Again, it is that time of year to start thinking about submitting your taxes for 2021. One important resource is The Farmer’s Tax Guide for use in preparing 2021 federal income tax returns. This free and helpful guide, Internal Revenue Service (IRS) publication 225, provides a review of what’s new for 2021 and 2022 and important reminders. The IRS has created a page for information about recent developments affecting Publication 225 at, https://www.irs.gov/publications/p225.
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 2021:
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 will not be available after September 30, 2021. 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.
Temporary meal expense deduction increases for 2021 and 2022. Section 210 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 provides for the temporary allowance of a 100% business meal deduction for food or beverages, if provided by a restaurant (including carry-out or delivery), and the expense is paid or incurred after December 31, 2020, and before January 1, 2023.
Standard mileage rate. For 2021, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for business use is 56 cents a mile.
Increased section 179 expense deduction dollar limits. (Section 179 is an immediate expense deduction that business owners can take for purchases of depreciable business equipment instead of capitalizing and depreciating the asset over a period of time). The maximum amount you can elect to deduct for most section 179 property you placed in service in 2021 is $1,050,000. This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2,620,000. Also, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2021 is $26,200.
Maximum net earnings. The maximum net self-employment earnings subject to the social security part (12.4%) of the self-employment tax is $142,800 for 2021, up from $137,700 for 2020. There is no maximum limit on earnings subject to the Medicare part (2.9%) or, if applicable, the Additional Medicare Tax (0.9%).
The COVID-19 related credit for qualified sick and family leave wages has been extended and amended. The Families First Coronavirus Response Act (FFCRA) was amended by recent legislation. The FFCRA requirement that employers provide paid sick and family leave for reasons related to COVID-19 (the employer mandate) expired on December 31, 2020; however, the COVID-related Tax Relief Act of 2020 extends the periods for which employers providing leave that otherwise meets the requirements of the FFCRA may continue to claim tax credits for qualified sick and family leave wages paid for leave taken before April 1, 2021.The American Rescue Plan Act of 2021 (the ARP) adds new sections 3131, 3132, and 3133 to the Internal Revenue Code to provide credits for qualified sick and family leave wages similar to the credits that were previously enacted under the FFCRA and amended and extended by the COVID-related Tax Relief Act of 2020. The credits under sections 3131 and 3132 are available for qualified leave wages paid for leave taken after March 31, 2021, and before October 1, 2021. For more information about the credit for qualified sick and family leave wages, including the dates for which the credit may be claimed, see the Instructions for Form 943, and go to IRS.gov/PLC.
New credit for COBRA premium assistance payments. Section 9501 of the ARP provides for COBRA premium assistance in the form of a full reduction in the premium otherwise payable by certain individuals and their families who elect COBRA continuation coverage due to a loss of coverage as the result of a reduction in hours or an involuntary termination of employment (assistance eligible individuals). This COBRA premium assistance is available for periods of coverage beginning on or after April 1, 2021, through periods of coverage beginning on or before September 30, 2021.
Deferral of the employer share of social security tax expired. The CARES Act allowed employers to defer the deposit and payment of the employer share of social security tax. The deferred amount of the employer share of social security tax was only available for deposits due on or after March 27, 2020, and before January 1, 2021, as well as deposits and payments due after January 1, 2021, that are required for wages paid on or after March 27, 2020, and before January 1, 2021. One half of the employer share of social security tax is due by December 31, 2021, and the remainder is due by December 31, 2022. For more information about the deferral of the employer share of the social security tax, see the Instructions for Form 943 and IRS.gov/ETD.
Deferral of the employee share of social security tax expired. The Presidential Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, issued on August 8, 2020, directed 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 from September 1, 2020, through December 31, 2020. The deferral of the withholding and payment of the employee share of social security tax was available for employees whose social security wages paid for a biweekly pay period were less than $4,000, or the equivalent threshold amount for other pay periods. The COVID-related Tax Relief Act of 2020 defers the due date for the withholding and payment of the employee share of social security tax until the period beginning on January 1, 2021, and ending on December 31, 2021. For more information about the deferral of employee social security tax, see the Instructions for Form 943; Notice 2020-65, 2020-38 I.R.B. 567, available at IRS.gov/irb/2020-38_IRB#NOT-2020-65; and Notice 2021-11, 2021-06 I.R.B. 827, available at IRS.gov/irb/2021-06_IRB#NOT-2021-11.
Social security and Medicare tax for 2021. The social security tax rate is 6.2% each for the employee and employer, unchanged from 2020. The social security wage base limit is $142,800. The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2020.
Obviously working with a tax professional is key to getting it right. However, having the right information is just as important.