$70,000 of Taxable Income Equals Zero Tax

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There is about a month left before the April 15 tax filing deadline (except for those people who file extensions) and one of the nice tax benefits still available this year is the long-term capital gains rates for those taxpayers in the normal 15% tax bracket and lower.  For those taxpayers, the net capital gains tax is zero percent (0%).  That right, it is equal to zero.  This rate also applies to any qualified dividends that you receive during the year.

For many farmers, they might have a loss or low income from farming, however, they may have sold some land that they owned for several years at a gain.  In the right situation, these farmers could have at least $80,000 or $90,000 of long-term capital gains that would be taxed at zero.  Lets take a look at an example.

Say we have a farm family that breaks even on their farm operation, has no other taxable income except a long-term capital gain from the sale of some farm land.  This capital gain is $85,000.  The net taxable income of the family is equal to total income of $85,000 less their standard deduction of $11,400 less two exemptions of $3,650 for net taxable income of $66,300.  The 15% bracket is phased out at $67,900 of taxable income, so their net federal tax for the year is zero.

Now, if they live a state with state income taxes, the farmer may have to pay state income taxes on this income, but for federal purposes, there is no tax.

This break is currently only for this year and will expire at the end of the year.  Congress may elect to extend it, but right now, nobody knows for sure.  If this type of situation applies to you for this year or last year, try to make sure you maximize the savings from this favorable treatment.

 

  • Principal
  • CliftonLarsonAllen
  • Yakima, Washington
  • 509-823-2920

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a partner with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation.

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