Four ways to improve your tax position on the farm
By FBC Tax Consultants
Tax season may be over, but to have a big impact on the bottom line you really need to be thinking about and planning for your taxes throughout the year.
By FBC Tax Consultants
Whether you’re running a farm by yourself or a large corporation with a team of partners, tax planning has to be an integral part of your day-to-day operations. If you’re not taking steps year-round to minimize the amount you’ll eventually have to pay in taxes, then you’re costing your business huge amounts of money that you’ll never get back. That’s cutting directly into your profits.
There’s a way to avoid that problem, however: keep your taxes in mind all year long. Listed below are just 4 ways that you can keep active in regards to minimizing tax costs during your regular operations. Consider at least a couple of these options and you’ll more money in your pocket come next tax season.
1. Look into research opportunities
There are many tax incentives available to farmers who are interested in doing some work on the government’s behalf. For instance, farmers can sign up to allow their crops and livestock to be analyzed or researched, and receive significant tax credits as a result.
If you’re looking for one way to save on your farm taxes at the end of the year, consider what incentives the government is currently offering in exchange for research collaboration – you may find that the added work is well worth the investment.
2. You may want to consider income splitting
Often used among Canadian farmers, the process of income splitting refers to individuals who redirect their farm’s income to a spouse or children working on the farm. This allows them to take advantage of lower tax brackets, or to claim additional deductions to which they would not be entitled to regularly.
So, if you have family members who pay taxes at a lower rate than you do, you may be able to defer some of your income to them – and then pay much lower rates at the end of the year as a result.
3. Is your farm incorporated?
Another way to save money on your taxes could be to incorporate your farm. In some situations, organizing and registering your farm as its own corporation could pay off in the form of much lower tax rates. However, incorporation isn’t right for everyone, or not right at this time – so investigate the possibility with someone who specializes in farm taxes before making a decision one way or the other.
4. Consider investing in accounting and bookkeeping services
Some of the processes detailed above – such as incorporating your farm, or splitting your income – are quite complicated. Someone busy with the day-to-day maintenance of their farm may not be able to find the time required to investigate whether or not incorporating the farm would be a smart financial move. There are accounting and tax services firms who specialize in farm taxes and can help you make informed financial decisions.
Spending long hours working in the fields or in the barn you also likely don’t have time or even want to do your bookkeeping. This is another task where you can improve your bottom line enlisting the aid of a bookkeeping specialist.
Minimizing taxes and maximizing tax credits is something that all business owners, including farmers, need to do all year long. Looking into just one of these four suggestions could bring some potential tax savings to you and your farm operation over the next year.
FBC is Canada’s Farm & Small Business Tax Specialist, providing tax accounting and bookkeeping services to over 20,000 farms and small businesses from Ontario to British Columbia. Our complete financial planning for farm and small business owners takes a long-term approach to address your specific needs at all stages of life and business, minimizing your taxes year after year. Year-round services include tax planning, tax optimization, business consulting and audit protection.