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Farm Tax Strategies: Manage Your Numbers for Maximum Savings

Learn essential tax management strategies like increasing expenses, deferring income, and utilizing special expensing rules to optimize tax liability for your farm business. Discover key tips to plan your income and deductions effectively.

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Farm Tax Strategies: Manage Your Numbers for Maximum Savings

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  1. 2012 Tax Management Strategies Catawba Cattleman’s Association Newton, NC October 9, 2012

  2. Knowing Your Numbers • If you can’t measure it, you can’t manage it • Bring your records up to date • 1st 10 months actuals, project Nov & Dec for net total income • Calculate a projected tax bill

  3. Plan to a “set” target net income • Increase expenses in last 2 months • Defer income into 2013 • Take more income in 2012 • Defer expenses until 2013

  4. Increasing Expenses if need be • Prepay expenses • Generally 50% rule • Ex: $30,000 in total expense, then $15,000 of prepay allowed • REMEMBER, expenses in 2012 increase 2013 income

  5. Increasing Expenses if need be • Use Sec. 179 expensing • Used and new equip • $136,000 is limit • $560,000 total purchase limit • Must have income • Farm or W-2

  6. Increasing Expenses if need be • Use AFYD or Bonus • New equip only • Presumption of law this is used, • Must elect out by class • NC does not conform to federal law

  7. Examples of Farm Income? • Market calf sales • Grain sales • Cotton sales • Custom work • Gov’t payments • Crop Insurance

  8. What is a Farm Business Asset Sale? • Land used in farming • Breeding animals • Equipment sales

  9. Where are Business Asset Sales Reported? • IRS Form 4797 • Part 1 • Land • Raised Breeding Animals (held >2 yrs) • Part 3 • Depreciated Equip • Purchased Breeding Animals

  10. Remember the Plan: An Income Target • W-2 income • Rental income • Farm Income • Other investments • Character of income • Ordinary, Capital Gains, SE taxable

  11. A pitfall to watch out for… • Repair vs. Capital Expense • Rule: Adds value, life or changes use, it’s capital and depreciate the cost • Ordinary and necessary, repetitive…it’s a repair

  12. A few non Business Ideas to Optimize Tax Paid • Retirement Plans • IRA, SEP, SIMPLE • H.S.A. • Can act like an IRA • Double Up Itemized Deductions • Property taxes, estimated State tax

  13. If…A Farm Loss • Consider paying alternative SE tax • Allows for continuing coverage for retirement and more importantly disability • Often paid by the EIC if qualified.

  14. Super Good year: Now What? Income Averaging may Help • The idea is to use unfilled lower tax bracket buckets from the previous three years. • Farm income • Schedule F • Sale of Farm Business Assets

  15. Useful Tax Websites • www.ruraltax.org • www.smbiz.com • www.timbertax.org • www.irs.gov • www.dornc.com

  16. Contact Information Guido van der Hoeven Extension Specialist/ Senior Lecturer Campus Box 8109, NCSU Raleigh, NC 27695-8109 919-515-9071 guido_vdh@ncsu.edu

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