2012 Tax Management
Strategies
Catawba Cattleman’s Association
Newton, NC
October 9, 2012
Knowing Your Numbers
• If you can’t measure it, you can’t
manage it
• Bring your records up to date
–1st 10 months actuals, project Nov
& Dec for net total income
–Calculate a projected tax bill
Plan to a “set” target net income
• Increase expenses
in last 2 months
• Defer income into
2013
• Take more income
in 2012
• Defer expenses
until 2013
Increasing Expenses if need be
• Prepay expenses
– Generally 50% rule
– Ex: $30,000 in total
expense, then
$15,000 of prepay
allowed
– REMEMBER,
expenses in 2012
increase 2013
income
Increasing Expenses if need be
• Use Sec. 179
expensing
– Used and new equip
– $136,000 is limit
– $560,000 total
purchase limit
– Must have income
• Farm or W-2
Increasing Expenses if need be
• Use AFYD or Bonus
– New equip only
– Presumption of law
this is used,
– Must elect out by
class
– NC does not
conform to federal
law
Examples of Farm Income?
•
•
•
•
•
•
Market calf sales
Grain sales
Cotton sales
Custom work
Gov’t payments
Crop Insurance
What is a Farm Business Asset
Sale?
• Land used in
farming
• Breeding animals
• Equipment sales
Where are Business Asset Sales
Reported?
• IRS Form 4797
• Part 1
– Land
– Raised Breeding
Animals (held >2 yrs)
• Part 3
– Depreciated Equip
– Purchased
Breeding Animals
•
•
•
•
•
Remember the Plan: An Income
Target
W-2 income
Rental income
Farm Income
Other investments
Character of
income
– Ordinary, Capital
Gains, SE taxable
A pitfall to watch out for…
• Repair vs. Capital
Expense
– Rule: Adds value,
life or changes use,
it’s capital and
depreciate the cost
– Ordinary and
necessary,
repetitive…it’s a
repair
A few non Business Ideas to
Optimize Tax Paid
• Retirement Plans
– IRA, SEP, SIMPLE
• H.S.A.
– Can act like an IRA
• Double Up Itemized
Deductions
– Property taxes,
estimated State tax
If…A Farm Loss
• Consider paying
alternative SE tax
– Allows for continuing
coverage for
retirement and more
importantly disability
– Often paid by the
EIC if qualified.
Super Good year: Now What?
Income Averaging may Help
• The idea is to use
unfilled lower tax
bracket buckets
from the previous
three years.
• Farm income
– Schedule F
– Sale of Farm
Business Assets
Useful Tax Websites
•
•
•
•
•
www.ruraltax.org
www.smbiz.com
www.timbertax.org
www.irs.gov
www.dornc.com
Contact Information
Guido van der Hoeven
Extension Specialist/ Senior Lecturer
Campus Box 8109, NCSU
Raleigh, NC 27695-8109
919-515-9071
guido_vdh@ncsu.edu