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Tips for Ending Your Financial Year Right

If you are selling grain at the end of the year, be on your toes as to when you are paid. There are income tax considerations, based on the date on the check. That reminder comes from Steve Johnson, Iowa State University Extension farm management specialist.

"Not many businesses are like farming, where you spend 11 months trying to generate profit, and one month trying to avoid taxes," observes Johnson. "That pretty much describes farming."

"Taking advantage of changes in tax law this year is something else farmers need to consider," he says. "For example, for married couples, there's a child tax credit of $1,000. Selling some grain to take advantage of recent improvements in grain prices here in December is another financial consideration. Overall, paying taxes in 2005 is a good thing for farmers. It means you are making money."

Second highest farm income on record

You've had years farming when you haven't had to pay income tax, and also years when you've had to pay some income tax. The years when you have to pay are usually the years when you are better off, he notes.

Farmers generally should be feeling pretty good about farm income in 2005. "And, we've received a nice Christmas present in the form of recent rallies in grain markets," he adds.

Go to FSA office, take care of business

What about conducting business with USDA's Farm Services Agency at the end of the year? Do you need to visit your county FSA office and get some of your USDA farm program business taken care of?

Make sure you get to the FSA office. "Let's not all go in on Tuesday, January 3 or it's going to get crowded. But just be sure you are working with your local FSA office," says Johnson. "There's a likelihood that you are going to see a lot of 2005-crop soybeans that are being stored this winter, go under the USDA loan in January. That will be done by farmers to generate cash flow."

"We are far, far away from getting a LDP on soybeans, so farmers will probably be using the bean loan to generate cash flow after the first of the year," he explains. "Make sure you understand how that USDA loan works. And should you see some downward price pressure on the bean market, make sure you understand how the 60-day lock and the waived interest works."

Johnson says he's not recommending that every farmer use the USDA loan for soybeans. "The farmers who did a good job of preharvest sales of grain are feeling pretty good right now," he notes. "But I do believe there is a group that's probably going to get bullish on beans. They are going to say, 'let's just get these beans under loan, and I'll at least get my county FSA loan rate and I'll be guaranteed the county loan.'"

That strategy is preferably the action to take with beans that are stored on the farm. With commercial-stored beans such action is probably going to be a little riskier, says Johnson. "That's because we are easily going to have 3.5 to 7 cents per bushel per month that we are going to have to cover the storage costs on--for commercially-stored beans."