News
Business ¢ents
by Dennis Roddy
Senior VP – Financial Services
Changes have resulted from the passage of federal tax laws that may require your attention in planning for your business. Below is a summary of some of the changes.
The Economic Stimulus Payment received in 2008 must be reported on the individual’s income tax return and the credit or allowable rebate will be recalculated. If changes occur to the credit or allowable rebate, the taxpayer may have additional tax due or an additional refund.
Federal mileage deductions per mile for 2009 are as follows:
- Business Miles 55¢
- Medical/Move Miles 24¢
- Charitable Miles 14¢
Capital gains tax changes:
Capital gain tax rates for certain real estate and breeding livestock sales are as follows:
- 10-15% federal tax bracket: capital gains rate of 0%
- 25% federal tax bracket or above: capital gains rate of 15%
The Annual Exclusion for gifts is $12,000 per donor/per recipient for 2008. For 2009 the annual gift exclusion increases to $13,000. This can be a complicated issue so check with your Frontier Farm Credit tax preparer.
Depreciation rules continue to change.
Section 179 depreciation: For the tax year 2008, the deduction limit is $250,000 and the phase-out amount is $800,000. For 2009, the preliminary numbers are a deduction limit of $133,000 with phase-out of $530,000. Property can be new or used and can not be purchased from a related party (spouse, ancestors or lineal descendant).
Bonus depreciation has been reinstated for the 2008 tax year only. Businesses are allowed to depreciate an additional 50% of the cost of certain property. Only new assets qualify. Bonus depreciation is effective for property placed in service after December 31, 2007 and before January 1, 2009.
New 5-year MACRS recovery period added for 2009 only. Legislation provides a 5-year (instead of 7-year) recovery period for machinery and equipment used in a farming business.
Domestic Production Activities Deduction provision is a tax deduction for employers with production activities within the United States. Agricultural production will qualify for this deduction. This provision allows for a deduction from taxable income for up to 6% of qualifying production income generated in the United States. The deduction will increase to 9% for taxable years beginning after 2009.
Taxation of CRP payments has been an ongoing issue for
retired farmers. The issue is whether the CRP payment is subject to Self-Employment (SE) tax. Recent Farm Bill legislation states that CRP payments made to individuals receiving Social Security retirement, survivor, or disability payments are not subject to SE tax. Any other individuals receiving CRP payments would be subject to SE tax on those payments.
Income averaging has been reinstated. Farmers can elect an amount of their current farm income to divide equally among the previous three years. Savings may result if the previous year’s income was taxed at a lower tax rate than the current year. This election applies to any income attributable to a farm business. There are several rules and pitfalls around this so check with your Frontier Farm Credit tax preparer regarding this issue.
Disaster Payments and Crop Insurance Indemnity Payment proceeds you receive need to be included as income on your tax return. You generally include that income in the year received. Crop insurance includes the crop disaster payments received from the federal government as the result of destruction or damage to crops, or the inability to plant crops because of drought, flood, or any other natural disaster. You can postpone reporting crop insurance proceeds as income until the year following the year the damage occurred if you meet all the following conditions:
- You use the cash method of accounting.
- You receive the crop insurance proceeds in the same year the crops are damaged.
- You can show that under normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred.
Only the payment for destruction or damage (yield loss) is eligible for deferral. A farmer who receives compensation from a CRC or RA policy must determine the portion of the payment that is due to crop destruction or damage rather than due to a reduced market price. This is a complicated procedure, so if you plan to defer a portion of the crop insurance indemnity payment, be sure to check with your tax preparer.
Required Minimum Distributions from a retirement plan are suspended for 2009. The suspension means that retirees and IRA owners may choose to forego all or part of their required distribution for 2009 without penalty. In addition, the suspension helps retirees and IRA owners avoid having to liquidate investments in a down market. Ordinarily, account holders of individual retirement annuities and individual retirement accounts are required to begin taking distributions no later than April 1 of the year following the year they attain age 70 1/2. The suspension does not apply to required distributions for 2008.
A Health Savings Account (HSA) remains in effect for 2009. This is a tax-exempt custodial account that must be used in conjunction with a high-deductible health plan. In order to qualify for a Health Savings Account, you must be enrolled in a “High-Deductible Health Plan.”Additional requirements include not having any other health insurance coverage, not being entitled to Medicare benefits, and you cannot be claimed as a dependent on someone else’s return. Several key points on Health Savings Accounts include:
- Contributions made by employer may be excluded from gross income
- Contributions remain in account year to year
- Interest/earnings from account are tax free
- Distributions may be tax free if you pay qualified medical expenses
- Portable –stays with you if you switch jobs or leave the work force
Tax laws and options for farms and ranches can be
complicated. Contact a local office to work with a Business
Services Specialist.
877-744-7144 | Copyright © 2010 — Frontier Farm Credit
