Income Tax - misconception about end of year

patsy_mccabe

This is something that keeps popping up on this forum especially at this time of year. I've also seen it here at home over the years.

It's the whole end of tax year thing about keeping down tax. Farmers etc rushing out to buy stores so as to keep down their tax bill. Maybe an accountant on here could explain it better than me, but the way I see it is people get confused between Cash On Hand and Profit. I asked an accountant once at work about it and that's how he put it to me. "Don't get confused between cash and profit."

Here's an example. Joe buys and finishes 50 cattle every year. This year due to having trouble getting cattle into the factory, he wasn't able to buy back in the 50 stores he normally does. He only bought 30. He plans to buy in the other 20 in January. So for 2019 he bought 30 cattle and sold 50. In 2020 he will buy in 70 cattle and sell 50....................How does this effect his tax bill for both years?

The way I see it, he carries over the value of the 20 stores into the 2020 tax year as cash. Working capital, if you like. That way he evens out both years and avoids having a huge tax bill this year (2019) and little or no tax in 2020.

Bass Reeves

Lots of lads have never adjusted there stock values. They may have a low value /head below replacement value. Stock value 500/head, replacement value 1050/head. This leaves a net profit on 30cattle of16500 which is taxable. At high rate could leave a tax bill of 8k+

One great reason for Friesians low stock values are easily adjusted.

Panch18

patsy_mccabe wrote: »

This is something that keeps popping up on this forum especially at this time of year. I've also seen it here at home over the years.

It's the whole end of tax year thing about keeping down tax. Farmers etc rushing out to buy stores so as to keep down their tax bill. Maybe an accountant on here could explain it better than me, but the way I see it is people get confused between Cash On Hand and Profit. I asked an accountant once at work about it and that's how he put it to me. "Don't get confused between cash and profit."

Here's an example. Joe buys and finishes 50 cattle every year. This year due to having trouble getting cattle into the factory, he wasn't able to buy back in the 50 stores he normally does. He only bought 30. He plans to buy in the other 20 in January. So for 2019 he bought 30 cattle and sold 50. In 2020 he will buy in 70 cattle and sell 50....................How does this effect his tax bill for both years?

The way I see it, he carries over the value of the 20 stores into the 2020 tax year as cash. Working capital, if you like. That way he evens out both years and avoids having a huge tax bill this year (2019) and little or no tax in 2020.

Won't your profit be increased by the lack of purchases of replacement stock?

Having a lower closing stock number increases your profit for 2019

patsy_mccabe

Panch18 wrote: »

Won't your profit be increased by the lack of purchases of replacement stock?

Having a lower closing stock number increases your profit for 2019

No, that's the point I'm making.
Say, in the case above, if the 20 stores are valued at 1,000 each. It doesn't matter if that €20,000 is sitting in the bank account or standing out in the yard as 20 store cattle. It doesn't effect your taxable income.

I was hoping some accountant might explain it better than me. To me it's covered in the value of the cattle, as opening and closing stock for the year.

JeffKenna

patsy_mccabe wrote: »

This is something that keeps popping up on this forum especially at this time of year. I've also seen it here at home over the years.

It's the whole end of tax year thing about keeping down tax. Farmers etc rushing out to buy stores so as to keep down their tax bill. Maybe an accountant on here could explain it better than me, but the way I see it is people get confused between Cash On Hand and Profit. I asked an accountant once at work about it and that's how he put it to me. "Don't get confused between cash and profit."

Here's an example. Joe buys and finishes 50 cattle every year. This year due to having trouble getting cattle into the factory, he wasn't able to buy back in the 50 stores he normally does. He only bought 30. He plans to buy in the other 20 in January. So for 2019 he bought 30 cattle and sold 50. In 2020 he will buy in 70 cattle and sell 50....................How does this effect his tax bill for both years?

The way I see it, he carries over the value of the 20 stores into the 2020 tax year as cash. Working capital, if you like. That way he evens out both years and avoids having a huge tax bill this year (2019) and little or no tax in 2020.

It totally depends on what Joe is valuing the cattle at in his accounts. If he values each bullock at €500 and comes along and buys in December for €1,000 then Joe is artificially creating a loss in December which is reflected in his accounts and tax. Aka he's buying an animal for 1,000 that on his books is worth 500.

Say my name

Most farmers now are paying their tax by availing of income averaging over the last five years.
Well I'd hazard a guess they are..
So the above between years shouldn't matter a damn. And cattle farmers make a loss every year..

Unless of course the previous years were close to the upper limit of the lower tax band and this year is well up on profit and ye're still pushed up into a different tax band even over the last five years.

Mooooo

Telling myself as much as anyone else here, but accounts should be done in Jan and plan out ahead for the year then. On the livestock as well off to value them correctly I'd say. Hit with tb here and have the cow's valued at 1500 which is what they came in or around at. If we had them valued lower there would have been a higher tax liability associated with the compensation

Bass Reeves

Say my name wrote: »

Most farmers now are paying their tax by availing of income averaging over the last five years.
Well I'd hazard a guess they are..
So the above between years shouldn't matter a damn. And cattle farmers make a loss every year..

Unless of course the previous years were close to the upper limit of the lower tax band and this year is well up on profit and ye're still pushed up into a different tax band even over the last five years.

You cannot use income averaging if you are working as well. Very popular on the dairying side but not as popular with drystock

Best thing is to keep stock at or near real value.

