The Internal Revenue Service will begin accepting and processing 2013 tax returns a little later than usual. But farmers and their tax preparers shouldn’t delay making a start, especially when they might need to deal with issues such as NIIT and the ACA.
The 23rd annual Income Tax Management for Ag Producers video conference was held Nov. 18 at 11 sites in North Dakota. Sponsored by the North Dakota State University Extension Service, the conference provided updates on tax law changes.
The speakers were Steve Eckroth, tax manager with Eide Bailly in Bismarck, ND; Ann Makres, senior tax specialist with the IRS; Rhonda Mahlum, a partner in Mahlum Goodhart PC in Mandan, ND; Steve Troyer, a partner with Eide Bailly in Fargo, ND; and Rick Mapel, tax specialist with AgCountry Farm Credit Service in Grand Forks, ND
The conference generally was aimed at professional tax preparers and farmers experienced in tax issues. But the event examined several trends and tax law changes of widespread interest.
Makres says the federal government’s temporary shutdown earlier this year will push back when the IRS begins processing individual tax returns. The original start date of Jan. 21, 2014, will be delayed, with the start now beginning no earlier than Jan. 28 and no later than Feb. 4. A final decision will be announced in December.
In the meantime, farmers will need to learn if they’re affected by the net investment income tax and the Affordable Care Act.
Mapel, with AgCountry Farm Credit Service, described the basics of what’s currently known about the ACA.
Health insurance coverage will be offered through an “affordable insurance exchange.” Plans come in five levels of coverage: catastrophic, bronze, silver (the benchmark), gold and premium, ranging from least generous to most generous.
Some taxpayers will receive tax credits to offset part of their health insurance premiums. To be eligible for the credits, a taxpayer can’t receive health care coverage through their employer or through a government program and must have household modified gross income from 100 to 400 percent of the federal poverty level.
More information on the premium tax credit: www.irs.gov/uac/Newsroom/Questions-and-Answers-on-the-Premium-Tax-Credit
More information on the ACA in general: www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions
The net investment income tax, also known as the Medicare 3.8 percent surtax, taxes investment income above certain levels. It applies to a wide range of income, including dividends, royalties and capital gains, but not to salary and wages.
The new tax could be important for many farmers, particularly ones selling land, tax officials say.
The surtax applies to either net investment income or to the amount by which modified adjusted gross income exceeds the threshold, whichever is less.
Here’s a hypothetical example, given at the tax planning conference, of how the surtax would work.
Say an unmarried farmer (with a $200,000 threshold) has net investment income of $400,000 and modified adjusted gross income of $245,000. He could either pay the surtax on $40,000 (his net investment income) or $45,000 (the amount by which his $245,000 modified adjusted gross income exceeds his $200,000). In this case, he would pay the surtax on $40,000, since that is less than $45,000.
In this example, the farmer would owe a Medicare surtax of $1,520, or $40,000 times 3.8 percent. Remember, the surtax would be in addition to other tax paid on the income.
Recently, low capital gain rates have encouraged landowners who sell land to collect all the money, and to pay taxes on it, right away, Eckroth says.
Now, with the surtax going into effect, farmers should consider setting up the sale so income is spread over many years, he says.
“We’d like to keep (annual) income low enough so we don’t need to pay that 3.8 percent Medicare surtax,” he says.
US farmers with foreign assets should be aware of the Foreign Account Tax Compliance Account (FATCA) and the Foreign Bank and Foreign Bank and Financial Accounts, or FBAR, Makres says.
The reporting threshold (or the total value of assets that requires federal filing) is lower for FBAR, she says.
US taxpayers who hold foreign real estate directly and personally aren’t affected by either requirement, she says.
US taxpayers who own a domestic mutual fund investing in foreign stocks and securities aren’t affected, she says.