Tax in Farming

Earnshaw

A friend has a full time job paying 50k and a farm enterprise which this year will have 50k left in the account at the end of the year.

I told them about depreciation of assets but what are their other options to avoid paying 21k tax on this profit (50k x 42%)?

Mooooo

Tell him to talk to an accountant. If he still has capital allowances to take that 50k isn't profit

893bet

Any close family member that do work and can be given a wage?

E.g wife or teenage children

longgonesilver

Is this his normal level of profits or is there exceptional circumstances this year?

Earnshaw

Mooooo wrote: »

Tell him to talk to an accountant. If he still has capital allowances to take that 50k isn't profit

There will be 50k left over. Can you explain capital allowances?

Earnshaw

longgonesilver wrote: »

Is this his normal level of profits or is there exceptional circumstances this year?

Not normal. Extra cash is from decreasing stock numbers.

Earnshaw

893bet wrote: »

Any close family member that do work and can be given a wage?

E.g wife or teenage children

Can the family member be paid a lump sum or do payments need to shown coming out over the year?

Mooooo

Earnshaw wrote: »

There will be 50k left over. Can you explain capital allowances?

Capital allowances are writing off any machinery building etc over a period of time. If it's reduced stock he'll have he'll also have lower closing stock as opposed to opening stock. He should really talk to an accountant, the accountant may save a lot more than what they'll cost

KAMG

Mooooo wrote: »

Capital allowances are writing off any machinery building etc over a period of time. If it's reduced stock he'll have he'll also have lower closing stock as opposed to opening stock. He should really talk to an accountant, the accountant may save a lot more than what they'll cost

They should really talk to an accountant. They should probably have had an accountant doing the accounts and tax every year for them before this too. God knows what sort of returns were going in to Revenue!

dzer2

Should really talk to an advisor but won't be profit as stock is lower so it will be sorted in balance sheet but should looks at forward buying or pension

realtec

what type of farm enterprise is your friend involved in exactly?

893bet

Earnshaw wrote: »

Can the family member be paid a lump sum or do payments need to shown coming out over the year?

Needs to be real time. So make a payment each month for the next 4.

Need to be aware of their earnings. If your wife works externally also is on the higher tax bracket then she will pay half in tax and there is no point to the exercise.

wrangler

Earnshaw wrote: »

A friend has a full time job paying 50k and a farm enterprise which this year will have 50k left in the account at the end of the year.

I told them about depreciation of assets but what are their other options to avoid paying 21k tax on this profit (50k x 42%)?

In come tax on a farm is never as much as you think, get an accountant, even if they don't save you much it's more rewarding than paying tax in this country.
My accountant has saved me (hundreds of ) thousands

duffysfarm

if the extra cash in your bank account is due to stock been sold and you have less stock than last year then that necessarily doesn't mean you will be taxed on the €50k. you are not taxed on cash in bank but on profits in a year. if the stock were properly valued in the last set of accounts then you will only be taxed on the increase in value of these stock in the year.

to be honest there are not many farms making €50k profit in a year unless you are in dairy or farming on a large enough scale. if your friend is working full time earning €50k then its hard to see how he could be earning another €50k a year part time farming.

as other posters have said, get an accountant or at least speak to one.

J.O. Farmer

893bet wrote: »

Needs to be real time. So make a payment each month for the next 4.

Need to be aware of their earnings. If your wife works externally also is on the higher tax bracket then she will pay half in tax and there is no point to the exercise.

Paying your wife might be of limited value if she works at all. Isn't joint assessment normally most beneficial for married couples.

Dickie10

someone dairying might be earning that, may have a farm manager while they work the day job.

Earnshaw

Are there things he could purchase in order to decrease the amount of taxable money left over before the end of year?

memorystick

Just finished the accounts last night and I made a massive 9k from 70+ acres last year! What a waste of time. Am I the only 1?

memorystick

memorystick wrote: »

Just finished the accounts last night and I made a massive 9k from 70+ acres last year! What a waste of time. Am I the only 1?

Maybe I'm mad but 9k extra in clean profit is not bad when added to an off farm income. If you are paying tax at the higher rate in your off-farm job you would need an 18k pay rise to get 9k more.

Breaking even is about all we do most years (including the SFP).

wrangler

memorystick wrote: »

Just finished the accounts last night and I made a massive 9k from 70+ acres last year! What a waste of time. Am I the only 1?

