NDSU Extension - Morton County


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December 18, 2017 Ag Producers Take a Shopping Spree Before Year End

Dates to Remember:

December 28               Rube Goldberg Challenge, Morton County Courthouse

January 2                     My First Business: Babysitting, Morton County Courthouse

January 8                     I-29 Moo University- Baymont Inn & Suites, Mandan

January 8                     4-H Archery Workouts Begin, Nishu Bowman, Bismarck

January 20                   Parents Forever, Mandan

January 30                   Buying Bulls by the Numbers Workshop, ARS Station, Mandan


Ag producers: take a shopping spree before year end to limit tax liability.

[Editors: This story will not be valid after Jan. 1.]

Traditionally, producers try to do tax planning to limit their tax liability. With the downturn in the agricultural economy, limiting tax liability may not be an issue, but tax planning is still an important factor.

 Here are some items to note for planning 2017 tax returns:

  • The section 179 expense generally allows producers to deduct up to $510,000 on new or used machinery or equipment purchased in the tax year. There is a dollar-for-dollar phase-out for purchases above $2,030,000.
  • The additional 50 percent first-year bonus depreciation is in effect. It is available for new property with a recovery period of 20 years or less. It is equal to 50 percent of the adjusted basis after any section 179 expensing. This provision is scheduled to be phased out by 2019.
  • 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. North Dakota farmers who elect to use income averaging for federal purposes also may use Form ND 1FA (income averaging) for North Dakota income tax calculations.
  • 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, including drought.

Here is what producers can do before the end of the year to limit their current tax liability:

  • Prepay farm expenses. Feed, fertilizer, seed and similar expenses can be prepaid. Typically, discounts are received by paying for these expenses in the fall. Producers can deduct prepaid expenses that do not exceed 50 percent of their other deductible farm expenses.
  • Pay real estate taxes or interest. Paying taxes or interest can be done before the end of the year to increase 2017 expenses.
  • Defer income to 2018. Crop and livestock sales can be deferred until the next year by using a deferred payment contract. Most grain elevators or sales barns will defer sales until the next tax year. Producers should be aware that they are at risk if the business becomes insolvent before the check is received and cashed.
  • Purchase machinery or equipment. Machinery or equipment purchases can be made before the end of the year to get a depreciation or 179 expense deduction in 2017.
  • Contribute to a retirement plan such as a simplified employee pension plan, savings incentive match plan for employees, individual retirement account or solo 401K.

Information on agricultural topics can be found in the Farmers Tax Guide, Publication 225. It can be obtained at any IRS office or 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. North Dakota income tax questions can be addressed to the North Dakota Tax Department at 877-328-7088 or http://www.nd.gov/tax/.

Source: Ron Haugen, NDSU Extension Service Farm Economist

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