Don’t Leave Money on the Table: Common Deferred Payment Contract Mistakes
Deferred Payment Contracts are a great tax tool for farmers, but you must be careful
Deferred payment contracts are one of the best tax planning tools available to grain farmers. But like most good tools, they only work well when used correctly. Over the years, we have seen farmers make the same mistakes repeatedly, and unfortunately, those mistakes can cost them thousands of dollars in unnecessary taxes.
Let me explain how these contracts work and where things tend to go wrong.
Why Deferred Payment Contracts Help with Taxes
Most farmers use the cash method of accounting, which means you report income when you actually receive the cash and not when you deliver the grain. A deferred payment contract takes advantage of this by allowing you to deliver grain in one year but receive payment in the next. The result is that the income shifts into the following tax year, giving you more control over when it hits your return.
