What is in this article?:
- Farmers need to be aware of 2013 tax changes
- New tax rate
- As farms manage more gross income, the need for improved financial accounting systems and increased management of farm income becomes necessary.
The fiscal cliff created an opportunity for a number of changes in the tax rules and regulations related to when a farm must complete and file their annual income tax returns.
For 2012 farm income tax returns, farms have been given an extension from the normal March 1, 2013, to file their tax returns without penalty until April 15, 2013 if they have not made estimates.
Farms that elected to delay completing and filing their tax returns after March 1, 2013 will need to include a Form 2110F as part of their returns. The Form 2110F is a waiver that was part of the enactment of the American Taxpayer Relief Act (ATRA).
To qualify, at least two-thirds of the taxpayer’s gross income must be from farming in either 2011 or 2012. Much of the guidance from the IRS is still in process due to the late enactment of ATRA after the end of 2012.
Farms needed to do a much better job at planning the past few years to manage income levels and avoid a major spike that would trigger a substantial increase in farm income taxes.
Looking at 2013, some of the changes that may impact farms putting together a farm business plan are:
• The 179 expense election for 2013 was set at $500,000. This allowance provides an option for accelerated depreciation on new or used machinery or equipment purchases for the year of the purchase. There is a dollar-for-dollar phase out if your farm purchased more than $2 million of depreciable capital assets during 2013.
• In addition, a farm has the option to take a 50 percent “Bonus Depreciation” of adjusted basis after 179 expensing. This option only applies to new property placed in service during 2013 that has a depreciable recovery period of 20 years or less. This option is scheduled to expire at the end of 2013.
• Long-term capital gains and qualified dividend income now has a new 20 percent tax rate for individuals in the higher tax brackets. Capital gains are still taxed at a 0 percent rate for individuals in the 10 or 15 percent tax brackets.
• Those in the middle brackets (above the 15 percent tax bracket, but below the 39.6 percent bracket) will pay 15 percent capital gains taxes. While those that have incomes above $400,000 for individual or $450,000 for married filing jointly.