American Jobs Creation Act of 2004
| Domestic manufacturing deduction beginning in 2005
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| Applies to agriculture
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- 3% 2005-06
- 6% 2007-09
- 9% 2010 & later
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| 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 |
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| 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
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| NOL's
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| | 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
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| AMT
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| | For purposes of computing AMT to compare to farm averaging tax, regular tax and AMT is computed on income before elected carryback amount
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| Section 179 & Depreciation |
| Section 179
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Increased Section 179 deductions extended through the 2007 tax year
- $105,000 in 2005, $108,000 in 2006, subject to phase out
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| 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 |
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| 50% Special first year depreciation
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| | Expired at end of 2004 tax year
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| 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 |
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| Maximizing depreciation |
| | Do not elect out of like-kind echange rules |
| | Take Section 179 on longest life new property next |
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| Value-Added Cooperatives |
| Tax Court ruled pass through income is subject to self-employment tax |
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| 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
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| Sale of state tax New Generation Coop credits is ordinary income, but not SE |
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| 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
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| Income Reduction Opportunities |
| CCC loans |
| | Convert from income method to loan method |
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| Crop insurance and Disaster Payments |
| | Must be in declared disaster county |
| | May be deferred one year with proper election in return |
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| 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 |
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| Other
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| | Contribution deduction for autos limited to proceeds to charity |
| | Electronic filing |
