Farmer's Federal Tax Filing Rules Change

Due to federal "fiscal cliff" delays and tax law changes, you need to recheck this year's tax-filing rules.

Published on: Feb 8, 2013

The IRS is finally ready for the onslaught of 2012 tax returns. But there are some rule changes tht you need to doublecheck with your tax expert on.

One promised relief is that the penalty is waived for farmers and fishermen who miss their March 1 deadline. But it doesn't sound like real relief since they must file their return and pay in full any tax due by April 15. It's documented under IRS Code Sec. 6654(e)(3) Notice 2013-5.

To request this penalty waiver, you must attach Form 2210-F (Underpayment of Estimated Tax by Farmers and Fishermen) to your return. Your name and identifying number should be entered at the top. The waiver box (Part I, Box A) should be checked. IRS instructs that the rest of the form should be left blank.

Farmers Federal Tax Filing Rules Change
Farmer's Federal Tax Filing Rules Change

Catch these key changes
Stambaugh Ness, a financial consulting company at York, Pa., notes the following federal tax changes:

Reduced self-employment tax: For 2012, there was another temporary reduction in the Social Security tax component of the self-employment tax. It's 10.4% of net SE income, down from 12.4%. The Medicare tax component of the SE tax remains at 2.9%.

No reduction in page 1 deduction for SE tax: Self-employeds can usually deduct half of their SE tax bill on Page 1 of Form 1040. Due to the aforementioned reduction in the Social Security tax component of the SE tax, there's a different drill for your 2012 return.

Your SE tax deduction equals 57.51% of the SE tax amount not exceeding $14,643. If your SE tax bill exceeds $14,643, multiply the SE tax amount by 50% and add $1,100. The effect is to allow you to claim an SE tax deduction equal to what your write-off would have been without the Social Security tax cut.

If you did a 2010 Roth conversion: For 2010 conversions, you had the one-time option of reporting half the resulting taxable income on your 2011 Form 1040 and the other half on your 2012 return -- instead of reporting it all in 2010. You could do the same drill with a qualified retirement plan distribution (a 401(k), for example) that you rolled over into a Roth IRA. In other words, you could have deferred the tax hit from a 2010 Roth conversion until 2011 and 2012. Be sure that deferral to 2012 is included on your 2012 return.

These tax breaks were restored
Tax breaks listed below expired at the end of 2011. But the fiscal cliff legislation retroactively restored them for 2012 tax returns filed in 2013:

Deduction for higher education tuition: This write-off can be as much as $4,000 or $2,000 for higher-income folks.

Option to deduct state and local sales taxes: If you paid little or no state income tax in 2012, you have the option of instead claiming an itemized deduction for general state and local sales taxes.

Charitable Donations from IRAs: For 2012, IRA owners age 70 1/2 or older as of December 31, 2012 are again allowed (for 2012) to make tax-free charitable donations of up to $100,000 directly out of their IRAs. The donations counted as 2012 IRA required minimum distributions. To take advantage of this retroactive deal, you can donate IRA distributions taken in December of last year to qualified charities and treat them as 2012 donations from your IRA. There's a January 31 deadline for this option.

Deduct K-12 educator expenses: Teachers and other K-12 educators can deduct up to $250 of school-related out-of-pocket expenses on Line 23 of Form 1040.

Mortgage insurance deduction: Premiums for qualified mortgage insurance on debt to acquire, construct, or improve a first or second residence can potentially be treated as deductible home mortgage interest. However, it's only available for premiums for qualifying policies issued after December 31, 2006 and premium amounts allocable to periods before 2013. And, it's phased out for higher-income taxpayers. Energy-efficient home improvement credit: If you made qualifying 2012 expenditures for certain energy-saving improvements to your principal residence, you may be able to claim a credit of up to $500 on Form 5695.