 1099s from rent, custom hire, and ag program payments.
- Trade-ins: Did you trade anything in on any vehicle or equipment purchase? If you did, bring a copy of your sale agreement.
- Income from calves and steers: Keep that in a separate category from your cows and bulls. If you sold pairs, you’ll need to break out the price the calf would have sold for separately. Also, list the number of animals sold by category. Your accountant may need to know if you sold more than average, are in a drought disaster area, and if a cattle deferral is available.
- Breeding livestock: List what you purchased and what you raised that were sold during the year.
- Equipment and livestock purchased: Having a list of any large-dollar new items and any livestock you purchased helps keep your depreciation schedule updated.
Don’t forget that if you received a check on or before the end of the year, it’s taxable in the year it’s available to you.
Bonus depreciation for farm buildings: Remember that the era of 100% bonus depreciation has come to an end. Bonus depreciation drops by 20% each year until it is completely phased out by 2027 — unless there are legislative changes. So, the phase-out right now looks like this:
- 2022: 100%
- 2023: 80%
- 2024: 60%
- 2025: 40%
- 2026: 20%
- 2027: 0%
Section 179 Depreciation: Even though bonus depreciation is not as beneficial as it once was, there is still another depreciation type available. There are some different rules, but many times, you can deduct much of the purchase price of new assets in the year of acquisition.
What purchases do you depreciate?
Equipment, vehicles, trailers, and livestock — whether you paid cash or financed by the end of the year — can be depreciated. It just needs to be ready and available for you to use (in other words, placed in service) on Dec. 31 of the tax year. If you ordered it but it wasn’t available, you can’t deduct it until it’s delivered and available for use.
If you purchase a farm or a ranch during the year, you can’t depreciate the land. But you can depreciate the improvements such as corrals, buildings, grain bins, pipelines, wells, fences, etc. You’ll need to break down the improvements from the purchase price. You can’t depreciate the home you live in on the ranch. But you can depreciate a tenant house.
Always review your depreciation schedule annually and get rid of items you don’t have anymore. It can help you remember items you sold during the year. It also helps keep the depreciation schedule up to date. Are there items that were destroyed or put to the iron pile? Do you have any purchased animals that died?
You need to keep a depreciation schedule for all items that you depreciate. If you sell the item, you can then remove it from the depreciation schedule. Even if you depreciate the asset over the life of the asset and the cost is used up, it stays on the depreciation schedule until you get rid of it.
If you have questions about what you should bring to your tax appointment, let us know.