EAST LANSING, Mich. — Although 2019 income taxes are not due until 2020, a lot of important financial decisions made now can have a big impact on farm taxes and when they are paid. One important resource is The Farmer’s Tax Guide for use in preparing 2019 federal income tax returns. This resource is available now online, with some hard copies that may be available soon at the Monroe County Farm Bureau, Conservation District, Farm Service Agency and Extension offices.
This free and helpful guide, Internal Revenue Service (IRS) publication 225, dated October 28, 2019, provides a review of what’s new for 2019 and 2020 and important reminders. The IRS has created a page for information about recent developments affecting Publication 225 at; www.IRS.gov/Pub225.
The Farmer’s Tax Guide explains how the federal tax laws apply to farming and can be used as a guide to figure taxes and complete the farm tax return. Forms and publications can be downloaded at: www.irs.gov/forms/pubs.
People are considered in the business of farming if they cultivate, operate or manage a farm for profit, either as owner or tenant. A farm includes livestock, dairy, poultry, fish, fruit and truck farms. It also includes ranches, orchards, ranges, plantations and groves.
Some new items and changes for 2019 includes; an updated definition of cash accounting, requirements for maintaining inventory, and the standard mileage rate for the cost of operating your car, van pickup or panel truck for each mile of business use is 58 cents per mile. The maximum amount a farmer can elect to deduct for most section 179 properties placed into service in 2019 is $1,020,000.
The social security tax rate is 6.2 percent each for employee and employer, unchanged from 2016. The social security wage base limit for 2019 is $132,900. The Medicare tax rate is 1.45 percent each for the employee and employer, also unchanged from 2018. However, there is no wage limit for the Medicare tax.
Generally, file form 1099-MISC if you pay at least $600 in rents, services and other miscellaneous payment in your farming business to an individual such as an accountant, an attorney or a veterinarian who is not your employee. Payments made to corporations for medical and health care payments, including payments made to veterinarians, generally must be reported on Form 1099-MISC.
Form W-4 for 2020. You should make new Forms W-4 available to your employees and encourage them to check their income tax withholding for 2019. Those employees who owed a large amount of tax or received a large refund for 2018 may need to submit a new Form W-4.
There is a new form for 2020, Form 1099-NEC to report nonemployee compensation paid in 2020. The 2020 Form 1099-NEC will be due February 1, 2021. For nonemployee compensation paid in 2019, continue to use Form 1099-MISC, which is due January 31, 2020.
Tax records are not the only type of records that need to be kept for the farming business. Loan and payment records, profitability and other financial records, labor records, pesticide application records, soil testing and soil fertility records, legal documents, production records and marketing records are some of the kinds of record keeping that are important.
Records (including electronic) used in the preparation of farm income taxes generally need to be kept for at least three years from when your tax return was due or filed or within two years of the date the tax was paid, whichever is later. Employment tax records need to be kept for at least four years after the date the tax becomes due or is paid, whichever is later. There are other, certain records which must be kept for longer periods of time, for example insurance, assets, creditors or depreciation.
— Ned M. Birkey, MSU Extension Educator Emeritus; Spartan Ag
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