By: Todd King, August 2010

The financial outlook for the 2010 crop for wheat producers is very good.  Yields appear to be above average along with prices that are well above traditional levels.  The combination of these two factors alone should produce an income that will make most farmers smile.  For many farmers the large crop is a small part of the overall big picture.  In addition to the crop comes other non-traditional sources of income from government payments such as SURE, ACRE, CSP, CRP and direct.  Put all these factors together and the one that may be smiling at tax time is Uncle Sam. 

This year’s financial outlook provides some opportunity for farmers and at the same time, some challenges for tax planners like myself.  Many farmers either carried 2009 crop over to this tax year or deferred the taxation of crop insurance proceeds to this tax year.  When this deferred income is then added to the 2010 income that is not deferrable (i.e. SURE, ACRE, CRP, CSP and direct), the total will likely be significant.  Note that this presumed income is without selling one bushel of the 2010 crop! 

With the current wheat market on the strong upward trend, there is temptation to scale in to these favorable prices.  While there is nothing wrong with pricing some of this year’s grain, I would strongly suggest that a tax plan be put in place before receiving cash for the sale of the 2010 crop.  Remember that the IRS still allows the sale of wheat and the deferral of the receipt of cash until a later date.  The key is to plan the receipt of cash in the proper year and to the proper entity to efficiently reduce the overall tax burden.

As you are aware, the people at Leffel, Otis & Warwick, P.S. are strong advocates of the planning process.  In order for tax planning to be done effectively, it must be done timely.  Because a significant portion of this year’s income may not be controlled by the farmer, it is essential that a rough tax plan be put in place early.  I would recommend that the farmer has a good understanding of where they will be at tax wise before any significant cash is received for the sale of the 2010 crop.  Properly done, the tax planning process will save significant amounts of money at tax time.