Some More Goodies Buried in the Fine Print
Included in the tax bill passed this week were some additional tax “goodies” for both farmers and non-farm taxpayers.
In previous years, taxpayers over age 70 1/2 were allowed to contribute up to $100,000 each year to a qualified charity and not have it count as income. The amount given to the charity was not allowed as a deduction, but this allowed the taxpayer to reduce their adjusted gross income which may have made their social security income non-taxable or allowed more medical or miscellaneous itemized deductions.
This has now been expanded through the end of 2013 which may help those taxpayers whose gross income is reaching or exceeding the level that the Medicare surtax will be assessed. For example, if a married taxpayer has $250,000 of cash rent farm income and is required to take $100,000 out of their IRA in 2013, $100,000 of their rental income will be subject to the Medicare surtax of 3.8%. However, if they elect to distribute the IRA directly to a charity, then none of the cash rent income will be subject to the Medicare surtax. Now this assumes that they would want to give up to $100,000 to charity.
Since nobody knew that Congress would extend this, they are allowing any taxpayer that normally meets the age criteria to take any distribution received in December 2012 and as long as it is paid to a qualifying charity by the end of January 2013, it will not be included as income.
Another extension is allowing taxpayers to amend a Section 179 deduction for any taxable year starting before January 1, 2014. We previously wrote a post about a week ago regarding being careful with Section 179 deductions from fiscal year flow through entities such as S corporations. Now that the Section 179 deduction limit has been increased to $500,000 for all years beginning before 2014, you will not need to worry about this until you file your 2014 tax return.
NASCAR fans will be glad to know that owners of racetracks will be allowed to depreciate these facilities over 7 years instead of the more normal 15 to 39 year span for at least another year. We have a combine racing facility in our state. I wonder if farmers could create a “qualified racing facility” on their farm and deduct it over 7 years (I hope everyone knows I am kidding about this. Do not attempt this!)
Paul Neiffer, CPA
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.
This retroactive $500,000 seems quite ridiculous. My office had a client that came in at year end when we thought the max 179 was 139k. They had already purchased about 200k worth of equipment. We told them they would have to go prepurchase something to get them in the bracket they wanted to be in. If we would have known about the retroactive 500k prior to our meeting, they would not have had to go and prepurchase fertilizer.