FALLON, Nevada – Again, it’s time to start thinking about filing your 2020 taxes. An important resource is the Farmer’s Tax Guide for preparing income tax returns for 2020.
This free and helpful guide, Internal Revenue Service (IRS) publication 225, provides an overview of what’s new for 2020 and 2021, along with important pointers. The IRS has created a page here with information on the latest developments regarding Publication 225.
People are considered in agriculture when they manage, operate or operate a farm for profit, either as owners or as tenants. A farm includes cattle, dairy, poultry, fish, fruit, and truck farms. It also includes ranches, orchards, areas, plantations, and groves.
The following points highlight a number of changes in administrative and tax law for 2020 that are detailed in IRS Publication 225:
- Coronavirus Food Assistance Program (CFAP). The CFAP provides for direct payments to producers of eligible agricultural commodities affected by the coronavirus (COVID-19) pandemic to offset lost sales and increased marketing costs related to the COVID-19 pandemic. CFAP payments are agricultural program payments that you must include in your gross income. Include the full amount of your CFAP payments on Appendix F (Form 1040), lines 4a and 4b.
- Standard mileage. For 2020, the standard mileage for the operating costs of your car, delivery van, pickup truck or van is 57.5 cents for every business mile.
- Increase the business interest expense. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) retrospectively increases the amount of business interest expense deductible for tax years beginning in 2019 and 2020 by calculating the limit under Section 163 (j) at 50% (instead of 30) %) Of your adjustable taxable income. The restriction does not apply to most establishments.
- Payroll Protection Program (PPP) loans and debt issued. In general, you cannot deduct expenses that can be attributed to a PPP loan that you will receive later.
- Increased dollar limits on spending allowances under Section 179. The maximum amount that you can deduct for most section 179 real estate that is operational in 2020 is $ 1,040,000. This limit is reduced by the amount by which the cost of the property commissioned during the tax year exceeds $ 2,590,000. Additionally, the maximum Section 179 allowance for sport utility vehicles that enter service in fiscal years 2020 or later is $ 25,900.
- Qualified improvement property. With the CARES Act, the provision of the Tax Reductions and Jobs Act (TCJA) has been amended to change the treatment of Qualified Improvement Properties that have been operational after December 31, 2017 to 15 year old properties under MACRS.
- New rules for NOL (Net Operating Loss) transfers. The CARES Act revised the TCJA’s provisions regarding NOL repayments to allow taxpayers to carry back NOLs, including non-agricultural NOLs from tax years 2018, 2019 and 2020, for 5 years.
- Maximum net profit. The maximum net self-employment income that is subject to the Social Security portion (12.4%) of self-employment tax is $ 137,700 for 2020 compared to $ 132,900 in 2019. There is no limit to the income that is subject to Medicare (2.9%) ). or the additional Medicare tax (0.9%), if applicable.
- Changes to Schedule SE (Form 1040). Schedule SE (Form 1040) contains a new Part II that allows self-employed persons to determine a maximum amount of self-employed tax payments that can be deferred. Schedule SE (Form 1040) has also been revised to a single form format, and each person with net self-employed income uses a separate Schedule SE (Form 1040).
- Credits for the self-employed. New refundable credits are available to certain self-employed persons affected by the coronavirus.
COVID-19-related tax credits and other tax breaks
- The Family First Coronavirus Response Act (“FFCRA”), which came into effect on March 18, 2020, provides small and medium-sized employers with refundable tax credits to cover the cost of providing their employees with paid sick leave and family vacation wages related to COVID will be reimbursed -19.
- The CARES Act, enacted on March 27, 2020, grants eligible employers a retention tax credit if they keep employees on their payroll despite economic difficulties related to COVID-19.
- The CARES Act also allows employers to postpone the filing and payment of the employer’s share of social security taxes.
- The presidential memorandum published on August 8, 2020 on the postponement of wage tax obligations in the light of the ongoing COVID-19 catastrophe instructs the finance minister to postpone the withholding tax, deposit and payment of the employee’s share of the social security tax on wages that are in the period from September 1, 2020 to as of December 31, 2020. The forbearance is available to employees whose Social Security wages are less than $ 4,000 for a bi-weekly pay period or the equivalent threshold for other pay periods.
- Social Security and Medicare tax for 2020. The Social Security tax rate for both employee and employer is 6.2%, unchanged from 2019. The Social Security wage base is $ 137,700. The Medicare tax rate is 1.45% each for employees and employers, unchanged from 2019. There is no base wage limit for Medicare tax.
- Withholding Tax Tables 2020. The federal withholding tax tables are now in Pub. 15T, Federal Withholding Tax Methods. Revised Form W-4 for 2020. The IRS has redesigned Form W-4 for 2020.
- New Form 1099-NEC. There is a new Form 1099-NEC reporting the compensation paid in 2020 for non-employees. The 2020 Form 1099-NEC is due on February 1, 2021.
Obviously, working with a tax advisor is key to getting it right. However, it is just as important to have the right information.
Steve Foster is a Pershing County Extension Educator at the University of Nevada Cooperative Extension.