With all the talk about the possible higher tax rates starting next year we sometimes forget that farmers might not feel much of the hit due to farm income averaging. This special method of figuring tax allows you to average your tax over four years (2010-2013).
This means for 2013 you might be able to earn $1 million from farming and have most of it still subject to the old lower tax rates. This assumes you had no taxable income for 2010 to 2012. When this income is averaged over those years $250,000 would taxed using those tax rates for each year and for 2013 only $250,000 would be subject to those rates.
If they do keep the old rates for up to $250,000 the farmer has effectively had none of their $1 million subject to the new higher 39.4% rate.
This is a very unique situation, but in almost all cases a farmer will have less tax than other taxpayers due to farm income averaging.
Categories: Farm Industry Trends, Farm TaxesTags: Farm income averaging
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December 21st, 2012 at 6:41 am
[...] Neiffer, Farmers Might Delay Higher Tax Rates for Three Years? Thanks to income averaging, a trick available only for farmers, “…you might be able [...]
December 26th, 2012 at 6:49 am
[...] We did a post a few days ago on how farmers may not be affected by the increased tax rates for 2013 if they use farm income averaging. In that post, we used an example of spreading $1 million of farm income over four years, $250,000 in 2010-2013. An observant reader reminded us that a farmer could spread even more income, if desired, to the period 2010-2012 to take advantage of the lower rates for those years. [...]