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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