Tax Pointers for Farmers in 1993 



P. Geoffrey Allen 



Department of Resource Economics, University of Massachusetts 



Tax advice given below is intended as general advice and is believed to be correct. It does 

 not substitute for a detailed review of the circumstances of an individual taxpayer by a 

 professional tax practitioner. 



The Revenue Reconciliation Act of 1993 (1993 

 RRA), enacted on August 10, 1993 contains a large 

 number of changes to the tax laws. One complication 

 is that some items are retroactive to 1992, some to 

 the beginning of 1993, and some only take effect in 

 1994. To take advantage of the retroactive changes 

 for 1992, you must submit an amended return (Form 

 1040X). 



General Features 



The most publicized aspect of the 1993 RRA is 

 that more of the tax burden will be carried by higher 

 income taxpayers. For example, the new 36% rate 

 applies to married taxpayers filing jointly who have 

 taxable income over $140,000 in 1993. They, as well 

 as all other filers, would also pay a 39.6% rate on 

 taxable income over $250,000. For estates and trusts 

 the new rates affect taxable income over $5,000 and 

 $7,500, respectively, effective January 1, 1993. Some 

 changes affect all income levels. For example, busi- 

 ness meals and entertainment expenses that were 

 80% deductible will only be 50% deductible, effective 

 January 1, 1994. Some expiring laws are reinstated. 

 For example, for estate and gift taxes, the 1993 RRA 

 reinstates expiring law so that the top rates and the 

 $600,000 exemption remain the same. 



Health Insurance 



If you were a self-employed person in 1992 (or an 

 S-corporation shareholder) who deducted (on line 26 

 of your 1992 Form 1040) 25% of half of your health 

 insurance premium you may now take 25% of all of 

 your 1992 premium. The 1993 RRA reinstated the 

 deduction retroactive to July 1, 1992. You may file 

 for a refund on Form 1040X. The only exception is if 

 your total medical expenses exceeded the 7.5% floor 

 in your 1992 tax year and you already claimed the 

 rest of the premium as medical expense on your 1992 

 Schedule A. 



Example: Bill is self-employed. Bill and 

 Jane file jointly, with 1992 taxable income 

 of $21,400 and family health insurance pre- 

 miums of $3000. They deducted $375 (^2 of 

 25% of $3000) in 1992. They may now file 

 Form 1040X and deduct a further $375. 



In 1993, note that the eligibility for the 25% deduc- 

 tion for the health insurance premium is made on a 

 monthly basis. Also, unless the law is further ex- 

 tended, the deduction will expire on December 31, 

 1993. 



Example: If Jane had worked from Novem- 

 ber 1, 1992 until March 31, 1993 for an 

 employer who provided subsidized health 

 insurance for her and her family, none of 

 the $3000 premium paid in 1992 would have 

 been deductible on Form 1040. If the same 

 premium was paid in 1993 then the amount 

 allocated to the period January 1 to March 

 31 is ineligible for deduction on Hne 26 of 

 Form 1040. The amount deductible is 

 $562.50 (3/4 of 25% of $3000). 



Charitable Contributions 



Did you make charitable contributions of appre- 

 ciated property in 1992 or 1993? Taxpayers subject 

 to alternative minimum tax (AMT) may get some 

 relief. Appreciated property is property that has a 

 fair market value that exceeds its basis (which is 

 usually your cost). Under the 1993 RRA, the appre- 

 ciated amount (the difference between fair market 

 value and adjusted basis) of property (real, tangible, 

 and intangible) donated to a charity is no longer a tax 

 preference item included in computing AMT income. 

 The property must be used for the donee's tax- 

 exempt purpose. The benefit does not apply to dona- 

 tions of inventory, other ordinary income property 

 and short-term capital gain property. 



Different kinds of property have different effec- 



16 



Fru'n Notes, Winter, 1994 



