NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
March 16, 2000
Employees and the self-employed. Rural and urban residents. One personal responsibility many of these people share is their role as taxpayers. Here's another: Regardless of how or where North Dakotans earn their incomes, they should be thinking about state and federal taxes year-round, not just on the days leading up to the filing deadline, says a tax professor at North Dakota State University.
"Taxpayers who plan throughout the year will pay less tax than those who only do year-end planning or who don't plan at all," says Terry Knoepfle, an associate professor of taxation and business law at NDSU. "Making the right moves, from a tax-planning standpoint, can save hundreds and perhaps even thousands of dollars in taxes."
Saving for retirement is one area that provides many tax-reducing opportunities. For example, employees should maximize their contributions to employer savings plans such as a 401 (k). Self-employed taxpayers, including farmers and ranchers, should be utilizing a Keogh or a Simplified Employee Pension (SEP) plan.
Knoepfle says, "Both the 401 (k) and the Keogh or SEP plans involve pretax dollars and will directly reduce an individual's income tax obligation. A key with either type of plan is to make the contributions as early in the year as possible. The sooner you start sheltering income from taxes, the better."
Another savings option is the Roth Individual Retirement Account (IRA), Knoepfle says. Even though investors must contribute post-tax dollars and therefore can't claim a current-year income tax deduction, all subsequent growth and earnings are tax-free upon withdrawal.
Timing the sale of investments such as stocks and mutual funds can also reduce income taxes. Investors who hold onto securities longer than 12 months will benefit from more favorable tax rates, Knoepfle says.
Likewise, the flexible spending accounts (FSAs) offered by employers provide tax advantages for employees. Knoepfle explains, "An FSA uses pretax dollars to pay for medical and dependent care. If a person's combined federal and state tax rate is 40 percent, then contributing $3,000 to an FSA would produce $1,200 in tax savings."
One more point employees should not overlook when considering their tax situation is their rate of payroll withholding. Knoepfle says it's advisable not to use withholding as a way to save because the federal government doesn't pay interest on that money.
"Ag producers really need to have an experienced tax advisor who they can consult year-round," Knoepfle says. "And this advisor should have expertise in farm tax matters."
Knoepfle offers ag producers the following tax tips:
General information regarding such topics as IRAs and other educational materials involving family resource management are available through county offices of the NDSU Extension Service.
Source: Terry Knoepfle (701) 231-7549
Editor: Dean Hulse (701) 231-6136