Dunedin

Bass Reeves wrote: »

You cannot use income averaging if you are working as well

Are you sure about this? I think that changed in the 2018 finance act and it was allowed from 1 jan 2019 regardless if you were working off farm.

Bass Reeves

Dunedin wrote: »

Are you sure about this?

Unless tax regulations have changed in last few years yes. As well they cannot be used in loss making situation.

Dunedin

Bass Reeves wrote: »

Unless tax regulations have changed in last few years yes. As well they cannot be used in loss making situation.

I think they changed this year re working and yes loss making can’t be considered.

Cavanjack

Always meet lads in the mart saying they need so many cattle before the end of the year. They will then buy cattle that will leave little or no profit.
I’ve asked my accountant a few times about this but she can’t understand it. As far as I remember She said you just adjust your stock value to suit.

148multi

patsy_mccabe wrote: »

No, that's the point I'm making.
Say, in the case above, if the 20 stores are valued at 1,000 each. It doesn't matter if that €20,000 is sitting in the bank account or standing out in the yard as 20 store cattle. It doesn't effect your taxable income.

I was hoping some accountant might explain it better than me. To me it's covered in the value of the cattle, as opening and closing stock for the year.

It could effect your tax bill, what you had the store cattle valued at would have a big impact on the tax bill. But 20 cattle valued at 1000 and sold for 1000 = 20000 sales, then stock value is minus 20000. But you may have paid tax on the 20000 stock value previously anyway (maybe).

jd06

Hi
I could be slightly off topic
I have a few Bob extra this year and I don't want a big tax bill
Could I hypothetically speaking take 2 grand out in cash to pay for silage bales off donedeal
Could I then put the 2 grand down as a farming expense and put the money in an account for college fund.

K.G.

jd06 wrote: »

Hi
I could be slightly off topic
I have a few Bob extra this year and I don't want a big tax bill
Could I hypothetically speaking take 2 grand out in cash to pay for silage bales off donedeal
Could I then put the 2 grand down as a farming expense and put the money in an account for college fund.

Not tax deductible if you dont have a receipt

Mooooo

What age is the child? Once over 14? Maybe 16 they can get a wage from the farm for whatever jobs they do. Not sure how that would work in an end of year context with the new revenue rules on tracking wages tho

jd06

K.G. wrote: »

Not tax deductible if you dont have a receipt

So if I buy 20 bales off a neighbour I cannot put it down as an expence or if buy a mower off donedeal can I not put that down as an expence?

Jb1989

K.G. wrote: »

Not tax deductible if you dont have a receipt

Home made receipt, as most farmers selling bales don't have docket books.

K.G.

jd06 wrote: »

So if I buy 20 bales off a neighbour I cannot put it down as an expence or if buy a mower off donedeal can I not put that down as an expence?

If you write a check or bank transfer ok but if you hand over cash without a receipt its not tsx deductible

patsy_mccabe

I have a scanner here and always scan a cheque if buying from other farmers etc, before I hand it over. You can always just take a photo of it too.

kk.man

patsy_mccabe wrote: »

I have a scanner here and always scan a cheque if buying from other farmers etc, before I hand it over. You can always just take a photo of it too.

Very good idea. Was thinking of this recently. Sheep shearer nor straw men don't give me a receipt.

I'll take a pic on my phone in future.

Jb1989

kk.man wrote: »

Very good idea. Was thinking of this recently. Sheep shearer nor straw men don't give me a receipt.

I'll take a pic on my phone in future.

Whats wrong with cheque stub or the carbon copy?

whelan2

jd06 wrote: »

Hi
I could be slightly off topic
I have a few Bob extra this year and I don't want a big tax bill
Could I hypothetically speaking take 2 grand out in cash to pay for silage bales off donedeal
Could I then put the 2 grand down as a farming expense and put the money in an account for college fund.

You can gift 3k a year tax free to a close family member

Donald Trump

Bass Reeves wrote: »

Best thing is to keep stock at or near real value.

I wonder how far negative can you go on calf values? If we are putting down real value......

bossdrum

The OP is correct regarding it not making a difference whether the replacements are bought in Dec or Jan. The profit is the same because the cost is offset by the increase in closing value.

Buying extra bales at the end of year has the same effect because unless the cattle have eaten them all then they should be shown as closing stock as well.

MIKEKC

whelan2 wrote: »

You can gift 3k a year tax free to a close family member

Not only a close family member I think , to anyone

whelan2

MIKEKC wrote: »

Not only a close family member I think , to anyone

I asked accountant during the summer. I could give it to my sister but not my brother in law for some reason. Maybe I'm wrong but it could help a few people out

bossdrum

whelan2 wrote: »

I asked accountant during the summer. I could give it to my sister but not my brother in law for some reason. Maybe I'm wrong but it could help a few people out

How would it help reduce your tax bill?
If it's a gift you can't claim it as an expense.

patsy_mccabe

Jb1989 wrote: »

Whats wrong with cheque stub or the carbon copy?

Nothing...... just added peace of mind to have another exact copy.

Mooooo

whelan2 wrote: »

You can gift 3k a year tax free to a close family member

It's tax free to the recieving party, you'll still have to account for that for when you earned it

whelan2

Mooooo wrote: »

It's tax free to the recieving party, you'll still have to account for that for when you earned it

Yes it's a help out for your kids etc. Or if you receive it yourself it's tax free

MIKEKC

whelan2 wrote: »

I asked accountant during the summer. I could give it to my sister but not my brother in law for some reason. Maybe I'm wrong but it could help a few people out

Looks like accountants differ.