Dakota State University -- NDSU Agriculture
7 Morrill Hall, Fargo ND, 58105-5655, Tel: 701-231-7881, Fax: 701-231-7044
Specialist Reviews Income Tax Changes for Agricultural Producers
As tax preparation time gets under way, agricultural producers need to be aware of a number of changes in tax regulations.
"Staying up-to-date on these changes will help producers prepare their returns accurately," says North Dakota State University Extension farm management specialist Ron Haugen. Farmers have until March 1 to file their returns without penalty. If they made an estimated tax payment by Jan. 15 they have until April 15 to file.
Items to note for 2001 income tax preparation:
The income tax rates have been decreased for 2001 and will be further reduced in future years.
Haugen notes that the IRS is planning to do more payroll and information return audits in the future. Producers are encouraged to file their information returns on time and accurately. The IRS is encouraging electronic filing and electronic tax payments. Electronic filing and paying has been made easier, fewer errors result and it is more cost efficient for the IRS.
"Remember that depreciation rules for property acquired in a ‘like-kind-exchange’ (one property traded for another property) are in effect," Haugen says. For "like-kind-exchange" property placed in service on or after Jan. 3, 2000, taxpayers must make two depreciation calculations. The cash paid to-boot is depreciated as one line-item, and the old property (the property traded in) is depreciated according to the original depreciation schedule. The old property appears on the depreciation schedule even if it is no longer owned
Income averaging rules for farmers have been in effect since tax year 1998. According to Haugen, income averaging allows farmers to level out higher income years with lower income years. "Remember that since 2000, negative taxable income values may be included in the calculation. Tax returns should be reviewed for 1998 and 1999 to see if a negative taxable income existed for any of the base years. You have until April 15, 2002 to file an amended return for 1998. An amended return may produce a refund," he says.
Haugen notes that the use of income averaging my trigger the alternative minimum tax. If the alternative minimum tax is triggered it may result in a higher tax and negate the income averaging benefit.
Crop insurance proceeds and government disaster payments for 2001 received in 2001 may be deferred to 2002 if you qualify, Haugen says. You must use cash accounting and show that you would have under normal business practices included the sale from damaged crops in any future tax year.
The North Dakota tax rates are no longer tied to the federal rates. A new ND-1 form is used to file state income taxes figuring tax on North Dakota income, using the new North Dakota rates.
Farmers who elect to use income averaging (Schedule J) for federal purposes, should also use the new ND-1FA income averaging form for North Dakota.
Any questions should be addressed to your tax professional, the Internal Revenue Service at (800) 829-1040 or the North Dakota State Tax Department at (800) 638-2901. Also you may order Publication 553, Highlights of 2001 Tax Changes, by calling (800) 829-3676.