2012 Tax Management Strategies

Catawba Cattleman’s Association

Newton, 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 Hoeven

Extension Specialist/ Senior Lecturer

Campus Box 8109, NCSU

Raleigh, NC 27695-8109

919-515-9071

guido_vdh@ncsu.edu