2012 Tax Management Strategies

Catawba Cattleman’s AssociationNewton, 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 HoevenExtension Specialist/ Senior LecturerCampus Box 8109, NCSURaleigh, NC 27695-8109

919-515-9071guido_vdh@ncsu.edu