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Finally, seasoned tax professionals, including those who have benefited from taking the renowned Sid Kess two-day individual and corporate income tax return workshops, can now get a single-day version that covers only the current year tax changes! You still get the in-depth coverage the workshops are famous for, but you focus intensely on only those areas that have changed. Receive a wealth of tax planning tips and strategies. Key tax return issues are covered in this course.
Objectives:
Prerequisite: Knowledge of individual and business income taxation and return preparation
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Excerpt from previous edition. Please check back for updates.
Chapter 2
Recent Tax Law Changes Affecting Individuals
Learning Objectives
After completing this chapter, you should be able to
Food, Conservation, and Energy Act of 2008 aka The Farm and Military tax Acts of 2008
The Food, Conservation, and Energy Act of 2008 was signed into law on May 28, 2008, and provides benefits to farmers, ranchers, and timber producers, while raising revenue from certain gentlemen farmers and ethanol producers.
Self Employment Income
There are two provisions with respect to self-employment tax for farmers.
Retired or disabled taxpayers can exclude Conservation Reserve Program (CRP) payments from self-employment income for both tax and Social Security purposes. The thresholds applicable to the farm and nonfarm optional methods of computing net earnings from self-employment are increased, and indexed for inflation.
For purposes of the self-employment tax, the payment thresholds applicable to the farm and nonfarm optional methods of computing net earnings from self-employment are based on the sum of the minimum earnings required for a quarter of coverage under the Social Security Act for each quarter of the tax year. Self-employed individuals who elect an optional method can secure four quarters of Social Security coverage in each tax year beginning in 2008.
Limitation on Farm Losses
Taxpayers, other than C corporations, who receive Commodity Credit Corporation (CCC) loans or certain other farm subsidies, are limited as to the amount of net Schedule F losses from farming they may take. The limit for any given tax year is the greater of $300,000 ($150,000 for a married taxpayer filing separately) or the taxpayer's net farm income for the prior five tax years. Farmers and ranchers not receiving CCC loans or federal commodity payments are unaffected.
A disallowed loss in one tax year is carried forward to the next tax year and treated as a deduction attributable to a farming business of the taxpayer in that tax year [ITC ~§~461(j)(2)]. Such amounts can be carried forward indefinitely, and without limitation. Further, farming losses attributable to fire, storm, or other casualty (including disease or drought) are disregarded for purposes of determining aggregate deductions from a farming business [IRC ~§~461(j)(4)(D)]. To calculate a taxpayer's aggregate net farm income for the five preceding tax years, losses that are limited under this provision are taken into account in the year they are actually allowed as a deduction.
Endangered Species Recovery Expenses
Endangered species recovery expenditures are now included along with soil and water conservation expenditures and land erosion prevention expenditures as a type of expenditure that may be currently deducted by a farmer under IRC ~§~175.
The limitation described in IRC ~§~175(b) is based on 25% of gross income from farming and also applies to endangered species recovery expenditures. This 25% limit is not applied separately to each category of expenditures. In other words, the limit applies to the total amount spent by a farmer during the tax year for soil and water conservation expenditures, land erosion prevention expenditures, and endangered species recovery expenditures.
Racehorses
The modified accelerated cost recovery system (MACRS) recovery period for race horses two years or younger when placed in service after December 31, 2008, and before January 1, 2014, is reduced from seven to three years.
Charitable Contributions of Real Property for Conservation
The temporary rules encouraging contributions of real property for conservation purposes by enhancing the associated charitable deductions have been extended for an additional two years.
Charitable deductions are usually not allowed for a contribution of a partial interest in property, but an exception is made for a qualified conservation contribution [IRC ~§~170(f)(3)(B)(iii)]. A qualified conservation contribution is a contribution of a qualified real property interest, to a qualified organization, exclusively for conservation purposes. The contribution may consist of all of the owner's interests in the property, except for certain mineral interests, or it may be limited to an easement or restrictive covenant that prevents the development of land, safeguarding its natural character. A qualified organization includes certain governmental units, public charities that meet certain public support tests, and certain supporting organizations. A qualified conservation purpose includes the preservation of land areas for outdoor recreation, the protection of a natural habitat, the preservation of open space, including farmland and forest land for the scenic enjoyment of the general public, or the preservation of an historic structure.
Tax Credits
Income Tax Credit for Cellulosic Biofuel Production Established
A $1.01 per gallon nonrefundable income tax credit for the production of qualified cellulosic biofuel has been added as a component of the alcohol fuels credit (IRC ~§~40). The cellulosic biofuel producer credit applies to qualified cellulosic biofuel produced after December 31, 2008, but before January 1, 2013 [IRC ~§~40(b)(6)(H) and 40(e)].
Alcohol Fuels Credit for Ethanol Blends
The alcohol fuels income tax credit applicable to ethanol blenders is reduced to 45 cents per gallon for ethanol with a proof of 190 or greater, and to 33.33 cents per gallon for ethanol with a proof that is at least 150, but less than 190, for the calendar years 2009 and 2010. However, the credit rate for ethanol of 190 proof or greater shall remain at 51 cents per gallon if the Secretary of the Treasury makes a determination, with respect to any year after 2007, that less than 7.5 billion gallons of ethanol has been produced in or imported into the United States.
Several requirements that must be satisfied before the alcohol fuels credit may be claimed by a taxpayer. The alcohol mixture credit may be claimed for the sale or use of a qualified mixture fuel. A qualified mixture fuel is defined as a mixture of alcohol and gasoline or any other liquid fuel suitable for use in a combustion engine that is sold by the taxpayer to any other person for use as a fuel or is actually used as a fuel by the taxpayer [IRC ~§~40(b)(1)(B)]. Additionally, the taxpayer must be in the trade or business of producing alcohol fuel mixtures for sale or use, and may claim the credit only in the year of actual sale or use occurs [IRC ~§~40(b)(1)(C)]. No alcohol fuel mixture credit is allowed for any casual off-farm production [IRC ~§~40(b)(1)(D)]. The alcohol credit may be claimed for any alcohol used as a fuel that is not mixed with gasoline or other liquid fuel suitable for use in a combustion engine other than a denaturant. The taxpayer may use the fuel in a trade or business or sell it at retail to a third party and place it into their fuel tank [IRC ~§~40(b)(2)].
To determine the number of gallons with respect to which an alcohol fuels credit is allowable, the volume of alcohol includes the volume of any denaturant, including gasoline, added under Secretary approved formulas, to the extent that such denaturants do not exceed 2% (down from 5%) of alcohol volume, including denaturants, for fuel sold or used after December 31, 2008 [40(d)(4)].
New Agricultural Chemicals Security Tax Credit Provided
The Act establishes a 30% credit for qualified chemical security expenditures for a tax year with respect to eligible agricultural businesses. The credit is a component of the general business credit [IRC ~§~450(a)]. The credit is limited to $100,000 per facility. This amount is reduced by the aggregate amount of the chemical security tax credits allowed for the facility in the prior five years. In addition, each taxpayer's annual credit is limited to $2 million. The term "taxpayer" includes controlled groups under rules similar to the rules set out in IRC ~§~41(f)(1) and (f)(2). The credit only applies to expenditures paid or incurred before December 31, 2012. The taxpayer's deductible expenses are reduced by the amount of the credit claimed.
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