Expanded tax options give farmers more flexibility

New and expanded tax incentives for farmers and small businesses provide more flexibility in tax management this year, said Purdue Extension agricultural economist George Patrick.

The “Creating Small Business Jobs Act of 2010” offers a larger Section 179 expensing deduction of up to $500,000 for tax years 2010 and 2011.

“Section 179 allows a taxpayer to deduct or expense part or all of the cost of an asset in the year of purchase, rather than depreciating the cost over several years,” Patrick said. “The Section 179 deduction is typically limited by the amount of qualifying assets acquired or the taxable income of the taxpayer, but it provides great flexibility in managing taxes.”

Most depreciable assets qualify for the 50% additional first-year depreciation, which was extended to include qualifying property placed in service between Jan. 1 and Dec. 31, 2010.

What this means, for example, is that farmers who purchased property for $50,000 can take $25,000 as additional first-year depreciation. They also can take the regular depreciation on the remaining $25,000.

“The property eligible for additional first-year depreciation is broader than that eligible for Section 179,” Patrick said. “For example, a shop or machine shed qualifies for the additional first-year depreciation but does not qualify for the Section 179 deduction. Both Section 179 expensing and additional first-year depreciation result in faster cost recovery for producers, which helps stimulate economic growth.”

For 2010, self-employed individuals can deduct the cost of health insurance for both income and self-employment tax purposes.

“This puts the employee and the self-employed on a more level playing field with respect to the after-tax cost of health insurance,” Patrick said.

Farmers interested in learning more about tax provisions and management can attend a free webinar Dec. 9 from 7:30 p.m. to 9:30 p.m. “Income Tax Management for Farmers” will be led by Patrick and David Frette, a certified public accountant who specializes in agriculture. More information is available at http://www.agecon.purdue.edu/extension/programs/tax/.

Indiana and Ohio tax professionals also can attend two-day update programs that will cover these and other tax law changes and can receive continuing professional education credits. More information on the Indiana programs is available at http://www.conf.purdue.edu/tax and in Ohio at http://aede.osu.edu/Programs/TaxSchool/.

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