Should You Pay a January 15 Estimate?
This upcoming filing season marks my twenty-first March 1 filing deadline. I will say that although the challenge of getting everything done is “fun” it has become nearly impossible due to multiple outside forces.
It is taking longer to get tax documents. Most farmers now have tax documents that are not issued prior to January 31 that are required to complete their return. Brokerage statements are generally not available until after February 15. Schedule K-1s are not required to be filed until March 15 and many farmers will have an outside investment in land, ethanol or a related operating entity of their own that requires a K-1. Added layers add complexity that adds to the time required to complete.
Tax software vendors have also struggled to meet the demands of changing laws both at the federal and state levels…from QBI to K2/K3 requirements to state level passthrough entity tax to a change in the ACA penalty during filing season are just a few of the issues from recent years. In both the 2021 and 2022 filing seasons, many vendors could not actually file producer returns prior to the last week of February due to various software constraints and changes in the filing requirements.
With these outside forces at work, hitting March 1 is getting more difficult. The remedy is not complex, difficult or a red flag. Some farmers believe that they cannot extend their returns…this is not the case. Farmers are not required to pay quarterly estimated taxes, but by paying ONE estimate prior to January 15 you can move that March 1 filing deadline to April 15. The estimate is the lesser of:
• 100% of the prior year tax due with your 2021 return OR
• 2/3 of the tax due with your 2022 return
Once April arrives, the choice is made again – extend to October by paying in the balance of the projected amount due or file. For most farmers, filing April 15 is the most practical. But there are benefits to waiting as it allows for not only more time to get the filing done, but more time to plan. Farm incomes are fickle. If you had known what grain prices would do in 2022, would you have paid more taxes in 2021 by using a deferred payment contract strategy? By taking less depreciation? Maybe…by extending you get until the following October to decide what you want to do and often times decisions are different than they would have been eight months prior.
Moving away from March 1 does not work for everyone, but it is worth a discussion. February is a good month for a vacation anyway…enjoy one and worry about taxes when you return.
Kelly Jackson Hardy is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers, privately-held elevators and supply dealers, and cooperatives. Kelly is a principal with CliftonLarsonAllen in Princeton, Illinois, as well as a regular speaker at tax and estate planning seminars. Kelly was raised on a hog, row crop and cattle farm in central Illinois and has been involved in the ag industry her entire life. Kelly, her husband, and two sons are active in 4-H and operate a small feeder calf operation and pumpkin business.
Preach It Kelly! Being a retired farmer myself I remember waiting on reports that come just a handful of days prior to the March first filing deadline. Even if the client and the tax preparer have until March 20 say, which is before irrigation water is turned on in some areas, that is huge for everyone involved.
John Morris