Updated 8/8/11 Mid-Year Tax Planning The year 2011 has been full of many unusual and changing events, weather, and laws. We have seen the recent deficit sparing and temporary fix, the negative reaction of the stock market, and the downgrading of U.S. obligations, etc. This year also has some one-time tax laws to consider. This spring was one for the history books for many farmers with rains keeping them on the sidelines until late May and June.  Among the largest tax issues this year are the depreciation rules that will only be in effect for 2011 and are scheduled to change/reduce in 2012 and after. We have a very large Section 179 deduction for 2011 with a maximum amount of $500,000. This is a first year write-off for most equipment, some vehicles, certain special facilities such as grain bins, and special purpose livestock facilities. In addition, for all brand new items we have bonus depreciation of 100% in the year of acquisition. The bonus depreciation can be used on most equipment and special purpose facilities. For farmers it also includes machine storage and shop buildings. These deductions can be huge. For those with larger 2011 profits, a mid-year review of your profitability for the year will help you know what type and how much income to allow in the second half of the year, as well as how much year-end prepayment of expenses to consider.  Bonus depreciation and Section 179 drop in half in 2012. Profitable operations need to take advantage of 2011’s rules. For farmers facing a short 2011 crop which will affect the 2012 tax year, the planning opportunities are very significant. Balancing out the profitability each year is beneficial to utilize the best mix of income tax rates, deductions, and credits.  We suggest you take a quick look at your 2011 tax planning in late summer and then fine tune it at year-end when you usually finish your planning.  Time is something you can’t get back; give us a call now to schedule your mid-year review.   Updated 1/13/11  Zero Capital Gains Tax Rate Extended For 2011-2012  Many taxpayers may benefit from a tax rule extended for 2011-2012. For those in the 15% or less tax bracket and who have long term capital gains or qualified dividends, a zero tax rate for the capital gain/dividend income may apply. For a joint filer with a family of four and modest extra deductions, the 15% bracket covers up to approximately $94,000 of total income.   This rule provides major planning opportunities if you have any significant capital gains and dividends and have the ability to fluctuate your ordinary income. We have several clients we have planned to record capital gains during this time and reduce their other ordinary income to receive this substantial tax savings.   If a taxpayer had a gain on the sale of land or stock and/or stock dividends that totaled $35,000 and they were able to keep total income within the 15% bracket, their tax savings would be $3,500 ($35,000 * 10%, the normal capital gains rate while in the 15% bracket).   If you know you will encounter a capital gain in 2011-2012 or if you have significant stock dividends, you may be wise to make sure you stay in the 15% bracket for these years. Please give us a call to plan your income to take advantage of this great tax planning tool.   Back to Home