Taxes – there’s no word more dreaded in the English language. It comes around once each year, and tax preparations are often left until the last minute, where an individual drops off his papers to his certified public accountant (CPA) and expects the return to be done right and without hassle. That method, however, can leave a lot of money on the table. With a more hands-on approach and by working more closely with a tax professional, individuals can find major savings on their taxes.
Offering advice on tax preparation and the ways a CPA could benefit your pocketbook, Dana Fisher and Darcy Reum, both CPAs with Galusha, Higgins and Galusha, PC, a Montana-based firm, spoke at the 2012 Women Stepping Forward For Agriculture Symposium on Sept. 26 in Great Falls, MT.
“Most folks tend to think of a CPA as someone they go and visit once a year to help prepare their taxes, but they can do a lot more for you,” Reum said. “So, what goes into preparing your tax returns? If you’re just dropping off your information, there are a lot of different things you might miss out if you aren’t there to explain what is on the papers. Being involved in the process helps to answer questions your CPA might have and ensure you get the most out of your return.”
Obviously, most folks would prefer to not pay taxes at all, and a CPA can help individuals get the maximum discounts and write-offs, but a tax professional can also help achieve long-term goals, especially if the accountant is utilized throughout the year.
“What are your goals?” Reum asked. “Maybe your goal is to build capital to invest. Maybe you want to expand and buy the neighbor’s place down the road. Maybe you want to be able to pass your ranching business onto your kids. There are a lot of things a CPA can do to help you with these goals.”
Record-keeping is another dreaded task most ranchers tend to avoid, but it’s necessary to achieve those long-term goals.
“There’s no way around it – you have to have good records, not just for an audit, but to help you manage your business better,” Reum stressed. “CPAs can offer training and help with computerized record systems. Computerized records offer the ability for the CPA to have remote access to your records; then, they can also fix the books for you, if you run into troubles.”
Fisher and Reum offered some strategic tips to manage the ranching enterprise and avoid costly taxes. They advised individuals to consider these tax credits and reductions on a tax return: education credits, domestic production activities deduction for anyone who is producing something, and earned income credit.
“So how are you going to even out your income to stay in a lower tax bracket?” asked Reum. “There are a lot of tools you can use including income deferral and expense timing, depreciation options, employee compensation options, retirement plans – everything from an IRA to a 401K plan, a corporate business structure, charitable planning and contributions and the most important – proactive planning.”
Depending on if you have the expenses to offset a profit, it might be a good idea to defer grain or cattle sales or hold onto more expenses to level things out, they suggested.
“If you think you’re going to have a good year next year, it’s a good idea to offset those expenses,” Reum said. “With proactive planning and open communication with your CPA, you can better manage your livestock and grain inventories, improve your marketing strategies, make plans to purchase equipment and lay out ideas for expansion and succession. The reality of it is, meeting with a CPA, so they have knowledge of your financial situation, can really save money in the long run.”
On Dec. 31, 2012, the estate and gift tax exclusion levels will change. Currently, the level is $5.12 million, with a top tax rate of 35 percent. The annual gift-tax exclusion is at $13,000. If there are no changes from Washington, D.C., the level will revert back to $1 million and 55 percent tax rate.
“If we go back to the pre-2000 Bush-era tax cuts, this will impact income taxes, capital gains rates, federal income tax rates and dividends,” Fisher said. “With changes to the estate tax levels, a single person with a taxable estate of $4 million who passes away will owe zero on that estate. In 2013, the family of the deceased will owe $1,495,000. Have a plan A, plan B and plan C with estate planning because these changes will impact ranching families greatly.”
Fisher and Reum agreed that with proactive planning, a healthy record book and open communication with a CPA, ranchers can navigate the rocky waters of sometimes challenging tax preparation in order to get the maximum benefits and most credits on their return.
“With changes to the estate tax levels, a single person with a taxable estate of $4 million who passes away will owe zero on that estate. In 2013, the family of the deceased will owe $1,495,000. Have a plan A, plan B and plan C with estate planning because these changes will impact ranching families greatly,” Fisher said.