NDSU Extension Service, Published February 01 2010
Agricultural producers' income tax filing deadline is March 1FARGO - As tax return preparation gets under way, agricultural producers need to take a close look at some tax preparation items. Staying up to date on these items will help producers prepare their returns accurately.
"The American Recovery and Reinvestment Act of 2009 passed by Congress has
extended some provisions, added some and modified others," says Ron Haugen,
North Dakota State University Extension Service farm economist.
Items to note for 2009 income tax preparation:
* Producers have until March 1 to file their returns without penalty. If they made an estimated tax payment by Jan. 15, they have until April 15 to file.
* For 2009 only, new agricultural equipment (except grain bins and land
improvements) can be depreciated during a five-year recovery period instead of seven years. The 150 percent declining balance method of depreciation must be used. Used equipment purchased in 2009 continues as seven-year property.
* The 179 expense election remains at $250,000. Generally, the 179 expense
election allows producers to deduct up to $250,000 of machinery or equipment purchases for the year of the purchase. There is a dollar-for-dollar phase-out for purchases of more than $800,000. It is scheduled to revert to $134,000 in 2010.
* The additional first-year bonus depreciation provision is in effect. It is equal to 50 percent of the adjusted basis after 179 expensing. It only applies to new property purchased in 2009 and has a recovery period of 20 years or less. You must elect not to use this provision.
* The standard deduction has increased to $11,400 for those who are married and filing jointly. The deduction is $5,700 for singles.
* The personal exemption amount has increased to $3,650.
* Qualified dividend income is taxed at a 0 percent rate for individuals in the 10 percent or 15 percent tax brackets and at 15 percent for those in higher tax brackets.
* Long-term capital gains are taxed at a 0 percent rate for individuals in the 10 percent or 15 percent tax brackets and at 15 percent for those in higher tax brackets.
* The child tax credit is $1,000 for each qualifying child.
* The annual IRA contribution for 2009 is $5,000 ($6,000 for individuals 50 or older).
* The annual gift tax exclusion is $13,000.
* The 2009 Social Security wage base is $106,800.
* The business mileage rate for 2009 is 55 cents per mile.
* A new deduction is the sales tax deduction for new vehicles purchased after Feb. 17, 2009.
* The HOPE education credit has been enhanced. The credit has increased from $1,800 to $2,500 and the eligibility has been extended from two to four years of college. The book costs also are included.
* The new residential energy property credit is 30 percent of the qualifying improvements up to an aggregate credit of $1,500 for 2009 and 2010. The residential alternative energy credit is 30 percent of qualifying construction expenses through 2016.
* Crop insurance proceeds, if received in 2009, may be deferred to 2010 if you qualify. You must use cash accounting and show that, under normal business practices, the sale of damaged crops would occur in a future tax year. Producers with Revenue Assurance or Crop Revenue Coverage may receive an indemnity because of price declines and/or yield losses. Indemnities from price declines are not deferrable. If it is not line-itemized from the insurance company, contact the company to find out what part of the indemnity is from a price decline and what part is from a yield loss.
* A livestock deferral can be made by those who had a forced sale of livestock because of a weather-related disaster. Two methods can be used. In the first method, income can be deferred to the next year for all types of livestock sold prematurely. In the second method, income from livestock held for draft, breeding or dairy purposes is not taxed if like-kind animals are purchased within four years (or more depending on weather conditions or disaster declarations) from the end of the tax year in which the animals were sold. Only the gain on the sale of those animals beyond what was normally sold would qualify for postponement.
* The domestic production deduction is 6 percent. It can be claimed as an
adjustment against gross income. Generally, agricultural producers who grow and produce grain or livestock and have hired labor qualify for the deduction. It is limited to 50 percent of the wages paid by the producer. Producers may have received a notice from cooperatives with which they do business. The IRS has determined that sales to certain cooperatives must be reclassified. Sales from these cooperatives and the expenses associated with those sales cannot be included in the domestic production calculation.
* Remember that farmers can elect to compute their current tax liability by
averaging, during a three-year period, all or part of the current year elected farm income. This is done on Schedule J. North Dakota farmers who elect to use income averaging (Schedule J) for federal purposes also may use Form ND-1FA, income averaging for North Dakota income tax calculations.
Information on agricultural tax topics can be found in the "Farmers Tax Guide," publication 225. It is available at any IRS office or can be ordered by calling (800) 829-3676. Any questions about these topics should be addressed to your tax professional or the IRS at (800) 829-1040 or http://www.irs.gov. Call the North Dakota Tax Department at (800) 638-2901 or go to http://www.nd.gov/tax/ for answers to North Dakota income tax questions.