Tidbits from the ILLINOIS Fam Tax School

Farmers generally try to get their taxes in order before the end of the year. This season they may need to consider MFP and Prevented Plantings payments and how to best make charitable contributions.

The tax implications of the MFP payments are that the money is taxable in the year it is received. One-half of the MFP payment has already been or will be delivered shortly. It is expected 25% will be delivered in a second check in November. And if needed the third check, another 25% of the total, is likely to come in January. The first two checks are taxable in 2019, and the final portion would be taxable in 2020.

Another payment farmers may not be used to dealing with involves the Prevented Planting portion of crop insurance says Bob Rhea, “Those payments are either taxable when received, or under certain circumstances, could be delayed until 2020 the year after the disaster occurred. So, they should visit with their tax professional as they determine, especially as we near year end, whether those should be taken as 2019 income or used under the election to be treated as 2020 income.”

Rhea presented during this fall’s ILLINOIS Farm Tax School Seminars. He reminded the tax preparers in attendance that farmers also have a unique way to make charitable contributions, “IRS has prescribed some specific steps to validate a contribution with grain. One of those is that the grain must be delivered to the charity. The charity must be the owner of the grain in inventory, and the producer should notify the charity that he has provide x-number of bushels in their name at a certain location. The charity then, from that point, takes the risk and makes the sale and handles the cash proceeds from there.”

In simple terms the producer delivers grain in the name of the charity to the grain elevator, notifies the charity, and the charity then makes the sale.

2017 Year End Tax Planning Ideas

link to farmdocDaily article

by Dwight Raab, Illinois FBFM

With the recent passage of the Tax Cuts and Jobs Act (Congress passed on 12/20; President signed on 12/22) there are significant changes to the deductible amount of state income, property tax and real estate tax used in calculating itemized deductions beginning in tax year 2018. Under the new law, beginning in 2018, there is a $10,000 maximum combined limit of state income, property and real estate tax that may be deducted when itemizing deductions on IRS Form 1040, Schedule A. For 2017, there is no limit on the amount of these expenses. Thus, there are two tax planning opportunities with the potential to allow taxpayers to maximize the amount of these deductions if they take action prior to December 31, 2017. These two planning opportunities are available only to those using Form 1040, Schedule A to itemize certain deductions on their individual income tax return.

The first planning opportunity involves the advance payment of property and real estate tax on the taxpayers' personal residence or other personal use property prior to December 31, 2017. This advances payment of these taxes that would normally be paid in 2018 into 2017 and then itemizing them on IRS Form 1040, Schedule A. Please check with your local county treasurer or collector to make certain that they will accept such an advance payment of real estate tax. To make a distinction between personal real estate tax and business real estate tax - this IRS Form 1040 Schedule A limit on the maximum amount of deduction does not apply to property or real estate tax paid in the operation of a business. Those taxes continue to be deducted on Schedule F or Schedule C and are not subject to the $10,000 limit for years after 2017.

The second planning opportunity involves paying any 2017 state income tax due by December 31, 2017 for personal income tax returns due in April 2018. For example, if a taxpayer is making quarterly estimated payments of State of Illinois income tax, the fourth quarter payment is due January 15, 2018. If that amount is paid by December 31, 2017 then that amount can be deducted on the 2017 tax return, since the liability is related to the 2017 return. This includes farmers making a 4th quarter state income tax payment - making that estimate payment prior to December 31 allows for a 2017 deduction and avoids the 2018 Schedule A limit. Care must be taken to not prepay any 2018 state income tax liabilities, as any prepayment of a 2018 state income tax is not allowed to be deducted on the 2017 return. That payment would be treated as being paid on January 1, 2018 and would then be subject to the $10,000 limit. Taxpayers should use the 2017 state estimate vouchers to make these payments.

This is a 'one-time' potential strategy to put in place prior to the $10,000 limit on state income, personal and real estate tax is put in place and don't forget that the standard deduction increases markedly beginning in 2018 which will make it more difficult to itemize deductions on Schedule A of IRS Form 1040.

Before utilizing either of these strategies taxpayers should consult their tax advisor. Not all taxpayers will benefit from advancing the payment of these taxes into 2017. This would especially apply to taxpayers subject to the alternative minimum tax as there may be no tax benefit on the 2017 return by making these payments in December.

Big Income Years Impact Medicare Premiums 2 years Out

Farmers, business owners, and others on Medicare might find a bigger bill in the mail than expected. Todd Gleason has more on how big income years produce big Medicare premiums two years later.