You Can Have Interest on Deferred Payment Contracts
Many farmers sell their grain, but enter into a contract to defer payment to next year or beyond. It is OK to have interest in these contracts.
Farmers who want to lock in a good price for their grain but do not want to recognize taxable income in the current year will sell their grain using a deferred payment contract.
As a tax advisor, we really like having farmers have multiple contracts since this is treated as an installment sale and in the year of sale, the farmer can elect out of the installment sale treatment (report the sale when cash is received) and instead, report the sale in the current year.
This has to be on a contract-by-contract basis, therefore, we really like having multiple contracts; some small, some medium, and some large.
As an example, assume Jane sells 50,000 bushels of soybeans for $600,000. She can enter into a deferred payment contract for 2,500 bushels, 5,000, 10,000, etc. When we prepare the return, we see that her income is too low by $60,000. We elect to bring the 5,000-bushel contract into income, and this increases taxable income to the optimum amount.