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Income Tax Filing Deadline Draws Near for Agricultural Producers

Producers need to take a close look at some tax preparation items.

As tax return preparations get 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 3 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 2007 income tax preparation:

  • The standard deduction has increased to $10,700 for those who are married and filing jointly. The amount is $5,350 for singles.
  • The personal exemption amount has increased to $3,400.
  • 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.
  • Long-term capital gains are taxed at a 5 percent rate for individuals in the 10 percent or 15 percent tax brackets and 15 percent for those in higher tax brackets. For 2008, the capital gains rate for the 10 percent and 15 percent brackets is scheduled to go to zero.
  • The child tax credit is $1,000 for each qualifying child.
  • The annual IRA contribution is $4,000 for 2007 or $5,000 for individuals 50 or older.
  • The annual gift tax exclusion for 2007 remains at $12,000.
  • The 2007 Social Security wage base is $97,500.
  • 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.
  • You may be able to take the residential energy credit if you have qualified energy saving items installed in your home.
  • The mileage rate for 2007 is 48.5 cents per mile.
  • The 179 expense election for 2007 has increased to $125,000. The 179 expense election generally allows producers to deduct up to $125,000 of machinery or equipment purchases in the year of the purchase. There is a dollar-for-dollar phaseout for purchases of more than $500,000.
  • Crop insurance proceeds for 2007, if received in 2007, may be deferred to 2008 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.
  • 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 above and beyond what was normally sold would qualify for postponement.
  • The domestic production deduction has increased from 3 percent to 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. Form 8903 is used to figure this deduction.
  • Farmers can elect to compute current year 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 producers who elect to use income averaging for federal purposes also may use Form ND-1FA (income averaging for North Dakota income tax calculations).

New for 2007 is the North Dakota property tax relief income tax credit. The credit is 10 percent of the combined amount of residential and agricultural property taxes paid. This credit is used to offset North Dakota income tax liability. The maximum credit is $500 for singles and $1,000 for married couples filing jointly. There also is a new credit for commercial property taxes paid. If you have questions about the property tax relief income tax credit, call the North Dakota Tax Department at (800) 328-2760.

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. Answers to North Dakota income tax questions can be addressed by calling the North Dakota Tax Department at (800) 638-2901 or going to its Web site at http://www.nd.gov/tax/.


NDSU Agriculture Communication

Source:Ron Haugen, (701) 231 8103, ronald.haugen@ndsu.edu
Editor:Rich Mattern, (701) 231-6136, richard.mattern@ndsu.edu
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