It’s a mystery to many farmers why their tax return filing deadline is March 1, while the filing date for most taxpayers is in April. There are multiple date options when filing your farm returns. Susan K. Voss, CPA will explain the options, the benefits of each and will explain why filing by March 1, 2019 may be difficult this year.
Why do many farmers file their returns by March 1? Farmers were once given the ability to avoid making quarterly tax estimate payments similar to their commercial business peers. The roller coaster of results many farm operations experience was leading to over and under payments of taxes when using the prior year as a guide to determine the amount of estimates to pay in. To resolve the unpredictability of coming up with a fair way to have farmers pay estimates, the IRS established an earlier deadline and payment of their tax with the trade-off being the avoidance of quarterly estimates that rarely matched the tax due on their returns. While this is historically how it’s been done, it’s not the only option for farmers. Below are three alternative approaches.
- Some farmers and their tax preparers would argue the March 1 filing is not the most common estimate-avoiding strategy. Farmers can pay their taxes by January 15 and file their return by the April deadline. This option has no interest penalty as long as the total tax paid by January 15 is the lesser of 2/3 of the current year’s total tax when the return is filed, or 100% of last year’s tax.
- Make quarterly estimate tax payments based on the prior year’s tax. As noted previously, this may not be a logical way to pay taxes if your operation is one where taxable income fluctuates significantly from year-to-year.
- Make no estimate tax payments and file by April 15. When there is no tax due, this option works. This strategy is often an answer to a heavy tax season for the preparer, in conjunction with farm operators that owe no tax. This group of taxpayers could very well see their return extended and prepared outside the two and a half month busy tax season. When there is tax due and no estimates were made when they should have been, the amount will generate some interest penalty. Interest penalty to the IRS is at a rate of .5% of taxes owed each month they aren’t paid. This rate could be a better rate than some folks pay to borrow money on their line of credit. While just paying the calculated interest penalty might work for some, it’s not a deductible interest for business or personal purposes.
This year, the largest, most complicated, tax bill passed since 1986 and is still being vetted. It is hard to determine whether we’ll be filing returns by March 1. Even if we can, if the IRS’s software, or our software, isn’t performing, filing a return that is calculating incorrectly could mean nasty notices, penalties and frustration to you as well as your preparer. Sometimes the best we can do is pay in by January 15 and give ourselves 6 additional weeks to prepare the return or to pay an interest penalty and file later. You can expect to discuss these options with your preparer in December or at a later date.
We hope to see you at the January 25-26 Cow-Calf Conference & KIIC Farm Show at Bridgeview in Ottumwa! There will be many vendors and break-out sessions providing opportunities for learning! Check out the show details at kiicradio.com. In this time of unpredictable weather, markets and tariffs, being educated about your options is one of your best defenses. If you have additional questions on your farm return don’t hesitate to call one of our TDT Ag Specialists.