Tax

Farmers and ranchers who previously were forced to sell livestock due to drought, like the drought currently affecting much of the nation, have an extended period of time in which to replace the livestock and defer tax on any gains from the forced sales.

The one-year extension of the replacement period generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes due to drought. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, and poultry are not eligible.

Farmers and ranchers in these areas whose drought sale replacement period was scheduled to expire at the end of this tax year, Dec. 31, 2015, in most cases, will now have until the end of their next tax year. Because the normal drought sale replacement period is four years, this extension immediately impacts drought sales that occurred during 2011. But because of previous drought-related extensions affecting some of these localities, the replacement periods for some drought sales before 2011 are also affected. Additional extensions will be granted if severe drought conditions persist.

The IRS is providing this relief to any farm located in a county, parish, city, borough, census area or district, listed as suffering exceptional, extreme or severe drought conditions by the National Drought Mitigation Center (NDMC), during any weekly period between Sept. 1, 2014, and Aug. 31, 2015. All or part of 48 states and Puerto Rico are listed. Any county contiguous to a county listed by the NDMC also qualifies for this relief.

A taxpayer may determine whether exceptional, extreme, or severe drought is reported for any location in the applicable region by reference to U.S. Drought Monitor maps that are produced on a weekly basis by the National Drought Mitigation Center. U.S. Drought Monitor maps are archived at Drought Monitor maps.

In addition, in September of each year, the IRS publishes a list of counties, districts, cities, boroughs, census areas or parishes (hereinafter “counties”) for which exceptional, extreme, or severe drought was reported during the preceding 12 months. Taxpayers may use this list instead of U.S. Drought Monitor maps to determine whether exceptional, extreme, or severe drought has been reported for any location in the applicable region.

Here are seven facts you should know about this relief:

1. If the drought caused you to sell more livestock than usual, you may be able to defer tax on the extra gains from those sales.
2. You generally must replace the livestock within a four-year period. The IRS has the authority to extend the period if the drought continues. For this reason, the IRS has added one more year to the replacement period in 30 states.
3. The one-year extension of time authorized by the IRS generally applies to certain sales due to drought.
4. If you are eligible, your gains on sales of livestock that you held for draft, dairy or breeding purposes apply.
5. Sales of other livestock, such as those you raised for slaughter or held for sporting purposes and poultry, are not eligible.
6. The IRS relief applies to farms in areas suffering exceptional, extreme or severe drought conditions. The National Drought Mitigation Center has listed all or parts of 30 states that qualify for relief (see above). Any county that is contiguous to a county that is on the NDMC’s list also qualifies.
7. This extension immediately impacts drought sales that occurred during 2010. However, the IRS has granted previous extensions that affect some of these localities. This means that some drought sales before 2010 are also affected. The IRS will grant additional extensions if severe drought conditions persist.

If you have any questions about whether you’re eligible for this particular tax relief, don’t hesitate to contact the office.

• By Leon Clinton
• November 27, 2015

Income tax is often withheld from wages and other types of income such as pensions, bonuses, commissions and gambling winnings. Ideally, taxpayers should try to match their withholding with their actual tax liability. If not enough tax is withheld, they will owe tax at the end of the year and may have to pay interest and a penalty. If too much tax is withheld, they will lose the use of that money until they get their refund.

The earlier in the year you check your withholding, the easier it will be to make sure the correct amount of tax withheld. Here are a few tips:

When Should Taxpayers Check their Withholding?

• When a taxpayer gets a big refund, or finds that they have an unexpected balance due.
• Any time there are personal or financial changes that might affect their tax liability, such as getting married, getting divorced, having a child or buying a home.
• When there are changes in federal tax law that might affect their tax liability.

How to Check the Amount being withheld

Use the IRS Withholding Calculator on IRS.gov. This easy-to-use tool can help figure the taxpayer’s federal income tax withholding so their employer can withhold the correct amount from their pay. This is particularly helpful if they’ve had too much or too little withheld in the past, their situation has changed, or they started a new job.

If your situation is more complicated or you have any questions, don’t hesitate to call the office.

How to Change the Amount being withheld

Events during the year may change a taxpayer’s marital status or the exemptions, adjustments, deductions, or credits they expect to claim on their return. When this happens, taxpayers may need to give their employer a new Form W-4, Employee’s Withholding Allowance Certificateto change their withholding status or number of allowances.

Generally, taxpayers should give their employer a new Form W–4 within 10 days after either:

• A divorce, if they have been claiming married status, or
• Any event that decreases the number of withholding allowances they can claim.

Other Considerations

• Taxpayers, who bought 2015 insurance coverage through the Health Insurance Marketplace, should report changes in circumstances to the Marketplace when they happen. Reporting changes in income or family size will help taxpayers avoid getting too much or too little advance payment of the premium tax credit. Receiving too much or too little in advance can affect the amount of their refund or how much they may owe when they file their tax return.
• Taxpayers may need to include Additional Medicare Tax and Net Investment Income Tax when figuring withholding and estimated tax. Taxpayers may request that employers deduct and withhold an additional amount of income tax withholding from wages on Form W-4 if they are affected by these taxes.

Please call the office if you have any questions or need more information about withholding adjustments.

• By Leon Clinton
• November 23, 2015

The Affordable Care Act includes the individual shared responsibility provision that requires you, your spouse, and your dependents to have qualifying health insurance for the entire year, report a health coverage exemption, or make a payment when you file.

Who is subject to this provision?

All U.S. citizens living in the United States, including children, senior citizens, permanent residents and all foreign nationals are subject to the individual shared responsibility provision.

Children are subject to the individual shared responsibility provision.

• Each child must have minimum essential coverage or qualify for an exemption for each month in the calendar year. Otherwise, the adult or married couple who can claim the child as a dependent for federal income tax purposes will generally owe a shared responsibility payment for the child.

Senior citizens are subject to the individual shared responsibility provision.

• Both Medicare Part A and Medicare Part C (also known as Medicare Advantage) qualify as minimum essential coverage.

All permanent residents and all foreign nationals who are in the United States long enough during a calendar year to qualify as resident aliens for tax purposes are subject to the individual shared responsibility provision.

• Foreign nationals who live in the United States for a short enough period that they do not become resident aliens for federal income tax purposes are not subject to the individual shared responsibility payment even though they may have to file a U.S. income tax return.
• Individuals who are not U.S. citizens or nationals and are not lawfully present in the United States are exempt from the individual shared responsibility provision. For this purpose, an immigrant with Deferred Action for Childhood Arrivals status is considered not lawfully present and therefore, is eligible for this exemption even if he or she has a social security number. Claim coverage exemptions on Form 8965, Health Coverage Exemptions.
• U.S. citizens living abroad are subject to the individual shared responsibility provision.
• However, U.S. citizens who are not physically present in the United States for at least 330 full days within a 12-month period are treated as having minimum essential coverage for that 12-month period. In addition, U.S. citizens who are bona fide residents of a foreign country or countries for an entire taxable year are treated as having minimum essential coverage for that year.
• All bona fide residents of the United States territories are treated by law as having minimum essential coverage.

Please call if you have any questions or need more information.

• By Leon Clinton
• November 20, 2015