Agribusiness BlogFarm CPA Today

Plan for 2012 Crop Insurance Proceeds

Based on this year’s drought, we know that this will most likely be the largest amount of crop insurance claims ever processed.  With proper planning, you may be able to structure when to report these crop insurance proceeds to achieve the best tax advantage for this year.

Crop insurance proceeds due to crop damage (not price drops) are taxable in the year of receipt.  However, the tax laws do allow a farmer to make a deferral until the next year assuming that the farmer meets the following:

  • The crop insurance proceeds are for the current year crop, i.e. crop insurance proceeds for 2012 crop damage received in 2012 can be deferred to 2013.  If the proceeds are received in 2013, then no deferral is available, AND
  • The farmer normally has a history of reporting more than 50% of their crop sales in the subsequent year.  For example, if the farmer harvests 50,000 bushels in 2010 and sells all 50,000 by the end of the 2010, then he cannot defer his crop insurance.  If, however, he normally would sell 25,001 or more bushels in 2011, then he can defer his crop insurance proceeds.

The election to defer is made on the tax return.

If you are a farmer that normally sells all of his crop in the year of harvest, you still may be able to “defer” by working with your crop insurance agent and company to not make the claim until late in the year and receive your check after year-end, otherwise you will need to report in 2012.

We have worked up a Crop Insurance Matrix that can step you through the process.

 Paul Neiffer, CPA

  • Principal
  • CliftonLarsonAllen
  • Yakima, Washington
  • 509-823-2920

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a partner with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation. Leave a comment for Paul. If you would like to leave a comment for Paul, follow the link above, however, please make sure to include your email address so that he can reply to your comment (your email address will not automatically show up).

Comments

The answer to Nick on July 23rd looks wrong. The Internal Revenue Code section 451(d)regulations state the following:
(2) Scope of election. Once made, an election under section 451(d) is binding for the taxable year for which made unless the district director consents to a revocation of such election. Requests for consent to revoke an election under section 451(d) shall be made by means of a letter to the district director for the district in which the taxpayer is required to file his return, setting forth the taxpayer’s name, address, and identification number, the year for which it is desired to revoke the election, and the reasons therefor.

If he keeps one set of books, you need to apply the 50% or more of collections in the following year to see if you qualify. If so, then you have to defer all or none.

If two sets of books, you can look at each one separately.

CAN A FARMER ELECT TO DEFER PART OF HIS INSURANCE PROCEEDS, SUCH AS CAN HE CHOOSE TO DEFER THE CLAIM ON CORN AND NOT ON BEANS, OR IT IS ALL OR NONE?

Yes, you can.

Can a farmer change his return by electing to defer crop ins proceeds AFTER the due date of the return? Thank you.

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