Make Sure to Take Capital Gains This Year
If you combined taxable income including capital gains is in the 15% tax bracket or lower, then all of your long-term capital gains will be tax free in 2009. This also applies to qualified dividend income.
For example, if you file a joint return with your spouse and have farm income of $50,000, have two small children and use the standard deduction, your taxable income will be about $24,000. This will result in total income taxes of about $2,800. If you have either long-term capital gains or qualified dividends of up to about $44,000 in addtion to this income, it would be completely tax free for federal income tax purposes in 2009. If you live in a state with income taxes, you may still be subject to state income taxes.
Many farmers have C corporations that have retained earnings that may be subject to a tax when distributed to its shareholders as a dividend. For 2009, if you distribute these earnings and they are within the 15% or lower income tax bracket, they will be tax free. All dividends above this amount will only be taxed at 15% for federal purposes. With all of the talk about paying for national health insurance, this break will most like come under attack in 2010 or later years.
I would strongly suggest you review this with your tax advisor or send me a quick e-mail at paul@hansenneifer.com and I can give you a quick estimate of whether this applies to your situation.
I remember having a client this year who had taxable income of about $65,000 who called me and asked why they did not owe any income taxes for the year. I explained to them the zero tax rate for their capital gains which will also apply in 2009 and they now actually look forward to filing their return for this year. This break can save you up to about $10,000 in taxes.
Take advantage of it for sure this year if you can.
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 principal with CliftonLarsonAllen in Walla Walla, 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. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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