Part-time farmers: How to make the best tax planning decisions

 

To make the most of tax planning, it’s necessary to establish what kind of farming operation you’re operating and the way a lot of your time is spent on farming actions. In basic, farmers fall into three classes: full-time, part-time or pastime.

To classify as a part-time farm, there have to be an affordable expectation of revenue.
Farming represents the chief supply of revenue for full-time farmers, whereas part-time and pastime farmers earn their main revenue – usually greater than 50% of all revenue – by working off-farm. To classify as a part-time farm, there should even be an affordable expectation of revenue. This is the key distinction between part-time and pastime farming, as pastime operations are thought-about leisure with no practical expectation of revenue.

Stephanie Enders, senior supervisor at MNP in Leduc, Alta., sees a rising variety of part-time farmers looking for accounting and tax planning recommendation every year. She says they might be in a state of affairs the place they plan to proceed their off-farm employment, or coming into or rising a farming enterprise the place they hope to transfer to full-time in the future.

Ask your accountant

If your operation classifies as a part-time farm, it is necessary to search skilled tax recommendation on an ongoing foundation. Here are three high questions to ask your accountant at your subsequent assembly.

1. What can I do to reduce my tax legal responsibility?

“It’s important to connect with your accountant regularly and especially before year-end,” Enders says. “When records are kept up-to-date, we can do tax estimates to see where you are sitting and figure out what the best tax strategy is.”

For the many farmers who use the money foundation of accounting for revenue tax functions, this implies assembly in the fall to focus on pre-buying inputs or utilizing the non-obligatory stock adjustment.

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