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Deferred Sales Contracts

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April 11th, 2012

We had a reader ask the following question:

“I am delivering 5000 bu of soybeans to the elevator today and will price them at today’s market. I want to receive the money in Jan. 2013 to keep this income out of 2012. do I need to have anything in the contract with CGB for IRS purposes?”

Farmers are one of the few businesses that are allowed to sell their inventory on the installment method and report their income in the year that they receive the cash (assuming cash method farmer), rather than in the year of sale.

In this case, our farmer needs to make sure that the contract with the local elevator has the following terms:

  • Specifying what is being sold, i.e. 5,000 bushels of soybeans,
  • The price that is being paid
  • The date when the proceeds will be paid
  • Terms that the soybeans have been delivered to the warehouse and this is an actual sale of the product, not a deferred delivery

Almost all warehouses use these contracts and the farmer should be able to take advantage of delaying the reporting of the sale until 2013.

Remember, that in may cases you may want to accelerate this income into 2012 even though the cash is received in 2013.

Paul Neiffer

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a partner with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation.

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