By Blair Fannin
School finance reform will lower property taxes assessed to Texas landowners, but will now tax many business entities previously not affected by the state's franchise tax, say financial consultants.
The recent changes will affect some agricultural operations - whether cattle or farming - depending on the business structure and the amount of annual gross income.
James Schroeder and William Schawe of the Brenham, Texas accounting firm, Seidel, Schroeder and Company LLP, discussed a few of the changes at the Texas A&M Beef Cattle Short Course in College Station. Here's some highlights.
§ The new Texas margins tax will affect most corporations, limited liability companies, professional associations, doctors, veterinarians, limited partnerships, and certain business trusts. Businesses grossing more than $300,000 will be subject to a business tax of 1%. A 0.5% rate will apply to qualifying retail and wholesale businesses. (General partnerships are exempt, unless they have a non-natural partner, such as a corporation).
§ To determine how much a business will be assessed at the 1% tax rate, currently either the cost of goods sold, total compensation or the alternative computation method can be used. These formulas allow a business to factor in the expense to produce goods or compensation paid to employees to lower their taxable margin, Schroeder says.
§ Capital gains. The maximum rate is 15% and has been extended to 2010. Texas ranchers thinking about selling land and a lot of older cows should study the outcome, Schawe advises.
§ Kiddie Tax. Children under the age of 18 who had unearned income from investment dividends are now taxed at their parents' tax rate.
§ Section 179 deduction limits. Businesses can expense up to $108,000 of qualifying property, such as equipment, furniture and other qualifying property.
§ Drought sales. Cattle producers who have had to liquidate herds may qualify for Section 451 (e) of the tax code and elect to defer income, but this is only available to individuals whose principle source of income is farming. Section 1033 (e) allows provisions for cattle ranchers who are looking to sell a large number of cows, and intend to replace them later.
§ Producers should consult with their accountants or tax preparer for more information about the changes, the financial advisers suggest.
--Blair Fannin is with Texas A&M Communications, College Station.