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 Taxes
Tags: Farm income averaging