Calculating Finances

Changes in Tax Law and Impacts for Farmers

Mon, 01/28/2019
1:00pm - 3:00pm

What's new for farmers in tax year 2018?

During this FREE webinar, Carol Starkie, EA, a tax consultant with Farm Credit East, will be joined by Kelly McAdam, UNH Extension Field Specialist, to discuss:

  • Changes in Exemptions and Deductions for You and Your Business
  • How Net Operating Loss is Carried Back/Forward
  • Changes in Depreciation Rules

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------------  Transcript Exerpt --------------

The transcript below was autogenerated and gives the reader an idea of the information contained in the video. Viewers should watch the video to learn exactly what was presented. 


Carol Starkie:

Today I'm going to start with general tax first and then I will get into some of the farming ones.

One of the big things that they've done this year is they've changed your standard deductions and they have increased those to twenty four thousand dollars if you're filing a joint tax return and twelve thousand dollars if you're filing a single tax return ,which all sounds great except for the fact that they've decided that you no longer get any personal or dependent exemptions.

So,  I've done a little example for you. In past years you had a standard deduction of twelve thousand seven hundred for married filing jointly and then with that you would get your personal exemption so you would have three personal exemptions.  This year it was to be 41 hundred dollars per person.  If you add that it that comes out to twelve thousand three hundred.  You add those together and you would have gotten twenty five thousand dollars as an exemption.

Now it's twenty four. That's it. So my calculation is if you're a married filing joint taxpayer and you've got one child you're about even but if you're you've got more than one child you're going to pay more in tax.  But they've over compensated for that a little bit and they said alright we're going to increase the credit for the children. So if you have a child up to 17, the year that they turn 17, you lose the child tax credit that is two thousand dollars per child and that's a credit. That makes it a little bit more palatable because that's got more oomph to it than deductions do.

If you have other dependents, if you have college age or high school age dependents,  I'm giving you a $500 credit for that. They tried to compensate a little bit but I'm not sure that it is anywhere near a dollar for dollar, so that's one of the big changes that they made this year. 

When you're doing your w-4 for your work, it's either you're married or you're single really is the only two choices. It really doesn't matter how many exemptions you have anymore.

I did do a w-4.  I have a w-4 for you to take a look at and it's very kind of hard to figure out. We think we figured them out at my office and people were ending up with huge amounts of less. Withholding a lot less withholdings than they wanted to so here you can see what it looks like.  There's all kinds of instructions and that they want a whole lot of information.  You basically have to know what your tax return looks like in order to fill out a w-4 and in general terms people don't know what that is so that's going to be a little bit challenging.  I think the IRS has kind of figured that out. They've said all right,  So if you owe money this year in 2018, there's a good chance that they're going to forgive you and they're not going to penalize you for being under paid.  But you're still going to have to pay it in so that's kind of a bad part of that.

The next issue that I wanted to talk about was the tax brackets and that's on this schedule here so that's what your tax brackets look like.  That was the other thing that they have revamped, those a little bit so that's going to try to compensate for that less deductions too because as you can see on the this side over here , you've got the Maya married filing jointly you don't start a it's a ten percent for the first nineteen thousand dollars that you earn nothing for capital gains then you go to seventy seven thousand dollars. That's a twelve percent nothing for capital gains and so forth go on up. Now  it's 37% top bracket that doesn't mean that all of your income is going to be taxed at 37% . It goes in these different brackets that they have and the same with single single for the most part is half of married filing jointly so they got rid of that that penalty that you used to have for being married .

Although it's not when you get up here it's not so true up into the top you know 600,000 versus 500,000 for the 35% tax bracket and then you can see that 20% cap on the capital gains is at 425 if you're single but 479 if you married so again it's not always dollar for dollar. But they tried to make it so that it was 50/50 for a single person.  

Capital gains tax versus ordinary income would be if you sold some stock as an individual that would be capital gains if you have dividends and they are qualified dividends which the 1099 would indicate whether it was or not that's considered capital gain. If you sell a piece of equipment and if the gain is more than what you took in depreciation the additional gain over the depreciation would be capital gains. A good example is if you sold a piece of land and all of it is going to be capital gains because you don't depreciate land. Things like that would be capital gains for a dairy cow dairy businesses that would be your raised cows or all capital gains if they're if they're producing animals over two that's the difference between ordinary and capital gains and that's why people like to have capital gains because there's higher income before it becomes taxable to you.  

I think we have one question regarding capital gains can you read that to me can you explain how capital gains works if my earnings are seventy seven thousand five hundred dollars. But my cab gains was less now seventy seven thousand five hundred. I know capital gains you would pay no you would pay no tax because they would they would take that into account before they worry about the ordinary income part of it. See they work on the capital gains first so you could have up to seventy seven thousand dollars.  It would be if it was that with all capital gains it would be zero taxable correct so that comes first.