Year-End Business Checkup Sets The Stage For Future Growth
Those who prosper in 2019 will have at least one thing in common: they invested time on key tax and business planning strategies. One of the best ways to plan for your future is to assess your past and present, which is why this is the best time of year to sit down with key advisors for a complete business operations checkup. Together, you’ll be able to formulate a plan designed to yield substantial results in the year ahead.
Welcome To The Planning Stage
The planning process usually begins with a meeting between you and your CPA to go over your specific tax situation. Oftentimes, business owners will bring in other key advisors as well. Depending on who’s present, discussions can range from finances to retirement plan design to succession concerns and everything in between. You should also work through specific business challenges and concerns you may be grappling with.
For example, maybe you’ve been considering a large equipment purchase for a while, but you’re still not sure if it makes sense right now. Your tax advisor knows that the timing of large purchases can make a big difference on your overall tax impact, especially in agriculture. So, during your meeting, your team will consider all factors associated with this large purchase and the impact it will have on your bottom line in each scenario. After this thorough assessment, your advisory team will be in the position to make a recommendation.
Your end-of-the-year planning meeting is an ideal time to discuss your revenue and business goals. Believe it or not, a thoughtful tax strategy can help you find success in the year ahead. Taking the time to put together a tax planning strategy is especially important this year, since there is still some confusion associated with the changes outlined in the Tax Cuts and Jobs Act (TCJA).
Listen to episode 160, “it’s planning season,” on unsuitable on Rea Radio, Rea’s award-winning podcast, featuring Brian Kempf, CPA, a principal in Rea’s Millersburg office, to learn about tax planning strategies for farmers and agribusiness leaders.
You’ll also want to consider cost-saving opportunities, such as dealer discounts offered on equipment or input purchases. Will your cash flow allow you to take advantage of these opportunities and, if so, what would be the tax impact of such a move? Also, are you taking advantage of strategic planning opportunities? For example, if you are projecting a large tax liability based on current results, you may be able to take steps early on to defer or reduce your tax burden.
Ask yourself if you can:
- Push some income into next year.
- Make a large purchase or defer your tax burden.
- Have you looked at bonus depreciation?
- Can you take advantage of the Section 179 deduction?
- Accrue contribution for your retirement plan.
- Prepay operating inputs or other expenses.
- Defer crop insurance proceeds.
- Defer or accelerate the selling or cutting timber.
- Defer or accelerate the sale of livestock or grain inventories.
For many in agriculture, self-employment tax and Social Security planning can get overlooked, resulting in short- and long-term ramifications. Make sure to thoughtfully consider this aspect as well.
On the other hand, if you are a dairy farmer, the tax planning strategy will be drastically different.
Dairy income will likely be substantially lower than it has been in previous years. And unfortunately, losses can no longer be carried back five years per the TCJA, which would have helped secure dairy farmers a significant income tax refund. Instead, per the TCJA, a farmer’s net operating loss can no longer exceed $250,000 ($500,000 for married couples) and losses can only be carried back two years – as long as certain criteria are met, which is certainly cause for concern. In the past, farmers could carry back losses five years. Additionally, under the new rules, farmers can only offset 80 percent of their taxable income on the carry back, instead of 100 percent – which was allowed in the past. To get to that mark, hold off on prepaying expenses and don’t defer milk sales or insurance proceeds into next year – especially if you are part of a cooperative. If you are a co-op member, you will want to create enough taxable income to compensate for the Qualified Business Income deduction, which is allowed to fully offset your taxable income – including the sale of culled cows. Failure to take advantage of the entire deduction would mean it would disappear permanently.
Other Considerations
Consider your employees
Your business cannot run without nurturing positive relationships with your people. Don’t overlook discussions about performance, benefits and compensation. It’s getting harder and harder to find good employees. So when you do, invest in their training and development and earn their long-term commitment.
Reduce the risk of agricultural fires and property losses
Increased knowledge and awareness are the best way to minimize these costly risks. A discussion with your insurance agent can help you identify hazards and establish measures to minimize risks.
Maintain a current estate plan
Where your land ends up – in the hands of family members or employees, gifted to a church or in probate court – is up to you. Without a proper estate plan in place, you have little control over what happens to your life’s work after you are gone.
Stay abreast of agricultural and regulatory laws
From environmental concerns and GMOs to data ownership and food safety standards – you want to ensure you are up-to-date and compliant on current legislation.
With your team of experts together in one room, this is the perfect time to get your ducks in a row and identify solutions that will benefit your business as a whole.
Once you’ve had a thorough discussion about the present state of your business and your aspirations for the year ahead, you can also take steps to consider your personal financial wellness and the financial wellness of your employees. For example, when was the last time you reviewed your life insurance policy or encouraged your employees to review theirs?
Ready, Set, Plan
There are several strategies to consider and tax law changes to keep in mind when you sit down to meet with your advisory team. A meeting with your advisors before the end of the year not only has the potential to save you thousands of dollars, it can help put you in a better position down the road. The sooner you meet, the sooner you can put your plan in place. Give me a call to set up your year-end business checkup meeting today.
By Todd Mizer, CPA (retired)