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Discuss sale strategy with farm tax professional

silo and red barn
MAKE A PLAN: Planning now will help you hold on to more from the sale of your assets.
Agrivision: Consider selling cows this fall and machinery in January.

I know from reading this column for the past 14 or 15 years that you are supposed to plan ahead for your retirement. Well, I’m 69 years old, and I’ve milked cows for 49 years. I’ve decided I am selling my 50 cows and 45 heifers this fall and retiring. I think milk prices will be about as good as they are going to be by then, and I just don’t have it in me to milk through another winter. Are there some things I can do to minimize how much I will pay in taxes? I talked to the neighbor down the road, and he said he will rent my 200 acres of land next year and buy my corn silage and haylage this fall. I won’t need my machinery anymore, but I don’t have very much. What are your thoughts?

Doug Hodorff: Congratulations, you have had a full and productive career in farming. You have an exit plan. Now share your thoughts with a tax person to help guide you through your concerns. I don’t know tax laws very well, so find a tax person or certified public accountant to help you. You need to plan financially as you exit the business. There are many tax issues created as you sell a business. I am sure you will want to defer payment on some assets that you sell. One idea I have is, could you retain ownership of the heifers and sell them when they freshen at 2 years old? Work on a good exit plan, because there are many tax issues created by selling a business.

Sam Miller: Congratulations on running a successful business over the years, and good luck with moving into the next phase of your life. Contact a good agricultural certified public accountant or farm tax professional to discuss your retirement plan. They can advise you about the tax implications of selling different classes of assets, and whether you will receive capital gain or ordinary tax treatment on them.

They may suggest selling the livestock this fall, but selling the machinery after the first of the year to spread the tax impact out over two years. They may also want you to defer receiving payment on the corn silage and haylage until next year in order to reduce taxable income this year and push some into next year. The good news is you do have options, but planning ahead now will help you hold on to more from the sale of your assets and minimize the tax impact. Good luck with your pending retirement.

Katie Wantoch: I am not an income tax expert, so my first suggestion would be to consult with a tax preparer or accountant to provide you with the best guidance. According to the University of Minnesota Extension, when selling an asset, you pay tax on the difference between the selling price and your adjusted basis (cost plus improvements minus depreciation) of the asset. Generally, your basis is what you paid for the asset, plus improvements, minus any depreciation you’ve claimed on the asset. As you retire and sell off your assets, a large income and self-employment tax bill emerges. It may be wise to spread the sales over a two- or three-year period, or more. Leveling income usually results in lower taxes paid compared to bunching income into one year. However, with changes in federal tax laws, make sure you check with your attorney and accountant for up-to-date information that is specific to your situation.

Agrivision panel: Doug Hodorff, Fond du Lac County, Wis., dairy farmer; Sam Miller, managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, Dunn County Extension agriculture agent specializing in economic development. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919; or email [email protected].

TAGS: Dairy
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