Texas Agriculture News

By Amanda Hill

The country waited on pins and needles, hoping the lame duck Congress would give the gift of tax relief to taxpayers in 2011. On Dec. 17, Americans found hundreds of billions of dollars in tax savings in their stockings.

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 will cost the Treasury Department $858 billion, with the intent of spurring the economy and putting money back into taxpayers’ wallets.

Following are a few of the tax provisions that will provide some financial relief to America’s farmers and ranchers in the near term.

• Estate taxes: Of utmost importance to the agriculture industry, the legislation set reasonable estate tax levels for the next two years, which will protect farmers and ranchers from estate tax levels that threatened the continuation of many family businesses at the death of a primary landowner. The revised estate tax level was set at a $5 million exemption and 35 percent top rate through 2012.

Short of eliminating the tax completely, the approved levels were a relief for many in the agriculture industry. Most industry advocates believe that a $5 million exemption is enough to shelter the majority of family farm and ranch operations.

• Small Business Expensing—Section 179: Under the Section 179 Small Business Expensing provisions, farmers and ranchers are able to deduct up to $500,000 in equipment and capital at 100 percent depreciation through 2011. The latest tax bill upholds the $500,000 level through next year. However, the total amount of approved deduction reduces to $125,000 in 2012.

Although the level of exemption will decrease in 2012, producers still receive a tax benefit from the provision. For example, under the current level, a producer could use profits to purchase a new tractor or combine. The cost of the equipment—up to $500,000 through 2011 and up to $125,000 thereafter—reduces the operation’s total taxable income.

• Payroll Deductions: Americans will see their Social Security taxes reduced next year, thanks to the new tax law. Employees will pay 2 percent less in Social Security (FICA) taxes next year, decreasing the current rate of 6.2 percent to 4.2 percent per worker.

Self-employed Americans will receive a break in Social Security taxes, as well. The current FICA tax for the self-employed also will drop by 2 percent, from 12.4 percent to 10.4 percent, next year. The FICA tax will return to 2010 levels for all workers after one year.

• Capital Gains Taxes: American investors will continue to pay a 15 percent tax on capital gains and dividends through 2012, according to the new tax law.

• Biofuel Exemptions: Corn and soybean farmers lauded the inclusion of continued biofuel tax incentives in the new tax legislation.

The biodiesel tax credit was retroactively reinstated for 2010 and through Dec. 31, 2011. The industry believes the tax break will allow producers to achieve the Environmental Protection Agency’s renewable fuel standard of 800 million gallons of biodiesel production in 2011.

• Conservation Easements: Landowners who dedicate property to conservation efforts will receive a tax break for practicing sound environmental stewardship. The qualifications for conservation easements are set by select, qualified conservation organizations. These requirements aim to slow the development of America’s natural resources and rural lands.

While the new tax legislation does ensure tax savings for most Americans, each individual situation is unique. Contact your local tax professional for specific details regarding how the new tax legislation will affect you and your operations.