Is that including SFP, Farmers need to concentrate on schemes now for income, This talk of getting profit from the market is BS
I got a letter from Inland revenue this morning with reports going back to 2014.... like WTF. I hate to think of them sniffing around, My aim of wasting money rather than paying tax must be making them suspicious, The tax free lease must be annoying the hell outa them.
The joke is they owe me money now after all their messing, I have to say it's only a nominal amount they owe me, my accountant must be on the ball

duffysfarm

can you do my tax return for me?

memorystick wrote: »

Just finished the accounts last night and I made a massive 9k from 70+ acres last year! What a waste of time. Am I the only 1?

patsy_mccabe

As said above - Don't make the classic mistake of thinking you pay tax on cash in your farm account.
You only have to pay tax on profit. Your accountant can account for different numbers of stock (cattle) from year to year tru opening and closing stock values. Also don't buy machinery you don't need to just keep down tax. You can spend the money on things that will make you money or make life less stressful like- better fencing, lime, handling facilities etc etc

jfh

patsy_mccabe wrote: »

As said above - Don't make the classic mistake of thinking you pay tax on cash in your farm account.
You only have to pay tax on profit. Your accountant can account for different numbers of stock (cattle) from year to year tru opening and closing stock values. Also don't buy machinery you don't need to just keep down tax. You can spend the money on things that will make you money or make life less stressful like- better fencing, lime, handling facilities etc etc

Just picking up on lime, I get that it's beneficial but from a tax perspective, you can't do much with it?

Earnshaw

memorystick wrote: »

Just finished the accounts last night and I made a massive 9k from 70+ acres last year! What a waste of time. Am I the only 1?

Depends how many hours ur putting in - but if it's around 20/week then 9k after tax is OK?

Cavanjack

Maren Creamy Tattoo wrote: »

Maybe I'm mad but 9k extra in clean profit is not bad when added to an off farm income. If you are paying tax at the higher rate in your off-farm job you would need an 18k pay rise to get 9k more.

Breaking even is about all we do most years (including the SFP).

Think about all the household items you are after paying for through the farm. Phone bills, Esb, heat, a percentage of running a car maybe, pension etc. Work that out and see how much it would cost if paying it with money from a paye job. You’ll find you didn’t do too bad.

patsy_mccabe

jfh wrote: »

Just picking up on lime, I get that it's beneficial but from a tax perspective, you can't do much with it?

Not in the sense of a writeoff over a number of years.
But for every 1000 Euro you spend on lime, you pay 500€ less tax. That lime will then go on to give returns in years to come in better land, better cattle etc.

At 2 tonne per acre, it works out at only €25 per acre spread. A good investment in my book.

Cavanjack

Cavanjack wrote: »

Think about all the household items you are after paying for through the farm. Phone bills, Esb, heat, a percentage of running a car maybe, pension etc. Work that out and see how much it would cost if paying it with money from a paye job. You’ll find you didn’t do too bad.

Yes I was going to point out there is hidden savings of course but I hadn't time when I posted to go into more detail.

One thing I am getting conflicting feedback on long term off-setting of farm tax costs against the off farm income tax. i.e. farm not making enough profit to get the benefits of all the tax write offs so putting against off farm income instead.

Ive been told I can only write off for the first few years and then you have to keep them separate but I don't see why it can't always be done.

Dinzee Conlee

Maren Creamy Tattoo wrote: »

Yes I was going to point out there is hidden savings of course but I hadn't time when I posted to go into more detail.

One thing I am getting conflicting feedback on long term off-setting of farm tax costs against the off farm income tax. i.e. farm not making enough profit to get the benefits of all the tax write offs so putting against off farm income instead.

Ive been told I can only write off for the first few years and then you have to keep them separate but I don't see why it can't always be done.

My tax returns are always a combination of farm + off-farm

The farm must be run as a commercial operation. Meaning the aim is to make a profit. I dont think its a revenue definition - but I heard you would want to be making a profit at least 1 in 3 years to avoid bring too much attention to yourself...

Dinzee Conlee

Dinzee Conlee wrote: »

My tax returns are always a combination of farm + off-farm

The farm must be run as a commercial operation. Meaning the aim is to make a profit. I dont think its a revenue definition - but I heard you would want to be making a profit at least 1 in 3 years to avoid bring too much attention to yourself...

Our farm basically never makes a profit everything has been pumped back into it incl the SFP for many years building sheds, buying machines, improving the yard etc. I remember when my father took over first he was getting thousands back in tax for the first few years (all tax he was paying off farm). Then his accountant said he had to stop using his off farm tax.

I’m starting out now and want to maximise the tax savings against my off farm income but it’s a pain if I can’t keep writing off stuff against tax paid off farm as there likely won’t be enough farm income to fully use up all the tax write offs possible.

Dinzee Conlee

Maren Creamy Tattoo wrote: »

Our farm basically never makes a profit everything has been pumped back into it incl the SFP for many years building sheds, buying machines, improving the yard etc. I remember when my father took over first he was getting thousands back in tax for the first few years (all tax he was paying off farm). Then his accountant said he had to stop using his off farm tax.

I’m starting out now and want to maximise the tax savings against my off farm income but it’s a pain if I can’t keep writing off stuff against tax paid off farm as there likely won’t be enough farm income to fully use up all the tax write offs possible.

Work with your accountant, tell them your plans and ask them what’s the best way to go about it...

it it might be more tax efficient to invest at a more sustainable rate? Or maybe only invest heavily every second year?

Edit - I would have said you should have a fair whack of capital allowances build now? Might be worth chatting that through with the accountant as well?

Sugarbowl

Without going off topic, what happens when you get the pension and still farming? Is it taxable? Does the accountant include it as wages similar to an off farm job in the books?