publication archive: taxation
May 15, 2013
Keeping the Family Informed: Estate and Succession PlanningA prior article, "Updating your Estate and Succession Plan" discussed why a prior estate plan might not produce the results you expected due to law changes. This article discusses the reaction your heirs might have if they only learn of your plans at the reading of the will.
May 8, 2013
Updating your Estate and Succession PlanThe American Taxpayer Relief Act of 2012 (ATRA) addressed many of the tax issues concerning taxpayers. ATRA made permanent many of the tax provisions that were scheduled to expire. For example, it provided a permanent exemption amount for the alternative minimum tax (AMT) and, more importantly, it indexed it for inflation.
April 11, 2013
Have Not Filed Your Return Yet?While April 15 is rapidly approaching, if you have not filed your federal or state income tax return, you should not panic. You can file for an automatic 6-month extension of time to file. This will make your return due on October 15. Individuals file for an extension for a number of reasons.
March 29, 2013
Illinois Farmland Assessments - Current Issues and ConsiderationsFor property tax purposes, Illinois assesses farmland on the basis of its "agricultural use" value rather than its "auction block" or market value. The agricultural use value is affected by the expected income from farming. The income potential in turn varies by soil productivity, productivity, and also changes as costs and prices evolve through time. To help dampen the impact of changes in farm incomes, the law "caps" the annual rate at which farmland assessments can change from year to year at 10% of its previous value. However, there is an emerging technical problem in the way the 10% cap functions, given the special historical context of farmland assessments in Illinois. A reasonable legislative solution would be to retain the "10% cap" but to provide a different answer to the question ... "10% of what?". The following paragraphs elaborate the purposes of the farmland assessment act, the calculation of agricultural use value, how the 10% cap currently works, the historical context that has created an unintended consequence of the 10% cap, and how the problem could be fixed by amending the farmland assessment law.
March 20, 2013
Current Estate LawThere have been questions raised regarding how to plan an estate with the new law enacted as a part of the American Taxpayer Relief Act of 2012 (ATRA). There has been a lot of coverage on the income tax aspects of the new law, but not much has been written on the estate tax aspects.
February 7, 2013
Farm Tax and Farm Sales Affected by New Fiscal Cliff LegislationCongress passed the American Taxpayer Relief Act of 2012 (ATRA) on January 1, 2013 and with President Obama's signature the following day, ATRA ushered in broad new tax laws for 2013 onward. While ATRA's tax changes are extensive and many of these changes will affect farmers, this article will point out the changes that may have the most impact on the farmer's income tax bill.
January 10, 2013
Does the Biodiesel Tax Credit Change the Advanced Biofuels Landscape?In an earlier post we highlighted the importance of the advanced biofuels Renewable Fuels Standard (RFS) for the current and future demand for biodiesel and biodiesel feed stocks. The RFS for 2013 is expected to require a minimum blending of 1.28 billion gallons of biodiesel and 2.75 billion gallons of all advanced biofuels. The difference between the minimum biodiesel requirement and the minimum total requirement is referred to as undifferentiated biofuel. That requirement can be met by Brazilian ethanol, biodiesel, or cellulosic ethanol. Since cellulosic ethanol is not available in any substantial quantities, the requirement will be met by either Brazilian ethanol or domestic biodiesel. In a separate post we illustrated that imported Brazilian ethanol was a cheaper alternative for meeting the undifferentiated advanced RFS than the domestic production of biodiesel. Those economic conditions implied that Brazilian ethanol imports would be maximized (estimated at 830 million gallons) in 2013 and would limit domestic biodiesel production to the minimum RFS requirement of 1.28 billion gallons. In addition, the impending ethanol blend wall near 13.3 billion gallons implies that Brazilian ethanol imports would limit the production of U.S ethanol to 13.17 billion gallons (assuming exports of 700 million gallons) in 2013.
January 9, 2013
Selling a Farm With Unharvested CropsSelling a farm with unharvested crops presents some unique tax issues. The tax rules today may provide the farmer with far greater advantages than the rules that existed back in 1953 when the Supreme Court first ruled on the tax treatment of the sale of farmland with standing crops, but care must be taken to assess the impact of the tax rules and structure the sale transaction to minimize the tax costs of the sale.
January 2, 2013
IFES 2012: Crop Insurance - Tax Reporting OptionsListen to MP3 podcast
Approximately 80% of Illinois farmers purchased various types of crop insurance on their 2012 crops. The total premiums for these policies were over $770 million. It is projected that the total claims will exceed twice the amount of the premiums.
November 27, 2012
Expiring Tax ProvisionsStarting with tomorrow's date (11/28/2012), you have 34 days to put your 2012 tax planning strategies in place. In those same 34 days, it is possible that Congress could enact and the President could sign new legislation that might make you reconsider the tax plans you've put in place using the current tax provisions. This year more than ever be very aware of the changes that could take place prior to the end of the year that might make you re-think your tax plan. If we are fortunate, any legislated changes will occur prior to 1/1/2013 and not after.
November 14, 2012
Farm Losses DemystifiedFarmers are sometimes surprised to find that the full amount of a year's loss from farming isn't the same loss amount that they can claim as a deduction on their tax return for the year. There are several sets of tax rules that must be met in order for a farm loss to be deductible. Farmers without crop insurance to cover losses should be aware of these rules that may limit the amount of deductible losses that can be claimed. The rules to be aware of include: the "at-risk" rules, the excess farm loss rules, and the passive income rules.
November 8, 2012
Crop Insurance: Tax Rules and Issues for 2012Generally, crop insurance proceeds received by a farmer using the cash method of accounting must be reported in the year in which the insurance proceeds are received. However, both the farmer and insurance payment qualify, the farmer can elect to postpone the reporting of the crop insurance payment until the following year.
