Tax Update
LeRoy Vogel, CPA, Bowling Green
January 6, 2006

green line

(Picture provided by AgEBB staff)

LeRoy Vogel, CPA spoke about tax updates.

Inflation Adjustments
Social security wage base $90,000$94,200
Retirement earnings test $12,000$12,480
IRA or Roth contribution $4,000$4,000
IRA or Roth catch-up contributions $500$1,000
SIMPLE contributions $10,000$15,000
SIMPLE catch-up contributions $2,000$2,500
401(K) and elective deferrals $14,000$15,000
401(K) catch-up contribution $4,000$5,000
New Roth 401(K)
Elective deferral $15,000
Catch-up contribution $5,000
Health Savings Accounts
Minimum deductibleSingle$1,000$1,000
Maximum out of pocketSingle$5,100$5,250
Maximum contributionSingle$2,650$2,700
Catch-up contributionSingle$600$700
Tax tables and exemptions $3,200$3,300
Working Family Relief Act of 2004
Increased child credit to $1,000 to tax year 2010
Marriage penalty relief extended to tax year 2010
Teachers $250 classroom supplies deduction extended through 2005
American Jobs Creation Act of 2004
Domestic manufacturing deduction beginning in 2005
Applies to agriculture
  • 3% 2005-06
  • 6% 2007-09
  • 9% 2010 & later
Must have employees and pay wages to qualify
Deduction limited to 50% of wages paid
Custom work and custom feeding of livestock do not qualify
Simplified method for allocation of expenses to nonqualifying income
Farm Income Averaging
Negative taxable income
 Negative taxable income is allowed in base years, provided it does not result from net operating losses, i.e. results from deductions & exemptions
 Any net operating loss carried back or over that may provide a tax benefit in another taxable year must be added back to base period taxable income
 For purposes of computing AMT to compare to farm averaging tax, regular tax and AMT is computed on income before elected carryback amount
Section 179 & Depreciation
Section 179
Increased Section 179 deductions extended through the 2007 tax year
  • $105,000 in 2005, $108,000 in 2006, subject to phase out
Applies to both new and used property
Applies only to boot paid on like kind exchanges
Must identify specific property deduction claimed on in return
Can now elect in or out, or change election on amended returns
SUV's acquired after 12/31/04 allowed $25,000 maximum Section 179
50% Special first year depreciation
 Expired at end of 2004 tax year
Like-Kind exchanges
 Continue depreciating traded asset over remaining life
 Depreciate boot paid over prescribed life
 Can elect out of above, and roll NBV of traded asset into replacement asset
Maximizing depreciation
 Do not elect out of like-kind echange rules
 Take Section 179 on longest life new property next
Value-Added Cooperatives
Tax Court ruled pass through income is subject to self-employment tax
Some coops are now converting to LLC status to avoid SECA
  • Capital gain or loss must be recognized on conversion
  • Member becomes a "limited member" with no management responsibility
  • Constructive receipt on year end "value added" payments
  • If coop allows you to elect to defer payment, you have constructive receipt
Sale of state tax New Generation Coop credits is ordinary income, but not SE
Rental of land to & Salaries from captive farming corporations
  • Make sure rental amounts do not exceed fair market value
  • Make sure to take reasonable salaries subject to social security
  • Written lease and employment agreements are preferable
  • Particularly critical if corporation is furnishing meals and lodging
Income Reduction Opportunities
CCC loans
 Convert from income method to loan method
Crop insurance and Disaster Payments
 Must be in declared disaster county
 May be deferred one year with proper election in return
Livestock sold due to weather
 Must be in declared disaster county
 Feeder stock may be deferred one year with proper election in return
 Breeding stock replacement period for deferred gain is 4 years
 If unable to acquire like kind property can replace with other farm (not land) property
 Contribution deduction for autos limited to proceeds to charity
 Electronic filing

green line

[ Back to Computers on the Farm 2006 Program ]