Economic and Marketing Information for Indiana Farmers (Nov. 30, 1970) |
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Economic and Marketing Information FOR INDIANA FARMERS Prepared by the Agricultural Staff of Purdue University, Lafayette, Indiana November 30, 1970 Income Tax Management, 1970 by Edward li. Carson, Agricultural Economics NCOME TAX MANAGEMENT decisions are important to a large number of Indiana farmers with respect to their 1970 income. The corn blight, and other factors, has resulted in sharply lower incomes on some farms. These farmers will want to take steps to increase their taxable 1970 income to at least equal their regular exemptions and deductions (which have been increased). High hog prices for part of the year, and high corn and soybean prices, particularly where corn blight was not serious, have resulted in sharply higher incomes on other farms. These operators will be looking for ways to reduce their taxable 1970 income. For others, postponing taxable income to 1971, or later, eliminates the surcharge, and takes advantage of higher personal exemption and deduction allowances. The first step is to size up your own situation. Next, add up your income and expenses to date. Then estimate and add on the expected additional transactions for the rest of the year. You will probably want to check with your tax consultant when you do this, particularly if there is much depreciable property involved. Obviously, the better your records are, the easier it will be. Whether your expected taxable income is low or high you have a number of appropriate actions open to you prior to the end of the year. After December 31, your options are limited essentially to depreciation decisions, and for those with high incomes, income averaging. The objective of income tax management is not just to minimize taxes, but to maximize after tax income. Thus tax management is an integral part of farm management. However, if business decisions are made and transacted solely in an effort to reduce tax, net income after tax may actually be lower. Example: By postponing a sale of livestock into the next year, a $100 tax saving could be made. But, an expected lower price might result in a $200 loss. Thus net after tax income would be $100 less. Frequently there is no conflict between a wise tax decision and a good business decision, but when the choice must be made, follow the one expected to result in the larger net income after tax. To do this requires enough awareness of tax law provisions to recognize the tax aspects of your decisions and to know when you need advice. Changes Resulting from the 1969 Reform Act The Tax Reform Act of 1969 included a number of provisions of significance to farmers. Before considering specific steps farmers might take to adjust their 1970 earnings, it will be useful to briefly highlight these changes. 1 Changes of Direct Significance to Farmers Income Averaging Liberalized, Simplified. Among the most important changes for farmers experiencing above average incomes are those regarding income averaging. If 1970 taxable income exceeds the 1966-69 average by 20 per cent plus $3000, it would pay to check this out. Repeal of Investment Credit. Another significant item affecting farmers was the repeal of the 7 per cent investment credit provision for property acquired after April 18, 1969. Certain transitional rules apply, particularly regarding binding contracts prior to April 18, 1969, and replacements. Holding Period for Livestock. The 1969 law requires that cattle and horses acquired after December 31, 1969 must be held for at least 2 years to qualify for long term capital gains treatment. Other types of livestock remain subject to the 1-year holding period. Recapture of Livestock Depreciation. The Tax Reform Act of 1969 requires that gain on the sale of purchased livestock be treated as ordinary income up to the full value of depreciation reductions taken after 1969. Limitations on Real Estate Depreciation. The Tax Reform Act of 1969 limits the so-called fast methods of depreciation on new depreciable real property—primarily buildings and their structural components. New farm buildings acquired after July 24, 1969, are limited to the 1 50 per cent declining balance depreciation method. Used buildings are limited to the straight-line method. Special rules apply to non-farm buildings. Crop Insurance Proceeds. Farmers may now elect to defer reporting these proceeds for federal income tax purposes until the year following the year of loss. However, they must establish that, under their usual practice, income from the damaged or destroyed crops would have been reported in the year following the years of loss. Extension of Filing Date. The due date has been extended from February 15 to March 1 for the filing and payment of income tax returns by farmers and fishermen who do not file declarations of estimated tax. Recapture on Soil and Water Conservation Expense. Gains on such improvements made after December 31, 1969 are fully taxable as ordinary income for 5 years, then adjusted 20 per cent a year up to 10 years after the acquisition of the property. This could be significant to any farmer selling real estate after December 31, 1969. Gifts of Farm Products to Charity. Deductible only at their cost basis. Raised products have zero cost basis (expense has already been taken); therefore, there is nothing to deduct.
