Farm Income Tax Management Chapter 16---Key Questions - PowerPoint PPT Presentation

Loading...

PPT – Farm Income Tax Management Chapter 16---Key Questions PowerPoint presentation | free to download - id: 689fab-OWQ4M



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

Farm Income Tax Management Chapter 16---Key Questions

Description:

Farm Income Tax Management Chapter 16---Key Questions What types of income are taxable? What are the differences between income tax and self-employment tax? – PowerPoint PPT presentation

Number of Views:3
Avg rating:3.0/5.0
Slides: 18
Provided by: WilliamM63
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: Farm Income Tax Management Chapter 16---Key Questions


1
Farm Income Tax ManagementChapter 16---Key
Questions
  • What types of income are taxable?
  • What are the differences between income tax and
    self-employment tax?
  • What strategies can be used to maximize after-tax
    income?

2
Types of Taxable Farm Income
  • Ordinary farm income (Schedule F)
  • Federal income tax
  • State income tax
  • Self-employment tax
  • Capital gains income
  • Capital gains tax (lower rates)

3
IRS Schedule F
  • Gross Farm Income
  • Farm Expenses
  • (including depreciation)
  • Net Farm Profit
  • Can use cash or accrual. Most use cash.

4
Self-employment Tax
  • Up to 94,200 taxed at 12.4 for Social Security
  • All of it is taxed at another 2.9 for Medicare

5
Income Tax Deductions
  • Standard deduction
  • 5,150 for single person
  • 10,300 for married couple
  • Can itemize deductions instead
  • Personal exemption of 3,300 / dependent
  • Family of one has 8,450 tax free income
  • Family of 4 has 23,500 tax free income
  • Remainder is Taxable Income

6
Income Tax RatesFederal (married, joint)
  • Taxable Income Marginal Rate
  • 0 to 15,100 10
  • 15,100 - 61,300 15
  • 61,300 123,700 25
  • 123,700 - 188,450 28
  • 188,450 - 336,550 33
  • Over 336,550 35

7
Iowa Income Tax Rates
  • Increases gradually from ½
  • up to 9 at 56,000

8
Example
  • Taxable income 70,000
  • 1st 15,100 taxed _at_ 10 1,510
  • 2nd 61,300 15,100 46,200 _at_ 15
    6,930
  • 3rd 70,000 -61,300 8,700 _at_ 25
    2,175
  • Total tax owed 10,615

9
Tax Credits
  • Credits are subtracted from the amount of tax
    owed.
  • 1,000 credit for each child under 18
  • 2,000 credit in 10 bracket could offset 20,000
    of taxable income
  • Family of 4 could have 43,500 of taxable income
    without any federal income tax.

10
Marginal Tax Rates (last )
11
Total Tax Rate
12
Capital Gains Income
  • When capital assets are sold for more than
    original tax basis
  • Taxed at 5 or 15
  • Not subject to self-employment taxes
  • Breeding livestock
  • raised animals have zero basis, so all sales
    are capital gains

13
Individual Income Tax Return
  • Farm income wages, etc.
  • - deductions and exemptions
  • taxable income
  • x tax rates
  • income tax
  • self employment taxes
  • capital gains taxes
  • - tax credits
  • total taxes

14
Tax Management Strategies
  • 1. Level out income from year to year, avoid high
    marginal tax brackets
  • Example Taxable Income Fed Income Tax
  • year 1 90,000 16,000
  • year 2 10,000 1,000

  • 17,000
  • Level income
  • year 1 50,000 6,800
  • year 2 50,000 6,800

  • 13,600
  • Saving
    3,400

15
2. Defer income into future tax years, earn
interest on tax
  • 30,000 x 25 tax rate 7,500
  • 7,500 x 8 interest rate 600
  • Use cash accounting to
  • Delay income
  • Move up expenses
  • Use fast depreciation rates

16
Tax Management Strategies
  • 3. Report enough income to use up personal
    deductions and credits
  • 4. Qualify income as capital gains when possible
  • 5.Use net operating losses (NOL) to offset past
    taxes
  • 6. Use income averaging (back 3 yrs)

17
Goal of Tax Management
  • Maximize long-run income after taxes, not
    minimize taxes.
About PowerShow.com