What is in this article?:
• As farms manage more gross income, the need for improved financial accounting systems and increased management of farm income becomes necessary.
New tax rate
• Beginning in tax year 2013 (generally for tax returns filed in 2014), a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates — 10, 15, 25, 28, 33 and 35 percent — remain the same as in prior years. The guidance contains the taxable income thresholds for each of the marginal rates.
• The annual gift tax exclusion is increased to $14,000 that can be given to any person without any reporting requirements.
• A Return to Itemized Deduction Limits for higher-income farmers brings this limit on itemized deductions back into effect for higher-income farmers for 2013 and subsequent years. The limitation affects farmers with adjusted gross income (AGI) over a threshold amount ($250,000 for farmers filing single or $300,000 for farmers filing jointly). Generally, farmers affected by this rule will have their itemized deductions reduced by 3 percent of the amount by which AGI exceeds the threshold amount. The reduction is subject to a “cap” that is part of the formula which is triggered if the farmer’s income is high enough.
• Two new Medicare taxes are now in place for individual incomes over $200,000 or $250,000 married filing jointly now have a 3.8 per cent Medicare tax applied to passive income like dividends, interest and capital gains. In addition a new .9 percent Medicare tax is in place
• Alternative Minimum Tax (ATM) was set at $78,850 for 2012 and with inflation index will be $80,750 for 2013. This represents the income level below which ATM tax should not apply. Having this number in advance should aid farms in planning if they hope to avoid this tax.