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Federal law change gives farmers ultimate tax break

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Written Tuesday, October 21, 2003  

Most working families wish they could pay less in federal income taxes. Under a recent tax provision that wish has come true for farmers, and then some, said George Patrick, a Purdue University agricultural economist and tax specialist.

The tax law change raises the amount farmers can deduct for certain farm-related purchases, while placing some producers in the envious position of deciding whether they want to pay income tax at all -- at least for now, Patrick said.

That tempting proposition is among the tax topics to be discussed at the annual Purdue Income Tax School and Agricultural Tax Workshops. The events take place at various locations across Indiana from late October through early December.

While federal lawmakers appear to have handed farmers the ultimate tax avoidance tool, producers should consider their future tax consequences first, Patrick said.

"Congress made it so that it's almost optional for farmers who bought things this year to pay income tax, because they expanded the additional first-year depreciation," Patrick said. "If a farmer spent $20,000 on a new piece of machinery or equipment they can take 50 percent of that as a deduction this year."

Another tax revision also helps farmers, Patrick said.

"The other change that Congress made that is related to the first-year depreciation is the Section 179 expensing -- the part that lets a farmer or other businessperson write something off the year they buy it," he said. "That amount went from $25,000 to $100,000, subject to some income limitations.

"Most farmers are going to be in a situation where they need to do tax planning to figure out what they should be paying in taxes, rather than just taking the easy route and not paying anything this year."

Other tax provisions spare farmers who lost crops to summer floods or other disasters.

"The tax law allows an individual who suffered a loss this year to decide whether to take that loss and carry it back for up to five years, thus offsetting income that they may have paid tax on in the past and get a tax refund, or whether they want to carry that loss forward into future years," Patrick said.

"In some instances there may be other opportunities -- such as if they are within a presidential-declared disaster area -- that would give them some flexibility in terms of refunds on taxes that they may have paid on their 2002 returns."

Like other taxpayers, farmers can take advantage of a $9,500 standard deduction for married couples, $3,050 exemptions for themselves, spouses and dependents, and a $1,000 tax credit for each qualified child under age 17 living at home.

"Farmers need to think about tax planning over a number of years, and not just about trying to minimize their taxes this year," Patrick said.

To that end, the Purdue Tax School seeks to educate professional tax preparers and others on existing tax laws and regulations.

This year's school focuses special attention on the federal Jobs and Growth Tax Relief Reconciliation Act of 2003 and the Job Creation and Worker Assistance Act of 2002. About one hour of the program is devoted specifically to farm income tax issues.

Speakers include Patrick, Internal Revenue Service personnel, certified public accountants in private practice, retired IRS examiners and representatives of the Indiana Department of Revenue.

The school schedule includes:

  • Oct. 28-29 -- Vanderburgh County 4-H Center, Evansville.
  • Nov. 12-13 -- Walb Union Building, IPFW, Fort Wayne; and Horizon Convention Center, Muncie.
  • Nov. 17-18 -- Century Center, South Bend; and the Union Building, Valparaiso University, Valparaiso.
  • Nov. 20-21 -- Johanning Civic Center, Kokomo; and Holiday Inn, 6990 E. 21st St., Indianapolis.
  • Nov. 24-25 -- Stewart Center, Purdue University, West Lafayette; and Hulman Memorial Student Center, Indiana State University, Terre Haute.
  • Dec. 2-3 -- Adam's Mark Hotel, Executive Drive, Indianapolis; and American Legion Post No. 89, Seymour.

Registration begins at 8 a.m. at all locations, with programs running from 8:30 a.m. to 4:30 p.m. All times are local.

The registration fee is $279 and includes the 2003 National Income Tax School Workbook. Registration can be done online at http://www.conf.purdue.edu (keyword: tax) or registration forms downloaded at the site. To register by phone, call (800) 359-2968.

The Purdue Agricultural Tax Workshops provide in-depth discussion of farm-related tax issues, including deductions, self-employment tax, government payments, and conservation and cost sharing. Trenna Grabowski, a certified public accountant and contributor to Farm Progress Publications, will lead the workshops.

Workshops take place Nov. 4 at the Ramada Inn, Warsaw; Nov. 5 at the Adam's Mark Hotel, Executive Drive, Indianapolis; and Nov. 6 at the Vanderburgh County 4-H Center near Evansville. Registration is at 8 a.m. local time, with workshops running from 8:30 a.m. to 12:30 p.m.

Registration is $85 for those attending a tax school and $135 for others. Online and phone registration is available through the Web address and telephone number listed above.

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