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Farmer’s Tax Guide highlights administrative and tax law changes for 2013

October 22, 2013

IRS Publication 225, Farmer’s Tax Guide

IRS has released Publication 225, Farmer’s Tax Guide, for use in preparing 2013 returns. It highlights several administrative and tax law changes for 2013.

What’s new for 2013. Publication 225 examines these new items for 2013.

Standard mileage rate. For 2013, the standard mileage rate for the cost of operating the taxpayer’s car, van, pickup, or panel truck for each mile of business use is 56.5 cents (see Weekly Alert ¶  14  11/29/2012).
Simplified method for business use of home deduction. IRS has provided a simplified method to determine an individual’s expenses for business use of his home (see Weekly Alert ¶  9  01/17/2013).
Increased section 179 expense deduction dollar limits. The maximum amount a taxpayer can elect to deduct for most section 179 property placed in service in 2013 is $500,000. This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million (see Weekly Alert ¶  48  08/15/2013).
Extension of special depreciation allowance for certain qualified property acquired after Dec. 31, 2007. A taxpayer may be able to take a 50% special depreciation allowance for certain qualified property acquired after Dec. 31, 2007, and placed in service before Jan. 1, 2014 (see Weekly Alert ¶  10  08/15/2013).
Expiration of the 3-year recovery period for certain race horses. The 3-year recovery period for race horses two years old or younger will expire for such horses placed in service after Dec. 31, 2013.
Tax rates. For tax years beginning in 2013, the social security part of the self-employment tax increases from 10.4% to 12.4%. As a result, the self-employment tax is increased from 13.3% to 15.3% (see Weekly Alert ¶  20  10/18/2012).
Maximum net earnings. The maximum net self-employment earnings subject to the social security part (12.4%) of the self-employment tax increased to $113,700 for 2013. There is no maximum limit on earnings subject to the Medicare part (2.9%) (see Weekly Alert ¶  20  10/18/2012).
Net investment income tax (Form 8960). For tax years beginning in 2013, individuals, estates, and trusts may be subject to the net investment income tax (see Weekly Alert ¶  9  09/26/2013).
Social Security and Medicare Tax for 2013. The employee tax rate for social security is 6.2%. The employer tax rate for social security remains unchanged at 6.2%. The social security wage base limit is $113,700. The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2012. There is no wage base limit for Medicare tax (see Weekly Alert ¶  20  10/18/2012). Also see “Additional Medicare Tax,” below.
Additional Medicare Tax (Form 8959). For tax years beginning in 2013, a 0.9% Additional Medicare Tax applies to a taxpayer’s Medicare wages, Railroad Tax Act compensation, and self-employment income above a threshold amount. In addition to withholding Medicare tax at 1.45%, a taxpayer must withhold a 0.9% Additional Medicare Tax from wages the taxpayer pays to an employee in excess of $200,000 in a calendar year. The taxpayer must begin withholding Additional Medicare Tax in the pay period in which the taxpayer pays wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Additional Medicare Tax is only imposed on the employee. There is no employer share of Additional Medicare Tax. All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold (see Weekly Alert ¶  1  06/27/2013).
Leave-based donation programs to aid victims of Hurricane Sandy. Under these programs, employees may donate their vacation, sick, or personal leave in exchange for employer cash payments made before Jan. 1, 2014, to qualified tax-exempt organizations providing relief for the victims of Hurricane Sandy. The donated leave will not be included in the income or wages of the employee. The employer may deduct the cash payments as business expenses or charitable contributions (see Weekly Alert ¶  11  11/08/2012).
Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans extended. The work opportunity tax credit is now available for eligible unemployed veterans who begin work before Jan. 1, 2014. Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans (see Weekly Alert ¶  2  03/14/2013).
Estimated tax. For tax years beginning in 2013, the net investment income may need to be included when calculating estimated tax. Also, when figuring estimated tax, a taxpayer may need to include the 0.9% Additional Medicare Tax applicable to Medicare wages, Railroad Retirement Tax Act compensation, and self-employment income above the threshold amount. (see “Net investment income tax” and “Additional Medicare Tax,” above).