Ready for tax season? 4 tips to make filing and prepping easier

Tax season comes once a year – but getting the best results for your business often requires year-long preparation.

What should you consider before year-end? Three financial experts offer their perspectives and suggestions:

1. Visit your financial advisor

Meeting advisors early — and often — helps manage year-end sales, particularly since farmers are allowed to report income on a cash basis, says Chris Annis of Allied Associates in London, Ont. True for individuals and corporations, he finds meeting clients before year-end, and interim checkups, allows him to effectively summarize year-to-date numbers, make projections and set targets.

“For corporations, managing remuneration to shareholders with dividends, wages, or a mix of both is completed.”

When doing tax reviews with clients before the calendar year-end, Kelvin Shultz of Wheatland Accounting Services primarily considers the possible need to defer and pre-buy, and family salaries and overall management of the tax brackets farmers are in.

“Whether it’s reasonable to keep them in a low bracket, or, as they move up, trying to keep them within a reasonable taxation range,” Schultz says. “If they get beyond that, then we start looking at incorporation.”

Meanwhile, Kimberly Shipley, an agricultural business advisor with MNP, points out tax rules change regularly and are complex, making it a challenge for busy farmers to stay on top. As a result, farmers should meet with their tax advisors to help them navigate the system and make the best choices for their operations.

2. Defer or pay in advance?

How much tax you pay is affected by pre-buying materials such as fertilizer and other assets for the subsequent tax year, or conversely, deferring costs in the current one. Annis says tax strategies include paying wages to spouses and children to reflect their labour contributions and retirement saving plan contributions.

“Our targets are often linked to the different tax brackets to manage personal income tax and CPP contributions, or for pensioners, qualifying for the Guaranteed Income Supplement or avoiding repayment of the Old Age Security,” Annis says.

Schultz adds it’s that it’s important to know how often pre-buying and deferring are used as a tax-savings tactic. When done several years in a row, it becomes hard to manage and challenging to keep farmer income in a reasonable tax bracket. In those cases, incorporation may be the best path.

3. Check farm business structure

Checking qualified farm status before tax season can also greatly benefit businesses. Shipley says qualified farm status gives access to the capital gains exemption and inter-generational farm transfers on a deferred basis.

Farmers and ranchers should therefore verify whether their assets qualify. Custom farm operations, for example, don’t qualify since the custom work is not considered farming... Read More