24 October 2024

Tax Planning and Smart Investments Key as Harvest Prices Announced

Michael Hennessy, Head of Crops Knowledge Transfer, discusses tax planning, and investment decisions, including machinery upgrades, drainage maintenance, and soil management.

This week, major grain buyers announced their harvest prices. While some may be disappointed that prices are not higher, over the next few weeks, farmers will be settling their final payments with merchants. In the past couple of weeks, most farmers have also received part of their BISS and Eco Scheme payments, while others have received partial ACRES payments.

Tax planning will be on the minds of many as the tax deadline approaches in mid-November. During this time, farmers and their accountants will focus on minimising tax payments to maximise the value derived from farm income.

It might be tempting for some farmers to invest in more machinery to reduce their tax bill, but having a significant tax bill in any particular year—though it may not be this year—is not an ideal starting point for such investments. Before meeting with your accountant, gather as much information as possible about areas on the farm where necessary expenditures can yield long-term benefits. This will enable you to ask more specific questions about how to reduce your overall tax liability. Obvious areas such as pensions, adequate wages for family members, and other tax-saving measures should all be considered before thinking about machinery purchases.

Of course, I am not against machinery investments. For farmers with a sound, well-planned machinery replacement policy, it makes sense to upgrade equipment over time to maintain efficiency. Teagasc has an excellent machinery cost control planner that helps farmers analyse their overall machinery costs, not just for 2024, but projecting these costs over the coming years. This tool can be used to factor in additional machinery purchases to assess their impact on the farm’s overall financial picture.  Contact your local advisor to assess your machinery costs.

Over the last two years, the issue of land drainage and maintenance has become apparent on many tillage farms. In a survey conducted by Teagasc at the start of last year involving over 420 participants, those with winter crops reported there was between 6% and 25% of the area which needed to be replanted due to wet conditions. A similar survey of farmers at the Teagasc Tillage Forum this September found that almost 51% of respondents only check drains when a problem arises in the field. Once this happens, it’s often too late to recover the lost crop, resulting in reduced yields.

The old saying “a stitch in time saves nine” is particularly relevant here. While land drainage is expensive, maintaining drains along field edges to prevent blockages is relatively inexpensive and highly effective. In fact, it’s the best way to protect your previous investment in drainage. With the favourable weather and good soil conditions at present, take some time to assess your farm’s drainage needs—this may be a more worthwhile investment than other areas, providing returns for years to come.

Although many tillage farmers are diligent about testing soils for nutrient status, the follow-up action of applying lime—one of the most essential elements for crop growth—can often be slower than necessary. While the cost of lime has risen like other inputs, it remains one of the most wortwhile investments, ensuring that nutrients are used efficiently. Check your soils over the next few weeks to determine if additional lime is needed, and in many cases, lime may only be required in certain areas of a field rather than across the entire field.