October 26, 2012
Farms and the New 2013 Medicare Tax IncreasesThe new health care law passed by Congress in 2010 has been gradually phasing in health care reform measures each year since its enactment. Two Medicare tax increases are part of these health care reform measures that will become effective January 1, 2013.
September 19, 2012
Illinois Farm Disaster AreasU.S. Secretary of Agriculture Tom Vilsack has declared all but four Illinois counties as disaster areas due to the 2012 drought. Those counties not in the disaster area are Cook, DuPage, Kane, and Will. When thinking about a disaster, a casualty loss deduction normally comes to mind. Unfortunately, this is not the case for a drought. Even though the consequences of a drought can be devastating, normally it is not considered a disaster eligible for a casualty loss deduction.
July 27, 2012
The 2012 Drought and Income Tax Deferral of Crop Insurance and/or Disaster PaymentsThe drought in significant parts of the corn-belt during the summer of 2012 has raised familiar questions about deferability of crop insurance proceeds. The issue is especially important for those farmers that have a history of reporting crop income in the year after the year of harvest. The Internal Revenue Code allows deferability of crop insurance proceeds if certain requirements are satisfied.
July 18, 2012
IRS Shows No MercyWhen your tax preparer tells you that you must meet the "letter of the law" in a transaction, you should heed their warning.
June 8, 2012
Supreme Court Denies Financially Distressed Farmers Tax ReliefChapter 12 of the Bankruptcy Code is used by financially distressed farmers to reorganize and remain in business. In 2005, Congress amended a key provision to allow farmers to have more control over tax debts caused by the sale of assets that may be necessary for successful reorganization. The intention was to simplify a bankruptcy court's approval of a farmer's reorganization plan and to allow the reorganizing farmer to hold on to more cash in the reorganization process by reducing the priority status of tax debts. However, the Supreme Court has confirmed that the Congressional amendment, as drafted, could not accomplish its helpful goals to farmers because of language that did not comport with existing bankruptcy law.
May 3, 2012
Tax Credit Available for Hiring VeteransFarmers who plan to add additional help this year may want to consider hiring veterans. There is a substantial increase in the job pool as these individuals come back into the civilian workforce. As a further incentive, you may be eligible for a generous tax credit for hiring unemployed veterans. The credit can apply to seasonal employees if they work at least 120 hours.
April 5, 2012
Is There a Transaction Tax in Your Future?A financial transaction tax - collected each time a futures or options contract is traded - is under serious consideration in Europe. In September 2011 the European Commission proposed a 0.01 percent on derivatives trades (including futures and options), along with a separate tax on stock and bond trades. Together these two taxes are expected to raise 57 billion Euros ($89 billion) in new revenues. Britain, which is home to a thriving global financial center in London, would bear the brunt of this tax and has vowed to veto it. Other countries with much smaller financial sectors, led by France and Germany and joined by Austria, Belgium, Finland, Greece, Italy, Portugal, and Spain, strongly support this tax. These nine countries claim to be prepared to implement some version of this tax on a country-by-country basis if the EU-wide effort fails.
April 4, 2012
IRS Grants Penalty Relief Due to MF Global BankruptcyIn my March 22, 2012 blog, I suggested farmers consider making an estimated tax payment on January 15 of each year as a way to extend their filing deadline to April 15 and still avoid the penalty for failing to make estimated payments. One example I gave for needing a post-March 1 filing was the late issuance of 1099 forms by MF Global trustees. Evidently, the IRS is aware of the problem and issued news release IR-2012-37 on March 23, 2012 to address the possible penalty problem.
March 22, 2012
Should You File an Estimated Income Tax Return?Did meeting a March 1 filing deadline give you heartburn this year? If yes, there is something you can do about it. Some farmers are under the erroneous idea that all farm tax returns are due on March 1. This is a misconception. Individual calendar year taxpayers have an April 15 deadline. However, if they owe income tax, they may be subject to a penalty for underpayment of estimated taxes. Farmers have a special provision that allows them to avoid this penalty if they file their return by March 1. There is also another provision that they may use.
March 9, 2012
Independent Contractor or Employee?Many farmers do not want the burden of withholding payroll taxes on part-time help. Consequently, they classify these individuals as independent contractors. Therefore, the farmer or rancher only needs to file a Form 1099-MISC if the individual is paid over $600 per year. Upon close inspection, the IRS would probably classify many of these individuals as employees. If this is the case, the IRS could impose some severe penalties on the employer. However, the IRS has a new program that can substantially reduce the amount of withholding tax and penalties that can be assessed.
February 9, 2012
Not All Payments Require a Form 1099The Internal Revenue Service has found that taxpayers are more likely to report income if they know the IRS has knowledge of the income. Hence the required issuance of Forms 1099 for various types of income such as interest, dividends, rents and nonemployee compensation. It is interesting that there is one exception to the 1099 MISC reporting for the hauling of grain and livestock.
February 3, 2012
IRS Makes Changes to Schedule FWhen you prepare to file your 2011 farm income tax return, you will find the Internal Revenue Service has made some major changes in the 2011 Form 1040 Schedule F. It is important to understand these changes.
December 21, 2011
2011 IFES: Estate Planning in Uncertain TimesListen to MP3 podcast
The Economic Growth and Tax Relief Reconciliation Act of 2001 made major changes in estate planning. It increased the federal estate tax exclusion over a nine year period and eliminated the estate tax completely for deaths in 2010. While planners never thought the repeal would occur, it did.