DROUGHT AND TAXES

Boy do I hate having to write this blog item.  Because of this year’s record drought we are most likely going to see a large amount of crop insurance claims.  The question I always get is “I received a check for $100,000 for crop insurance, do I have to claim that as income this year?” 

Fortunately the tax code is good to farmers.  Normally crop insurance proceeds due to crop damage (not price drops) are taxable in the year of receipt; but, the tax laws do allow a farmer to make a deferral until the next year assuming that the farmer meets the following:

·         The crop insurance proceeds are for the current year crop, i.e. crop insurance proceeds for 2012 crop damage received in 2012 can be deferred to 2013. 

·         Note If the proceeds for the 2012 crop are received in 2013, then no deferral is available

·         AND, You have a history of reporting more than 50% of crop sales in the subsequent year. 

·         For example
·        If the farmer harvests 100,000 bushels in 2011 and sells all 100,000 by the end of 2011, then he cannot defer his crop insurance. 

·         If, however, he normally would sell 50,001 or more bushels in 2012, then he can defer his crop insurance proceeds.

The election to defer is made on the tax return.

Note that price adjustment payments do not qualify for the deferral.

KO PLANNING TIP:  If you normally sell all of your crop in the year of harvest, you still may be able to “defer” by getting the insurance check after the first of the year.