Farm Income Tax Management and Reporting Reference Manual
Casler, George L.; Smith, Stuart F.
1985 FARM TAX AND INCOME SITUATION New Legislation After several years of major federal tax legislation, 1985 was a lull. The contemporaneous recordkeeping requirements included in the Tax Reform Act of 1984 were repealed and new recordkeeping rules instituted. The below-market interest rate issue was settled, along with a change from 18-year to 19-year property. Tax Reform Congress has been rather slow in reacting to President Reagan's tax reform proposals. The House of Representatives has considered several of the issues but, at this writing, had not yet acted on the major issues such as elimination of investment creditelimination of many itemized deductions, and lowering of rates. The Senate is not likely to take action in 1985. Some of the provisions in the President's proposal could have major impact on taxes paid by farmers. Elimination of investment credit and elimination of capital gains treatment on livestock sales, while partly offset by increased personal exemptions and the zero bracket amount, could have major impacts on the tax bills of some farmers. The proposed longer depreciation periods would have some impact initially but would be at least partly offset in the long run by inflation-adjusted depreciation changes. The proposal to require preproductive expenses (on orchards, vineyards, and replacement livestock) to be capitalized could initially reduce deductions and increase taxes but this would be offset by depreciation charges during the productive years. It is not clear that the provision would be applied to the raising of replacement dairy or beef animals. The 1985 Income Situation Dairy farm incomes in 1985 are likely to average somewhat higher than in 1984 because decreased feed costs more than offset lower milk prices. Data for January through September on 43 CAMIS dairy farms show a $7,800 per farm ($48 per cow) increase in cash operating income over 1984. However, milk prices in the last quarter of 1985 will be substantially below 1984 levels and will not be completely offset by lower feed prices. Therefore, the increase in cash flow over 1984 levels will moderate by year-end. Producers of corn, wheat, oats, and potatoes are likely to have net incomes well below 1984 levels. Many grape farmers and some apple producers will have incomes in 1985 substantially below 1984 levels due to marketing problems. Egg and hog prices in 1985 will average below 1984 levels but the lower receipts will be partly offset by lower feed prices. A Tax Management Challenge A relatively small number of farmers need and use good income tax management advice every year. All farmers need to think tax management in planning a farm sale or transfer. Some economists predict that as many as 25 percent of New York's commercial farmers will exit from farming in the next three to five years. If 5,000 farmers sell assets for more than $1 billion, good planning and tax management will save these families several hundred million dollars. Are you ready and prepared for this million dollar challenge?
A.E. Ext. 85-25
Charles H. Dyson School of Applied Economics and Management, Cornell University