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 1 to file their returns without penalty. If they made an estimated tax payment by Jan. 16, they have until April 16 to file.”

Items to note for 2006 income tax preparation:

• (New for 2006) You may be able to take the new residential energy credit if you have qualified energy savings items installed in your home.
• (New for 2006) You may request a credit for federal telephone excise tax paid on long distance or bundled service from Feb. 28, 2003, through Aug. 1, 2006. Producers can use the standard credit ($30 for one exemption, $40 for two, etc.) or use Form 8913 to use actual or estimates of excise tax paid.
• The personal exemption amount has increased to $3,300.
• The standard deduction has increased to $10,300 for those who are married, filing jointly, and $5,150 for singles.
• Qualified dividend income is taxed at a 5 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 is $4,000 for 2006 or $5,000 for individuals 50 or older.
• 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 annual gift tax exclusion for 2006 is $12,000.
• The mileage rate for 2006 is 44.5 cents per mile.
• The 2006 Social Security wage base is $94,200.
• The self employed health insurance deduction remains at 100 percent.
• The 179 expense election for 2006 is $108,000 with the inflation adjustment.
• Producers in federal disaster areas who were forced to sell livestock because of drought or other weather-related conditions have four years to replace the livestock.
• Crop insurance proceeds for 2006, if received in 2006, may be deferred to 2007 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.
• The domestic production deduction can be claimed as a deduction against income. Generally, agricultural producers who grow and produce grain or livestock and have hired labor qualify for the deduction. For 2006, the deduction is 3 percent of the lesser of net farm income or adjusted gross income. This is limited to 50 percent of the wages paid by the producer. Form 8903 is used to figure this deduction.
• Remember farmers can elect to compute current year tax liability by averaging, over 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.

Any questions should be addressed to your tax professional, the Internal Revenue Service at (800) 829 1040 or the North Dakota Tax Department at (800) 638 2901. Producers can order publication No. 553, “Highlights of 2006 Tax Changes,” by calling (800) 829 3676.

NDSU Agriculture Communication