As tax return preparation gets under way, agricultural producers need to take a close look at some tax preparation items.

""Staying up to date on these items will help producers prepare their returns accurately,"" says Ron Haugen, North Dakota State University Extension Service farm economist. “Producers have until March 2 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 2008 income tax preparation:

• For the year 2008 only, the 179 expense election has increased to $250,000. Generally, the 179 expense election allows producers to deduct up to $250,000 of machinery or equipment purchases for the year of the purchase. There is a dollar-for-dollar phase-out for purchases of more than $800,000. It is scheduled to revert to $133,000 in 2009.
• New for 2008 is an additional first-year bonus depreciation. It is equal to 50 percent of adjusted basis after 179 expensing. It only applies to new property purchased in 2008 and has a recovery period of 20 years or less.
• The standard deduction has increased to $10,900 for those who are married and filing jointly. The deduction is $5,450 for singles.
• The personal exemption amount has increased to $3,500.
• Qualified dividend income is taxed at a 0 percent rate for individuals in the 10 percent or 15 percent tax brackets and at 15 percent for those in higher tax brackets.
• Long-term capital gains are taxed at a 0 percent rate for individuals in the 10 percent or 15 percent tax brackets and at 15 percent for those in higher tax brackets.
• The child tax credit is $1,000 for each qualifying child.
• The annual IRA contribution has increased to $5,000 for 2008 or $6,000 for individuals 50 or older.
• The annual gift tax exclusion for 2008 remains at $12,000.
• The 2008 Social Security wage base is $102,000.
• 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.
• The business mileage rate for 2008 is $0.505 per mile to June 30, 2008, and $0.585 per mile thereafter.
• Crop insurance proceeds, if received in 2008, may be deferred to 2009 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. Producers with Revenue Assurance or Crop Revenue Coverage may receive an indemnity because of price declines and/or yield losses. Indemnities from price declines are not deferrable. If it is not line-itemized from the insurance company, contact the company to find out what part of the indemnity is from a price decline and what part is from a yield loss.
• A livestock deferral can be made by those who had a forced sale of livestock because of a weather-related disaster. Two methods can be used. In the first method, income can be deferred to the next year for all types of livestock sold prematurely. In the second method, income from livestock held for draft, breeding or dairy purposes is not taxed if like-kind animals are repurchased within four years (or more depending on weather conditions or disaster declarations) from the end of the tax year in which the animals were sold. Only the gain on the sale of those animals beyond what was normally sold would qualify for postponement.
• The domestic production deduction is 6 percent. It can be claimed as an adjustment against gross income. Generally, agricultural producers who grow and produce grain or livestock and have hired labor qualify for the deduction. The deduction is 6 percent of the lesser of net farm income or adjusted gross income. It is limited to 50 percent of the wages paid by the producer. This deduction is not claimed on Schedule F, but is an adjustment to income on form 1040. Thus, it is not used in computing self-employment income.
• Remember that farmers can elect to compute their current tax liability by averaging, during a three-year period, all or part of the current year elected 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.
• There has been a clarification on the reporting of Conservation Reserve Program (CRP) payments. If an individual receives Social Security or disability benefits, then CRP payments are not subject to the self-employment tax, even if you still are an active farmer. If you are not receiving Social Security or disability benefits, then the CRP payments are subject to the self-employment tax, even if you are retired and not farming.

Information on agricultural tax topics can be found in the “Farmers Tax Guide,” publication 225. It is available at any IRS office or can be ordered by calling (800) 829-3676. Any questions about these topics should be addressed to your tax professional or the IRS at (800) 829-1040 or http://www.irs.gov. Call the North Dakota Tax Department at (800) 638 2901 or go to http://www.nd.gov/tax/ for answers to North Dakota income tax questions.

NDSU Agriculture Communication