November 8, 2000 | By: Laura Skillman
PRINCETON, Ky.

In spite of low commodity prices and tobacco quota cuts, many Kentucky farmers may realize a good income in 2000 and need to be considering their options in reducing their tax liabilities.

With all the discussions about hard times on the farm, many farmers may not realize their income situation until they are told by a tax preparer that their tax bill will be higher than expected, said Dick Trimble, University of Kentucky Extension agricultural economist.

For many farmers the good income will come from stronger cattle prices and government payments in 2000, including the Tobacco Loss Assistance Program.

University of Kentucky Extension agricultural economists advise farmers not to wait until Jan. 1, 2001 to consider what their tax payments will be, but to review them now in order to determine what strategies they may use to manage their tax liabilities.

In managing tax liabilities, some options farmers can use include income averaging, deferring income to the next year, or moving expenses for 2001 into the current year, Trimble said.

After managing their tax situation, the next step is for farmers to decide what to do with the greater-than-expected net farm income.

Strategies can include paying off debt, making capital investments in land or equipment, making off-farm investments or consuming the extra income through such things as taking a vacation.

A number of financial management strategies may be used. Strategies should consider the goals of the farmer and farm family, current financial position of the farm business and investment position of the farm relative to land versus machinery and equipment.

The decision on how to manage income to reduce or delay income tax payments should not be done hastily, but should be an integral part of the long-term farm plan that the farm family has developed.

Contact: 

Dick Trimble, (270) 365-7541