NDSU Extension - Dickey County


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IRS Waives Estimated Tax Penalty for Farmers

Breana Kiser, Agriculture and Natural Resource Agent

3-21-19 Waives PenaltyThis waiver gives producers more time for income tax preparation.

The Internal Revenue Service (IRS) has waived the estimated tax penalty for qualifying farmers who file their return and pay any taxes due by April 15, 2019.

“Typically, agricultural producers who have not made tax deposits can file and pay taxes due by March 1 without penalty,” says Ron Haugen, North Dakota State University Extension farm management specialist. “Due to certain changes in the new tax law, farmers may have had difficulty determining their tax liability by the typical March 1 deadline. This waiver gives producers more time for income tax preparation.”

To be granted this relief, you must be a qualifying farmer and get at least two-thirds of your gross income from farming. A cash-rent landlord is not considered a farmer.

In addition to the waived tax penalty, Haugen notes several items for income tax preparation regarding the new tax law changes:

  • Tax rates have decreased for 2018.
  • Agricultural producers now are allowed to use 200 percent declining balance depreciation for 3-year, five-year, seven-year and 10-year property. The 150 percent declining balance method is still required for 15 and 20-year property.
  • For most new agricultural machinery and equipment (except grain bins), the recovery period has been reduced from seven to five years.
  • Like-kind exchanges no longer are allowed for personal property but still are allowed for real property.
  • The section 179 expense has increased. It generally allows producers to deduct up to $1,000,000 on new or used machinery or equipment purchased in the tax year. There is a dollar-for-dollar phase-out for purchases above $2,500,000.
  • The additional 100 percent first-year bonus depreciation is in effect. It is now available for used as well as new property. It is equal to 100 percent of the adjusted basis after any section 179 expensing.

Other items to note:

  • Income averaging can be used by producers to spread the tax liability to lower income tax brackets in the three previous years. This is done on schedule J.
  • Crop insurance proceeds and government crop disaster payments can be deferred to the next tax year if a producer is a cash-basis taxpayer and can show that normally income from damaged crops would be included in a tax year following the year of the damage.
  • A livestock income deferral is available for those who had a forced sale of livestock because of a weather-related disaster.

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 or further updates should be addressed to your tax professional or the IRS at 800-829-1040 or https://www.irs.gov/.

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