Farmers and ranchers have until March 1, 2022, to file their 2021 income tax returns without penalty if they have not made estimates.
“Producers have until April 15 to file without penalty if they have paid their estimated tax by Jan. 15,” says Ron Haugen, North Dakota State University (NDSU) Extension farm economist.
Items to note for 2021 income tax preparation:
- The standard deduction is $25,100 for those who are married and filing jointly and $12,550 for singles.
- The Social Security wage base for 2021 is $142,800.
- The standard mileage rate for 2021 is 56 cents per mile.
- Producers are allowed to use 200% declining balance depreciation for 3-year, 5-year, 7-year and 10-year property. The 150% declining balance method still is required for 15- and 20-year property.
- For most new agricultural machinery and equipment (except grain bins), the recovery period is 5 years.
- Like-kind exchanges are not allowed for personal property but are allowed for real property.
- The section 179 expense allows producers to deduct up to $1,050,000 on new or used machinery or equipment purchased in the tax year. There is a dollar-for-dollar phase-out for purchases above $2,620,000.
- The additional 100% first-year bonus depreciation is in effect. It is available for used and new property. It is equal to 100% of the adjusted basis after any section 179 expensing.
- Income averaging can be used by producers to spread the tax liability to lower income tax brackets in the three previous years. This is done on schedule J. North Dakota farmers who elect to use income averaging for federal purposes also may use Form ND-1FA, which is income averaging for North Dakota income tax calculations.
- Crop insurance proceeds and government crop disaster payments can be deferred to the next tax year if a producer is a cash-basis taxpayer and can show that normally income from damaged crops would be included in a tax year following the year of the damage.
- A livestock income deferral is available for those who had a forced sale of livestock because of a weather-related disaster. The IRS has two provisions for deferral. The first one is IRC 1033(e) in which a livestock producer who sells more draft, breeding or dairy animals than normal due to weather-related conditions may defer recognition of the gains for up to two years. A disaster declaration is not necessary, but if there is a federal disaster declaration the replacement period is four years. The second provision is IRC 451(g) in which a livestock producer that uses the cash method of accounting can elect to defer for one tax year the income of any qualified livestock sold due to weather-related conditions.
Information on agricultural tax topics can be found in the “Farmers Tax Guide,” publication 225. It is available at any IRS office or can be ordered by calling 800-829-3676. Any questions about these topics or further updates should be addressed to your tax professional or the IRS at 800-829-1040 or https://www.irs.gov. Call the North Dakota Tax Department at 877-328-7088 or go to http://www.nd.gov/tax for answers to North Dakota income tax questions.