2012 Tax Management Strategies
Catawba Cattleman’s AssociationNewton, NC
October 9, 2012
Knowing Your Numbers• If you can’t measure it, you can’t
manage it• Bring your records up to date
–1st 10 months actuals, project Nov & Dec for net total income
–Calculate a projected tax bill
Plan to a “set” target net income• Increase expenses
in last 2 months• Defer income into
2013• Take more income
in 2012• Defer expenses
until 2013
Increasing Expenses if need be• Prepay expenses
– Generally 50% rule– Ex: $30,000 in total
expense, then $15,000 of prepay allowed
– REMEMBER, expenses in 2012 increase 2013 income
Increasing Expenses if need be• Use Sec. 179
expensing – Used and new equip– $136,000 is limit– $560,000 total
purchase limit– Must have income
• Farm or W-2
Increasing Expenses if need be• Use AFYD or Bonus
– New equip only– Presumption of law
this is used, – Must elect out by
class– NC does not
conform to federal law
Examples of Farm Income?• Market calf sales• Grain sales• Cotton sales• Custom work• Gov’t payments• Crop Insurance
What is a Farm Business Asset Sale?
• Land used in farming
• Breeding animals• Equipment sales
Where are Business Asset Sales Reported?
• IRS Form 4797• Part 1
– Land– Raised Breeding
Animals (held >2 yrs)
• Part 3– Depreciated Equip– Purchased
Breeding Animals
Remember the Plan: An Income Target
• W-2 income• Rental income• Farm Income• Other investments• Character of
income– Ordinary, Capital
Gains, SE taxable
A pitfall to watch out for…• Repair vs. Capital
Expense– Rule: Adds value,
life or changes use, it’s capital and depreciate the cost
– Ordinary and necessary, repetitive…it’s a repair
A few non Business Ideas to Optimize Tax Paid
• Retirement Plans – IRA, SEP, SIMPLE
• H.S.A.– Can act like an IRA
• Double Up Itemized Deductions– Property taxes,
estimated State tax
If…A Farm Loss• Consider paying
alternative SE tax– Allows for continuing
coverage for retirement and more importantly disability
– Often paid by the EIC if qualified.
Super Good year: Now What? Income Averaging may Help
• The idea is to use unfilled lower tax bracket buckets from the previous three years.
• Farm income– Schedule F– Sale of Farm
Business Assets
Useful Tax Websites• www.ruraltax.org• www.smbiz.com• www.timbertax.org• www.irs.gov• www.dornc.com
Contact Information
Guido van der HoevenExtension Specialist/ Senior LecturerCampus Box 8109, NCSURaleigh, NC 27695-8109
