Farm Income Tax Management and Reporting: Reference Manual
Casler, George L.; Smith, Stuart F.; Tauer, Loren W.
Recent Legislation The major changes that will affect the tax bills and tax reporting of farmers for 1983 result from laws passed in 1981 (ERTA) and 1982 (TEFRA, the Subchapter S Revision Act, and the Technical Corrections Act of 1982). Income tax rates are down 10 percent in 1983 from 1982 as a result of ERTA. Farmers must choose between reducing the basis of property acquired in 1983 and later by one-half the investment credit or reducing the IC by two percentage points. The Sub-S act will require changes in the way income items are reported but will not change the tax bills of most S Corporation farmers. Social Security Act amendments passed in 1983 will increase 1984 self-employment taxes nearly three percent. Future Legislation There are a dozen or more tax bills plus several proposed regulations currently pending in Washington. Most of the 1983 tax bills introduced to date would have minor impact on farmers if approved. The Economic Equity Bill would liberalize earned income credit and make changes in IRA's and pension plans. The Tax Simplification Bill would give IRS more flexibility in applying underpayment of estimated tax penalties. The rules on claiming deductions for using part of the home for business would be modified under a new regulation, Tax credit for some of the tuition paid to qualified private schools has been approved by the Senate Finance Committee. Most tax experts predict no major income tax increases prior to the 1984 elections. Modification of the plans to adjust individual tax rates for inflation starting in 1985 may be one of the first changes made. 1983 Farm Income Dairy farm incomes in 1983 will generally be lower than in 1982 because of the milk assessments and higher feed prices. Records from 76 CAMIS dairy farms indicate that January-August operating margins per cow are about the same as in 1982 and up slightly on a per farm basis because of increased herd size, but the worst is yet to come. Incomes almost surely will drop in the fall of 1983 because of the $1.00 assessment and higher feed prices. In 1984, the $1.00 assessment will be in effect for the full year unless Congress changes the law. Grain farmers are enjoying substantially higher prices, particularly for corn, but in some areas yields are down because of the dry weather. Those who participated heavily in PIK have the high prices without the low yields and also have low expenses. Depending on timing of sales, and PIK related factors, some grain farmers may have high enough incomes in 1983 to need help with tax management. Most grape farmers will have lower incomes than in 1982 because of sharply lower prices for many varieties. Apple prices are higher than last fall but many growers' incomes will depend largely on sales of the 1982 crop. Hog prices have been below 1982 levels for much of 1983. Egg prices have been above year earlier levels since May but feed prices are also above last year's levels. Carry overs and carry backs of net operating losses will be important tax management tools for some New York farmers.
A.E. Ext. 82-23
Charles H. Dyson School of Applied Economics and Management, Cornell University