Are you are a Christmas tree grower who has not made any estimated payments for 2020 taxes? Don’t worry! You may avoid penalties if you file your tax return by March 1 and pay the entire balance due.
Estimated Payments – General Rule
Generally, the IRS requires businesses and individuals, including Christmas tree growers, to make estimated tax payments throughout the year. The IRS may assess a penalty if estimated tax payments are not made evenly throughout the year.
However, there is a special rule for “farmers” because farming income can vary greatly from year to year. Paying estimated taxes at the right time is one of the best ways for Christmas tree growers to improve cash flow.
Who is a “Farmer” for Estimated Tax Purposes?
To be considered a “farmer,” at least 66.66% of the Christmas tree grower’s total gross income as shown on the tax return must have been from farming activities for either the current tax year or the prior tax year.
The IRS considers Christmas tree growing “farming,” as well as other farming activities that involve cultivation or raising agricultural commodities, such as growing crops or raising livestock.
Estimated Payments Exception for Farmers
If a grower is a “farmer” for estimated tax purposes, the IRS only requires one estimated tax payment, due on January 15 of the following year. The required estimate amount (to avoid a penalty) is the smaller of (1) 66.66% of the grower’s current year tax or (2) 100% of the grower’s prior year tax.
Alternatively, a farmer does not have to make the January 15 payment if he files his individual tax return and pays all taxes due by March 1.
If you are a Christmas tree grower who is also considered a “farmer” and have not paid any estimated taxes yet, you should try to file your tax return by March 1 to avoid any penalties.
Conclusion
Making estimated payments at the right time is one of the best ways for Christmas tree growers to improve cash flow. However, a grower must pay any required estimates by January 15 or file his tax return by March 1 to avoid any penalties. If a grower is unsure if he will be able to file his tax return and pay the entire balance due by March 1, he should make the January 15 payment.
Have questions about making estimated payments? Contact Andrew!
