The Record’s Ag Report
In this week’s Ag Report, Certified Public Accountants Jodi Kelsch of Kelsch, Kriz & Associates, PC, formerly known as Linton Tax Team, and Lisa K. McCrory provide information on new income tax rules and offer tax tips for agricultural producers.
Kelsch and McCrory encourage farmers and ranchers to do tax planning before the end of the year to limit their tax liability.
“Tax planning is so important, primarily at year-end, to determine if the taxpayer could report more income or needs to incur more ex- penses in order to get to their preferred tax rate,” McCrory said.
“If they come in the fall to review their finances, we can remind them about any crop insurance proceeds that may have been deferred into the following year,” McCrory said. “We can then allow for that additional income by advising the taxpayer to buy equipment or prepay expenses.”
“That has made it quicker and easier to keep track of operations and, in turn, to prepare their income taxes,” McCrory said.
With the passage of the American Taxpayer Relief Act of 2012, passed on January 1, 2013, Kelsch said there are some changes that impact farmers and ranchers.
“The biggest impact to farmers and ranchers is changes to Code Section 179—Small Business Expensing,” Kelsch said.
The new dollar limit for Code Section 179 for tax years 2012 and 2013 is $500,000 per year. In 2012, that figure was scheduled to be $139,000, but that is now retroactive and becomes $500,000 for the 2012 year also.
Another depreciation item that this act extended is the 50 percent bonus depreciation through 2013. That was to end on December 31, 2012, but has been extended. It applies to brand new property with a recovery period of 20 years or less. An example would be a farm building.
“If a producer is considering putting up a building, this would be a good year to do it, because they can expense 50 percent in one year,” McCrory said.
The balance has to be depreciated over 20 years. Bonus depreciation is scheduled to expire the end of 2013.
Kelsch also noted changes in the Long Term Capital Gain and Dividends Tax Rate for 2013.
“That tax rate was scheduled to increase to 20 percent for everyone but is now staying at 0 percent or 15 percent for those making less than $400,000 (single), $450,000 (joint) and $425,000 (head of household),” Kelsch said.
Long term capital gain rates apply to gains on the sale of farmland and raised cattle held for more than two years.
Because cattle sales can be taxed at different rates (capital gain or ordinary), it is very important to track those sales separately. Cull cattle sales should be kept separate from calf sales, and raised cattle sales should be kept separate from purchased.
Kelsch also said there will be a two percent increase in Social Security tax. For farmers who have employees, it is important to note that increase for any paychecks written after December 31, 2012. The Social Security tax rate is now 6.2 percent.
In order to avoid underpayment penalties, agricultural producers need to file and pay their income taxes by March 1, 2013, unless they made an estimated tax payment on January 15, 2013.
The estimated tax payment needed to be the smaller of last year’s tax or 66 and 2/3 percent of the tax shown on the 2012 return. You would then have untilApril 15, 2013, to file and pay the remainder of your tax owing. This technique allows producers to hang on to some of their funds a little while longer.
Another planning tool suggested by McCrory was for producers to consider hiring their spouse and/or their children as employees for additional tax savings.
Deadline reminders include submission of Form 1099 by January 31, 2013. The 1099 form is for those who paid an individual $600 or more in 2012 for either rent or contract labor.
Kelsch and McCrory welcome people to stop in or call them if they have any particular questions or would like to meet with them.
Kelsch is located at 204 North Broadway in Linton, and can be reached at 701- 254-4884.
McCrory is located at 110 North Broadway in Linton, and can be reached at 701- 254-4624.