End-of-2021 Tax Considerations, Including New Info for PPP Recipients
As the end of 2021 and the beginning of 2022 are in sight, it’s the season for reflection, assessment, and planning. When it comes to your farm business, there are several strategies that John Barnard, owner of John M. Barnard, CPA, PA, a certified public accounting firm in Statesville, recommends. John is one of two appointed directors on the Carolina Farm Credit Board of Directors. As a tax specialist who works extensively with the agricultural community, John recommends taking time to look at the financial aspect of your business.
COVID Pandemic Implications and What You Need to Know Now
- Ask your CPA about the State of North Carolina’s recent changes regarding the Paycheck Protection Program (PPP). “It is a biggie for farmers because a lot of them got PPP money,” says John. Last year, PPP money was not taxed at the federal level and you could deduct PPP expenses. However, at the state level, you had to add back PPP expenses as income.
A recent amendment to the state law changes that, and it is retroactive for 2020 and going forward for 2021 returns. John says this will require amending 2020 returns, which will reduce your North Carolina income, and enhance refunds or reduce the amount paid in state taxes. He expects guidelines to be forthcoming from the N.C. Department of Revenue. “We don’t know if it will be a standard amendment process or streamlined, but anyone who has or is part of the Paycheck Protection Program needs to be aware of this change by the State of North Carolina.”
- Consider setting up direct deposit, often referred to as automated clearing house (ACH), to receive tax refunds, stimulus money, and child credits more quickly. People who had direct deposit set up with the federal government, received refunds and stimulus money much more quickly, often within days of the announcement. Conversely, those who did not often had to wait months to receive money.
Other Strategies to Optimize Your Financial Situation and What to Do Now
- Review your financial situation and your goals. “We don’t expect substantial changes to tax brackets moving into 2022,” says John. If you have a planned upgrade for equipment or other improvements, now is the time to assess whether it’s wisest to make the purchase before the end of the year or whether it may make sense to wait until the New Year. Or if you need to decide whether to take income now or in 2022, now is the time to review your records and talk with your CPA. The best way to make a wise decision is to turn to good recordkeeping and seek counsel from your CPA.
- Make a plan for 2022 and maintain good records. If you haven’t already, now is a good time to look at this year’s records and assess where you stayed on track and what you may need to adjust in the coming year. Write down your goals for the coming year. Pencil in on your calendar time to review your plan quarterly. At the beginning of the last quarter, in October, schedule time to begin reviewing your end-of-year tax strategies with your CPA. What seems to be a simple task is key to success. “When you have your plan in place and review it on a regular basis, it’s easier to stay on track and make any necessary adjustments along the way,” says John. “It helps avoid unwanted surprises at the end of the year when you may not have time to auto correct. You cannot make good decisions if you don’t have good records.”
- Seek trusted advice in planning for the future. Whether it’s saving for college, retirement planning, succession planning, or some other matter that requires careful thought and planning, it’s never too soon to start. Talk with trusted advisors, your Carolina Farm Credit lender, or other farmers for contact information for helpful professionals.
As a farmer, you likely prefer spending your time working with crops or animals. As a businessperson, you know spending time on your financial well-being is crucial. In this end-of-year season of reflection, John turns to advice from a sign on his desk: “Love what you do, know that it matters, and have fun doing it.”
By Leah Chester-Davis