by Dennis Halladay, Western Editor

Right now may be the most important and potentially profitable tax planning window of opportunity that dairy owners have had in years. But it's running out fast.

Record Class III milk prices and drastically lower feed costs in 2014 point to across-the-board profitability for nearly all dairies this year. And income taxes. But current futures prices at the Chicago Mercantile Exchange are screaming that the Class III average will be over $4 per hundredweight less in 2015.

This combination is why Gary Genske, managing partner of the country's largest specialized dairy accounting firm, is recommending producers look seriously at prepaying expenses and deferring income if possible. Both will help smooth out that big expected income drop, and provide a safety net if prices collapse like they did in 2009.

If a producer hasn't done any tax planning yet, he also urges them to get started ASAP.

"Everyone I work with is already out there buying feed," says Genske. "But remember, there are limits on prepays. You can't prepay more than 50 percent of a year's expense, it has to be used up in the subsequent year, and you have to establish a good business purpose for doing it, not just to defer tax. Taking advantage of a great buyer's market, for example, is an excellent business purpose."

He points out that it takes time to set up proper feed contracts, and electing to defer milk check payments must be done before shipments begin in any month that a producer wants to defer.

"You can't just call your co-op and say, "don't send it to me," says Genske. "There are formal contracts that most large co-ops have come up with to defer payments, and you can't just put checks in a drawer and not cash them until next year."

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