Smart business decisions can have tax advantages for successful farming ventures

Every successful farmer knows that making smart tax and investment decisions, aimed at continued growth, is critical for the long-term viability of their businesses.

Tax season is one of the most important times in the year for any business. During this period farmers need to make choices that can influence the business for the longer term. The decision to invest in capital equipment can have short term advantages from a tax point of view, but needs to be weighed against long term after-tax-investment-potential and cash flow.  

With the highest maize prices that the country has ever seen, this year may be even more important than usual. Informed business decisions while understanding the tax implications ensures the continued growth of your farming operations. 

Tax advantages are critical for good decisions on farm equipment purchases 

Annual tax returns are a critical point of the year for all businesses. “All business owners, and especially farmers, face many demands for their time daily – optimizing their tax and investment decisions needs to be high on that list. At tax year-end, it can often also represent a great opportunity to reinvest in the business, especially when those investments have been postponed and equipment needs to be replaced,” explains Antois Van der Westhuizen, John Deere Financial’s managing director.

Small businesses must complete their annual tax returns within 12 months of the end of their financial year. Part of a farmers’ planning must include decisions on capital replacement or expansion which needs to be concluded before financial year end and included in the returns filed. “Our John Deere Financial loans enable farmers to purchase equipment at a reduced interest rates (as low as 1.25% annually) and to optimise realized profits in an effective and advantages manner for future growth,” says Van der Westhuizen.

“For example, John Deere Financial provides a loan where you pay a 50% deposit in the first year, 30% in the second year, and 20% in the final year. This structure follows the depreciation allowance that a farmer receives against declared profits allowing a match between tax requirements and cash flow availability,” concludes Van der Westhuizen.

See these five tips to maximise your tax returns in 2017 

1)   Set your goal to be most profitable, not just to pay the least amount of tax.  Frequently, businesses can focus so much on minimizing tax obligations that they often lose sight of the business’ real focus – maximizing after-tax profitability for this year, and the years to come.

2)   This tax year, invest in your farm. When making the decision to invest, farmers typically have two decisions; either to recognise their profits this year or to invest the profit for a possible increase in profit in the future. 

3)   Maximize capital asset tax treatment with deductions over multiple years. Your investments today can be deducted over multiple years. Therefore, tax planning must also be made with a multi-year perspective. A typical deduction structure would be 50% this year, 30% the next year, 20% the third year. Decisions that you make today will have an impact in the future years’ tax planning.

4)   Right-size your capital investment needs.  The last three years were likely years of underinvestment in your fleets, or other capital assets. This may be the year to catch up on your capital investment plan. However, be careful not to try to put three years of postponed investments into this year.

5)   Use VAT back loan payments to increase your farm’s financial resilience. Reclaiming your VAT payments is key to successful cash flow management of an agri-business (big or small). In the purchasing of capital assets the VAT payment can make up a significant part of the value. By structuring your loan repayment on your capital investment to include your VAT refund, you can accelerate your repayment, and ensure the financial resilience of your business.

For more information on John Deere offerings, visit their website to locate your local dealer. Alternatively, keep an eye on their Facebook and Twitter accounts for the latest updates.

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