Object Description
Title | Economic and Marketing Information for Indiana Farmers (Nov. 30, 1970) |
Purdue Identification Number | UA14-13-econ197011 |
Date of Original | 1970 |
Publisher | Purdue University. Agricultural Extension Service |
Subjects (LCSH) |
Farm produce--Indiana--Marketing Agriculture--Economic aspects--Indiana |
Genre | Periodical |
Collection Title | Extension Economic & Marketing Information (Purdue University. Agricultural Extension) |
Rights | Copyright Purdue University. All rights reserved. |
Coverage | United States - Indiana |
Type | text |
Format | JP2 |
Language | eng |
Repository | Purdue University Libraries |
Date Digitized | 05/04/2015 |
Digitization Specifications | Original scanned at 400 ppi on a BookEye 3 scanner using Opus software. Display images generated in Contentdm as JP2000s; file format for archival copy is uncompressed TIF format. |
URI | UA14-13-econ197011.tif |
Description
Title | Economic and Marketing Information for Indiana Farmers (Nov. 30, 1970) |
Purdue Identification Number | UA14-13-econ197011 |
Transcript | Economic and Marketing Information FOR INDIANA FARMERS Prepared by the Agricultural Staff of Purdue University, Lafayette, Indiana November 30, 1970 Income Tax Management, 1970 by Edward li. Carson, Agricultural Economics NCOME TAX MANAGEMENT decisions are important to a large number of Indiana farmers with respect to their 1970 income. The corn blight, and other factors, has resulted in sharply lower incomes on some farms. These farmers will want to take steps to increase their taxable 1970 income to at least equal their regular exemptions and deductions (which have been increased). High hog prices for part of the year, and high corn and soybean prices, particularly where corn blight was not serious, have resulted in sharply higher incomes on other farms. These operators will be looking for ways to reduce their taxable 1970 income. For others, postponing taxable income to 1971, or later, eliminates the surcharge, and takes advantage of higher personal exemption and deduction allowances. The first step is to size up your own situation. Next, add up your income and expenses to date. Then estimate and add on the expected additional transactions for the rest of the year. You will probably want to check with your tax consultant when you do this, particularly if there is much depreciable property involved. Obviously, the better your records are, the easier it will be. Whether your expected taxable income is low or high you have a number of appropriate actions open to you prior to the end of the year. After December 31, your options are limited essentially to depreciation decisions, and for those with high incomes, income averaging. The objective of income tax management is not just to minimize taxes, but to maximize after tax income. Thus tax management is an integral part of farm management. However, if business decisions are made and transacted solely in an effort to reduce tax, net income after tax may actually be lower. Example: By postponing a sale of livestock into the next year, a $100 tax saving could be made. But, an expected lower price might result in a $200 loss. Thus net after tax income would be $100 less. Frequently there is no conflict between a wise tax decision and a good business decision, but when the choice must be made, follow the one expected to result in the larger net income after tax. To do this requires enough awareness of tax law provisions to recognize the tax aspects of your decisions and to know when you need advice. Changes Resulting from the 1969 Reform Act The Tax Reform Act of 1969 included a number of provisions of significance to farmers. Before considering specific steps farmers might take to adjust their 1970 earnings, it will be useful to briefly highlight these changes. 1 Changes of Direct Significance to Farmers Income Averaging Liberalized, Simplified. Among the most important changes for farmers experiencing above average incomes are those regarding income averaging. If 1970 taxable income exceeds the 1966-69 average by 20 per cent plus $3000, it would pay to check this out. Repeal of Investment Credit. Another significant item affecting farmers was the repeal of the 7 per cent investment credit provision for property acquired after April 18, 1969. Certain transitional rules apply, particularly regarding binding contracts prior to April 18, 1969, and replacements. Holding Period for Livestock. The 1969 law requires that cattle and horses acquired after December 31, 1969 must be held for at least 2 years to qualify for long term capital gains treatment. Other types of livestock remain subject to the 1-year holding period. Recapture of Livestock Depreciation. The Tax Reform Act of 1969 requires that gain on the sale of purchased livestock be treated as ordinary income up to the full value of depreciation reductions taken after 1969. Limitations on Real Estate Depreciation. The Tax Reform Act of 1969 limits the so-called fast methods of depreciation on new depreciable real property—primarily buildings and their structural components. New farm buildings acquired after July 24, 1969, are limited to the 1 50 per cent declining balance depreciation method. Used buildings are limited to the straight-line method. Special rules apply to non-farm buildings. Crop Insurance Proceeds. Farmers may now elect to defer reporting these proceeds for federal income tax purposes until the year following the year of loss. However, they must establish that, under their usual practice, income from the damaged or destroyed crops would have been reported in the year following the years of loss. Extension of Filing Date. The due date has been extended from February 15 to March 1 for the filing and payment of income tax returns by farmers and fishermen who do not file declarations of estimated tax. Recapture on Soil and Water Conservation Expense. Gains on such improvements made after December 31, 1969 are fully taxable as ordinary income for 5 years, then adjusted 20 per cent a year up to 10 years after the acquisition of the property. This could be significant to any farmer selling real estate after December 31, 1969. Gifts of Farm Products to Charity. Deductible only at their cost basis. Raised products have zero cost basis (expense has already been taken); therefore, there is nothing to deduct. |
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