Even More Reason Not To File on March 1

Farmers who file and pay their taxes by March 1 are not required to pay estimated taxes on January 15. However, with higher interest rates, this may not be the best idea.

The Income Tax Code has a provision that allow all taxpayers the option to not pay estimated tax payments if you file and pay all of your income taxes by January 31 each year. However, if you are a farmer, you are allowed to defer this date to March 1.

This is commonly referred to as the farmer’s due date. It is not technically the due date. That remains April 15.

As returns have gotten more complicated with waiting for 1099s from brokerage companies, the investments in partnerships and related complexity, the value from filing by March 1 has rapidly diminished.

Now with higher interest rates, the value is even lower.

A farmer who does not file by March 1 is required to make an estimated tax payment on January 15 of the year after the return year. For example, for 2022, the farmer is required to make one payment on January 15, 2023.

The required amount is the lesser of 100% of 2022 tax or 66.67% of the expected 2023 income tax liability. Most states have similar requirements.

With interest rates in the 7-10% range, filing and paying 100% of your taxes by March 1 can cost a farmer a fair amount of “interest”. Let’s take a look at a couple of examples:

Grant and Jane file jointly. In 2022, they owed $5,000 of tax. In 2023, they will owe $50,000 of tax. If they make their $5,000 estimate tax payment on January 15, they are required to pay the remaining $45,000 on April 15. They save interest on the $45,000 from March 1 to April 15. Assuming an 8% interest rate, the couple saves $450 of interest.

Let’s assume they elect to not pay the $5,000 on January 15. They will owe about $75 estimated tax penalty (which is really interest but it sounds worse calling it a penalty), but this if their interest rate is higher than the IRS rate, they are still better off.

In my opinion, there is no longer any reason for a farmer to file their income tax return by March 1 simply to not have to pay an estimate on January 15. Also, any farmer return prepared in the last week of February may not be the most accurate return of all time.