DS-Lancastcr Farming Saturday, Dacambar 6,1986 Brockett’s Ag Advice Kr ' /h By John E. Brockett Farm Management Agent Lewistown Extension Office Changes In The 1986 Tax Law The 1986 tax law will have an effect on everyone in this country plus a few from other lands. No one from a newborn child to the oldest American will escape. There are good aspects as well as bad parts to the new law for farmers. One potentially good affect for farming in general will be to take farming out of the “tax-shelter” category. Even this has somewhat mixed blessings. The worst effect the new law has for everyone is that filing tax returns will *be more com plicated than ever. It may become especially complicated for farm ers if the new rule on capitalizing pre-productive expenses is in terpreted rigidly. In the next few columns, I will attempt to interpret the parts of the new law that affect the majority of farmers. Items to be Eliminated 1. Investment tax credit is essentially a dead issue for now. There will be no new investment ON RODENT J CONTROL i *] RODENTS carry diseases which can endanger the health of your poultry flocks. Your business is raising them. Ours is protecting them. We Specialize In Sanitizing And Disinfecting Since 1928 ' 237-7607 Pest controUs foo important to trust to anyone elfsy credit for anything purchased after Dec. 31, 1985. This is one of the changes that takes effect in 1986. Before 1961 there was no investment credit. For a period of time in 1969 and 1970 there was no investment credit. Until 1975 in vestment credit was 7 percent not 10 percent. So do not consider it as dead for ever. It may come back in during the next tax law change or be phased in as a technical correction. Do not plan on it through 1988. 2. The long-term capital gains 60 percent exemption from federal income tax was also eliminated. The effective date is Jan. 1, 1987. This includes the income from installment sales even if those sales were from a previous year. Interestingly enough the framework for the capital gains exclusion was left intact so it could Houses Lancaster, PA 3973721 Lewistown, PA 248-0983 be brought back in at some uiit m the future. 3. Land clearing expenses are no longer deductible as of Jan. 1,1987. 4. Charitable contributions will not be deductible by non-itemizing taxpayers after 1986. 5. State sales taxes will no longer be deductible after this year by anyone. 6. Interest that is considered personal, other than mortgage interest on two homes, will be phased out as a deductible item starting in 1987. Personal interest would include interest on a per sonal car, credit card interest, interest on an IRS bill, interest on an insurance loan where the money was borrowed for personal items, interest on personal loans, and interest on educational loans. 7. The two-eamer deduction will be eliminated for now. As with the investment credit, there may be enough “back home” support for this one that it could come back in later. 8. Income averaging will no longer be available after 1986. 9. Double exemptions for those over 65 or blind have been eliminated. That group of people /TPOITV SALE \ ■mr 1J It m HULLS I For 1 In Bags I Most effective I as bedding for all f kinds of beef ami W dairy cattle, hogs, V horses, sheep and \ poultry I Delivery Anywhere JDnIHWSmHHDBIKpIS! Turkey Farm (America's Oldest) Paradise, Pa. |717) 657-7631 will leceive a higher standard deduction to partly compensate for the loss. Since our population is gradually getting older this is another elimination that could come back into the picture down the road aways. 10. The $lOO dividend exclusion from tax has been terminated. It was more valuable for the retired person than for most farm families. Children May Be Big Losers Dependent children face a rather complicated situation. There will be a lot of children who will have to start filing taxes under the new law. 1. Dependents will not be able to use their own personal exemption if they are eligible to be claimed on someone else’s return. The im plications are serious for several reasons, (a) The past law said that the standard deduction could not be used to offset unearned income such as interest - fortunately the new law did show a little mercy and allow up to $5OO of the standard deduction to offset unearned in come. (b) Under the previous law, the personal exemption could be WATER WATER WATER Bad water will lower your Income By removing nitrates, bacteria & sulfates from your water you will have a healthier herd. Acid in water increases herd health problems. JKfXllSCirpiep^ «* . ..<i.' , JOPHBPpI *"*ifUpP|pp^' Produce More Milk We can remove these nitrates, bacteria & sulfates and put your PH to near neutral. Call Us Before You Buy And See Our Many Happy Users We have competitive prices. OREGON WATER SALES Leola, PA 717-656-8380 If no answer, call early in the morning or evenings. used to offset unearned income and earned income - since the new law eliminates the personal exemption for dependents, there will only be the standard deduction to offset both with a limit of $5OO on unearned income. Example: For 1986, a child would be able to have up to $3560 of non-taxable income as long as the unearned portion was $lOBO or less. For 1987, the amount of income that a child could receive without paying taxes will be $2540 as long as the unearned portion was $5OO or less. 2. After the 1987 tax season, taxpayers will have to record on their returns the TIN (social security number) of all dependents over the age of 5. Furthermore, children taxpayers will have to report their parents’ TIN on their returns. 1984 may be coming late. Dependents Other Ilian Children The rules that apply to children will evidently also apply to other dependents such as elderly parents. People with dependent parents should re-examine their parents’ tax status in light of the new law.
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