Farm 2018 Tax Tips

Changes effecting capital purchases and net income:

New 1031 rules –  a tax-free exchange (1031) only applies for real property. Personal property or equipment exchanges are treated as a sale and therefore require a “bill of sale”.

New depreciation life and limit –  Federal 179 deduction limit is $1,000,000. It limits qualified capital purchases to a dollar-for-dollar phase-out starting at $2,500,000.

Warning – using depreciation as your only tax management tool:

• “Choosing to offset gain on traded equipment with bonus depreciation or a 179 deduction could easily create a negative Schedule F, thus reducing Social Security tax and will reduce your retirement income later.”

• “Tax-deductible” doesn’t necessarily mean it makes your farm more profitable.

Tax adjustment tools:

  1. Prepay operating inputs.
  2. Defer crop insurance proceeds.
  3. Pay your kids a reasonable wage for farm work.
  4. Pay any accrued interest.
  5. Consider income averaging.
  6. Review CCC loan tax treatment.
  7. Review deferred payment contracts. 
  8. Fund your retirement account.

Read full article By Kent Vickre, “Tax planning tips for 2018” (11/26/2018 – full article)

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