Ag Producers – The Value of Making Your Required Annual Tax Payment by January 15th
One of the special tax provisions that applies to qualified farmers is relief from the estimated tax requirements. Agriculture Producers may be familiar with the IRS rule stating that qualifying farmers who make two-thirds of their gross income from farming can wait to make their annual income tax payment until they file their tax return if the tax return and payment are made before March 1.
The “March 1 Farm Deadline” puts tremendous pressure both on the qualifying producer as well as their tax professionals. There are many challenges to meeting this deadline, and those have only increased over the past few years. These challenges include late arriving source tax information, including brokerage statements from investment accounts or K1’s from businesses investments, late changing tax laws, tax forms not being released in time, and the ever-increasing complexity of tax returns. This along with spring calving and other seasonal work on the ranch can make meeting this deadline extremely challenging.
One option available to avoid this deadline is to make use of the January 15th estimate. A qualifying farmer can file an estimated tax payment by January 15th that is the lessor of either two-thirds of the current year or 100% of last year’s tax. By making this tax payment before January 15th, you gain additional time to gather the needed information to prepare your tax return.
The amount of this estimated annual tax payment can be calculated using the worksheet that goes with the form 1040-ES. The following rules apply:
- On line 12a, multiply line 11c by 66 2/3% (0.6667).
- On line 12b, enter 100% of the tax shown on your prior year tax return regardless of the amount of your adjusted gross income.
- On line 12c, find the smaller of the two amounts and this is the amount of the required payment needed to avoid any penalty or interest.
Please contact your Ketel Thorstenson Ag Tax Professional if you are unsure if you qualify or need help calculating the estimated tax payment. More information can also be found in IRS Publication 225 – Farmer’s Tax Guide, and IRS Publication 505 – Tax Withholding and Estimated Tax.
IRS Publication 225: https://www.irs.gov/pub/irs-pdf/p225.pdf
IRS Publication 505: https://www.irs.gov/pub/irs-pdf/p505.pdf