FALLON, Nev. — Again, it is that time of year to start thinking about submitting your taxes for 2020. One important resource is The Farmer’s Tax Guide for use in preparing 2020 federal income tax returns.
This free and helpful guide, Internal Revenue Service (IRS) publication 225, provides a review of what’s new for 2020 and 2021 and important reminders. The IRS has created a page for information about recent developments affecting Publication 225 here.
People are considered in the business of farming if they cultivate, operate or manage a farm for profit, either as owner or tenant. A farm includes livestock, dairy, poultry, fish, fruit and truck farms. It also includes ranches, orchards, ranges, plantations and groves.
The following items highlight a number of administrative and tax law changes for 2020, much if which is outlined in IRS publication 225:
- Coronavirus Food Assistance Program (CFAP). The CFAP provides direct payments to producers of eligible agricultural commodities adversely affected by the coronavirus (COVID-19) pandemic to help offset sales losses and increased marketing costs associated with the COVID-19 pandemic. CFAP payments are agricultural program payments that you must include in gross income. Report the full amount of your CFAP payments on Schedule F (Form 1040), lines 4a and 4b.
- Standard mileage rate. For 2020, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 57.5 cents.
- Increase business interest expense. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) retroactively increases the amount of business interest expense that may be deducted for tax years beginning in 2019 and 2020 by computing the section 163(j) limitation using 50% (instead of 30%) of your adjustable taxable income. The limitation doesn’t apply to most farms.
- Payroll Protection Program (PPP) Loan and Forgiven Debt. Generally, you can’t deduct expenses that are allocable to a PPP loan you receive that’s later forgiven.
- Increased section 179 expense deduction dollar limits. The maximum amount you can elect to deduct for most section 179 property you placed in service in 2020 is $1,040,000. This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2,590,000. Also, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2020 is $25,900.
- Qualified improvement property. The CARES Act revised the provision in the Tax Cuts and Jobs Act (TCJA) to change the treatment of qualified improvement property placed in service after December 31, 2017, to 15-year property under MACRS.
- New rules for net operating loss (NOL) carrybacks. The CARES Act revised the provisions of the TCJA related to NOL carrybacks to allow taxpayers to carryback NOLs including non-farm NOLs arising from tax years 2018, 2019, and 2020 for 5 years.
- Maximum net earnings. The maximum net self-employment earnings subject to the social security part (12.4%) of the self-employment tax is $137,700 for 2020, up from $132,900 for 2019. There is no maximum limit on earnings subject to the Medicare part (2.9%) or, if applicable, the Additional Medicare Tax (0.9%).
- Changes to Schedule SE (Form 1040). Schedule SE (Form 1040) has a new Part II to allow self-employed persons to figure a maximum amount of self-employment tax payments which may be deferred. Schedule SE (Form 1040) has also been revised into a single form format and each person with net earnings from self-employment will use a separate Schedule SE (Form 1040).
- Credits for self-employed persons. New refundable credits are available to certain self-employed persons impacted by the coronavirus.
COVID-19 related employment tax credits and other tax relief
- The Families First Coronavirus Response Act (the “FFCRA”), enacted on March 18, 2020, provides small and midsize employers refundable tax credits that reimburse them for the cost of providing paid sick and family leave wages to their employees for leave related to COVID-19.
- The CARES Act, enacted on March 27, 2020, provides eligible employers with an employee retention tax credit if they keep employees on their payroll, despite experiencing economic hardship related to COVID-19.
- The CARES Act also allows employers to defer the deposit and payment of the employer share of social security taxes.
- The Presidential Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, issued on Aug. 8, 2020, directs the Secretary of the Treasury to defer the withholding, deposit, and payment of the employee share of social security tax on wages paid during the period of September 1, 2020, through December 31, 2020. The deferral is available to employees whose social security wages paid for a bi-weekly pay period are less than $4,000, or the equivalent threshold amount for other pay periods.
- Social security and Medicare tax for 2020. The social security tax rate is 6.2% each for the employee and employer, unchanged from 2019. The social security wage base limit is $137,700. The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2019. There is no wage base limit for Medicare tax.
- 2020 withholding tables. The federal income tax withholding tables are now included in Pub. 15T, Federal Income Tax Withholding Methods. Redesigned 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 to report nonemployee compensation paid in 2020. The 2020 Form 1099-NEC will be due Feb. 1, 2021.
Obviously working with a tax professional is key to getting it right. However, having the right information is just as important.
Steve Foster is an Extension Educator in Pershing County with the University Of Nevada Cooperative Extension.