With energy costs increasing and the expensive costs associated with truck repairs, are the days of 4 wheel drive muscle trucks a thing of the past in the farm landscape? Probably not, but evaluating truck usage and associated costs can provide some excellent information that can save the business money long term. One such analysis can be found at http://www.noble.org/Ag/Farms/FromTheFarm0104/index.html . Although this example is associated with livestock and pastures, a similar analysis could be useful for producers in all types of farm enterprises.
This article lists a number of items affecting this years income tax filing and next years tax management. IRS forms and publications are available by calling 1-800-829-3676 or by contacting www.irs.gov/formspubs .
- The 2004 Tax Relief Act extended the child tax credit through 2010. The credit is $1000 per qualifying child, under 17 years of age on the last day of the tax year.
- The Standard Deduction has been changed to eliminate this part of the “marriage penalty” by making the married S.D. twice the single. The standard deduction for 2004 is $4850 single, $9700 married filing joint, $4850 married filing separate, and $7150 for head of household.
- The “marriage penalty” remains for higher incomes due to bracket percentage amounts.
- The ordinary income tax rates for 2004 are: 10%, 15%, 25%, 28%, 33%, and 35%.
- The 10% tax bracket amounts are Single $7,150 and Married $14,300. The 15% tax bracket amounts are Single $29,050 and Married $58,100.
- The core capital gains rates have dropped to 5% for ordinary income tax brackets up to 15%, and a maximum of 15% capital gains rate for all others.
- Dividends were previously taxed at ordinary income tax rates, now dividends are taxed at the capital gains rates of 5% or 15%.
- Provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 are effective through 2010, but sunsets in 2011, thus repealing all of the changes.
- The Federal Estate Tax Exclusion amount is $1,500,000 per person in 2004 and 2005. It raises to $2,000,000 in 2006 and $3,500,000 in 2009. The Federal Estate Tax is repealed for 2010, but returns with a $1,000,000 exclusion in 2011. The Gift Tax Exclusion remains at $1,000,000 for each year. The annual amount that can be given per person/year without filing a gift tax return is $11,000.
- The law changed for 2004 and future years relating to Income Averaging for farmers and the Alternative Minimum Tax. In computing AMT, a farmer’s regular tax liability is now determined without regard to income averaging. In prior years, AMT eliminated much of the tax savings a farm would have realized from filing a Schedule J for Income Averaging.
- The standard mileage rate for business use of vehicles is 37.5 cents per mile in 2004 and 40.5 cents for 2005. In 2004 a business may use the standard mileage rate for up to 4 vehicles (was up to 2).
- The additional first year depreciation of 50% (or elect 30%) is used for property placed in service in 2004 and was not extended by new legislation. Qualifying property must be original use (new), MACRS recovery up to 20 years (most farm property), or a qualified leasehold improvement.
- IRC Section 179 expensing is available for both new or used qualifying business property (machinery, breeding livestock, single purpose livestock or horticulture structures, field tile, grain bins). The amount was raised to $100,000 (indexed to inflation) and the increased amount has also been extended through 2007. In 2008 Section 179 returns to $25,000. In 2004 the limit is $102,000 and is increased to $104,000 in 2005. There is a qualifying investment limitation of $400,000 per year (indexed to inflation).
- Net income from 4-H and FFA projects are subject to income tax, but generally are not a trade or business, thus are not subject to self employment tax. However, since a dependent, the young person may be subject to a limited standard deduction that can not exceed the greater of $800 or $250 plus the individual’s earned income.