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January
26, 2006
Agricultural
Producers See Income Tax Changes
As tax return preparation
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 Ron Haugen, North Dakota State University Extension Service farm
economist. “Producers have until March 1 to file their returns without
penalty. If they made an estimated tax payment by Jan. 17, they have until
April 17 to file.”
Items to note for
2005 income tax preparation:
- The personal exemption
amount has increased to $3,200.
- The standard deduction
has increased to $10,000 for those who are married, filing jointly,
and $5,000 for singles.
- Qualified dividend
income is taxed at a 5 percent rate for individuals in the 10 percent
or 15 percent tax brackets and at 15 percent for those in higher tax
brackets.
- The 179 expense
for 2005 is $105,000, with the inflation adjustment.
- The mileage rate
for 2005 increased to 40.5 cents per mile for Jan. 1 to Aug. 31 and
48.5 cents per mile from Sept. 1 to Dec. 31.
- The 2005 Social
Security wage is $90,000.
- The self employed
health insurance deduction remains at 100 percent.
- The child tax
credit is $1,000 for each qualifying child.
- The annual IRA
contribution is $4,000 for 2005 or $4,500 for individuals 50 or older.
- Producers in federal
disaster areas who were forced to sell livestock because of drought
or other weather-related conditions have four years to replace the livestock.
- This is the second
year of the new sales tax deduction on Form 1040 Schedule A itemized
deductions. Individuals may deduct their state and local income tax
or their state and local sales tax.
- Remember farmers
can elect to compute current year tax liability by averaging, over a
three-year period, all or part of the current year electible farm income.
This is done on Schedule J. North Dakota farmers who elect to use income
averaging (Schedule J) for federal purposes also may use Form ND-1FA,
income averaging for North Dakota income tax calculations.
- Health savings
accounts are a consideration for those who do not have competing medical
coverage and are covered by a qualified high-deductible health plan.
- Crop insurance
proceeds for 2005, if received in 2005, may be deferred to 2006 if you
qualify. You must use cash accounting and show that, under normal business
practices, you would include the sale from damaged crops in any future
tax year.
A change for 2005
that affects agricultural producers is the new domestic production deduction.
Agricultural producers who grow and produce grain or livestock qualify
for this deduction. For 2005, generally, the deduction is 3 percent of
the lesser of net farm income (Schedule F) or adjusted gross income. This
is limited to 50 percent of the wages paid by the producer. This deduction
is not claimed on Schedule F. It is not used in computing self-employment
income. It is claimed on Form 1040 by using Form 8903. The rate is scheduled
to remain at 3 percent for 2006. The rate is scheduled to increase to
6 percent for 2007, 2008 and 2009 and to 9 percent thereafter.
Any questions should
be addressed to your tax professional, the Internal Revenue Service at
(800) 829 1040 or the North Dakota Tax Department at (800) 638 2901. Producers
can order publication No. 553, “Highlights of 2005 Tax Changes,”
by calling (800) 829 3676.
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Source:
Ron Haugen, (701) 231 8103, rhaugen@ndsuext.nodak.edu
Editor: Rich Mattern, (701) 231-6136, richard.mattern@ndsu.edu
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