Tax Insights
Agribusiness specialist shares tax insights with ag lenders.
Darla Campbell, University of Missouri (MU) Extension agribusiness specialist, gave northeastern Missouri ag lenders insight into farm tax issues during a Dec. 3 seminar at Fiddlestiks restaurant in Hannibal, Mo.
The MU Department of Agricultural and Applied Economics sponsors a statewide series of ag lender seminars in cooperation with regional MU Extension specialists.
In late October, tax provisions that expired at the end of 2011 remained in limbo as Congress stalled decision-making. Record-high commodity and livestock prices, extensive drought, reduction of livestock herd numbers and soaring crop-insurance receipts created interesting income-tax scenarios for the agricultural community, Campbell said.
Livestock sales in 2012 are above normal levels as producers culled herds during water and forage shortages this year. Due to federal disaster declaration, producers are eligible for postponement of gain on breeding animals sold above their usual sales so long as they replace similar numbers and types of livestock within four years.
Non-breeding livestock sales also may be postponed for one year if a statement is attached. Only the income from sales above typical numbers sold in a non-drought year can be postponed.
Crop insurance proceeds are eligible for postponement, as well. To qualify, proceeds must be for the actual loss, not due just to market price, and proceeds must be received in 2012.
Campbell noted that lenders should be aware of expiring law provisions. A first-year bonus depreciation is set to expire at the end of 2012. Machine sheds that once qualified for this will no longer qualify for Section 179. To use this deduction, buildings must be built, or contracted, by Dec. 31, 2012. Section 179 expense deduction, a tool for farmers who don’t know their exact income until the end of the year, has a limit of $139,000 for 2012, and this will be reduced to $25,000 in 2013. There are phaseouts that can carry forward and vehicles with a gross vehicle weight rating less than 6,000 pounds have special limits, Campbell said.
“This has been a huge help to producers who want to replace equipment,” she noted.
Other tax credits set to expire at the end of 2012 or that were repealed before they went into effect include the American Opportunity Tax Credit for educational purposes, deductible medical expenses, 3% withholding on government payments for income tax, reporting of credit card payments and home mortgage forgiveness.
The IRS continues to strengthen rules related to reporting commodity processing or value-added operations, Campbell said. Income and expenses must be appropriately allocated to farm and nonfarm operations, and farmers should be aware of the different taxation levels on these, she said.
Changes in capital gains rates may be affected greatly in 2013, Campbell said. Estate tax changes likely will face significant changes. Several tax provisions are in limbo, pending federal legislative action.
“Hopefully, your clients have consulted with their tax preparers already,” Campbell said.
For more information, contact Ronald Plain, editor of the Missouri Farm Financial Outlook, University of Missouri, 220 Mumford Hall, Columbia, MO 65211, 573-882-0134 or plainr@missouri.edu.
Editor’s Note: Linda Geist is senior information specialist for the University of Missouri Cooperative Media Group, which supplied this article.
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