Q4 farm tax planning: what needs to happen, and when?

Written by Tim Borgmann, Senior Tax Manager

We often think of December 31 as one big tax deadline, but it doesn’t really work that way.? Tax planning is something that can happen all year long. Some tax planning items simply require more time to implement. A common timeframe to consider is the final three months of the year. Utilizing the last quarter of the year means you have nine months of financial data as a starting point for planning with three more months to implement a plan.   

Some decisions must be made early enough to leave time to act. You may need to purchase equipment, arrange financing, or work with other parties to execute transactions before the end of the year. Other decisions can reasonably wait until closer to year-end, once you have a clearer picture of where the year will finish. And some important work can even happen after year-end.

The best approach is to work backward from what actually needs to happen by the end of the year. That tells you what needs attention early, what can wait until later in the quarter, and what can properly carry into the new year.

Start early with anything that needs time to execute 

Start with the items that need attention early in the quarter. For these items, making the decision is only the first step. You still need time to complete the transaction. 

Farm equipment is a good example. Lets say you are planning to buy a $75,000 skid steer and want the depreciation to impact the current tax year.  Simply deciding to buy it in December may be too late.   

Two important depreciation tools available to taxpayers are Section 179 and bonus depreciation. To elect these options, qualifying property generally needs to be placed in service during the current tax year. That means the machine may need to be ordered, delivered, installed, and ready for business use before year-end. If financing is involved, or the equipment has a long lead time, don’t wait until December to start. 

The same thinking applies to other transactions that involve outside parties. If a strategy requires financing, legal documents, an appraisal, a plan administrator, or another professional, give yourself enough time to finish it. 

The tax deadline may be December 31, but the practical deadline could be in October.

Use your updated forecast to make decisions that can wait

The second group of decisions comes into focus once you have a better estimate of how the year will finish. This is why October and November forecasting matters. 

Say in June you expect $500,000 of farm income, but after harvest, stronger yields or better prices have you projecting closer to $700,000. That change may affect your plans for retirement contributions, compensation, charitable giving, capital gains and losses, and other year-end strategies. 

You don’t need to make all of those decisions in October. But you do need enough information to know which decisions belong on your list. 

Retirement planning is a good example. Depending on the plan and your situation, you may need to make an elective deferral decision before year-end, even though the contribution itself can be funded later. That makes November or early December a reasonable time to decide. If you wait until tax preparation, you may still be able to fund certain contributions, but you could lose the chance to make an election that had to be made during the prior year. Gifting and estate planning are another example. With the higher federal estate tax exemption preserved under the One Big Beautiful Bill Act, farmers have more room to transfer assets through lifetime gifts, trusts, and annual exclusion gifts. Annual exclusion gifts must be completed by December 31.   

That’s why the forecast comes first. You want to make these decisions when you have enough information to make them well, but still have time to act.

Separate the decision from work that can happen next year

Finally, identify the tax work that can wait until next year. Not everything has to be finished in December. Some actions can happen after January 1, even if you made the decision earlier. 

A Section 179 election is generally made with the tax return, even though the property itself needs to have been placed in service during the relevant tax year. Taxpayers may expense up to $2,560,000 of qualified assets?per year, with this limit adjusted annually for inflation. 

An S corporation election is another good example. Let’s say your farming operation wants to be taxed as an S corporation beginning January 1. The federal election may not be due by December 31, but you’ll still want to decide before the new year begins. You may need to set up payroll for family members or owners working in the operation. Reasonable compensation also needs to be considered, and the change could affect how you handle bookkeeping, estimated taxes, and distributions from the farm. So, the filing deadline tells you when the form is due, but your farming operation tells you when you need an answer. 

That distinction matters throughout fourth-quarter planning. Decide early enough to preserve the strategy, then complete the pieces that can happen later on the proper schedule.

Explore new tax opportunities

• Section 180 – Allows for the current deduction of certain soil and water conservation expenses, including fertilizer, by taxpayers engaged in farming.
• Section 167 – Provides for depreciation deductions on property used in a trade or business or held for the production of income.
• Section 168 – Establishes the rules for depreciating assets that last beyond one year, typically under Modified Accelerated Cost Recovery System (MACRS).

Our agribusiness team works with farmers to identify potential opportunities in R&D and residual fertility, evaluate whether activities meet the tax rules, and build practical documentation processes that fit real farm operations. 

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