Tax changes might affect your farm

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President Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003 last May. This new legislation contains something for almost all taxpayers and should reduce your 2003 tax bill.

The major provisions include:

Rate reductions – While the 10 percent and 15 percent rates remain, the other rates are reduced 2 percent to 25 percent, 28 percent and 33 percent.

The top rate is reduced from 38.6 percent to 35 percent. The brackets for the 10 percent and 15 percent are widened so that more of your income will be taxed at these lower rates.

Capital gains – The rates on long-term capital gains are reduced from 8 ,10 and 20 percent to 5 percent at the minimum and 15 percent at the maximum for qualifying assets.

Assets sold at a gain on May 5, 2003 or before will taxed at the 10 percent and 20 percent rates; assets sold after May 5 will be taxed at the new, lower rates.

Dividends – Dividends will no be longer taxed at ordinary income tax rates, but will now be taxed at the lower capital gains rates of 5 percent and 15 percent.

Dividends paid by qualifying domestic corporations, including small, closely-held corporations, and certain other corporations are eligible for the reduced rates of taxation.

Section 179 expensing deduction – This is increased to a maximum of $100,000 from $25,000.

The phase-out of the 179 expensing will begin at $400,000, up from $200,000.

Bonus depreciation – This is increased to 50 percent for qualifying assets purchased after May 5, 2003.

The 30 percent bonus depreciation option is still available, but you cannot elect to claim both, it is either 30 percent or 50 percent.

Alternative minimum tax – The AMT exemption amount is increased $9,000 to $58,000 for married taxpayers and $4,500 to $40,250 for single taxpayers.

Child tax credit – This increases to $1,000 per qualifying child. An advance 2003 payment of $400 per child, based on the number of qualifying children claimed on the 2002 return, was mailed to eligible taxpayers this summer.

Opportunities. The new law presents planning opportunities for those with large taxable incomes. However, most producers currently are not having trouble with too much taxable income, but are struggling to generate enough income to keep their operations going.

While several of the provisions will reduce your 2003 tax liability, how you are able to use other provisions will depend on your over-all tax situation.

Consult with your tax adviser before taking any actions that may affect your tax situation.

(The author is a district farm management specialist with OSU Extension.)

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