Tax Pointers for Farmers and 

 Landowners in 1996 and Planning 

 Notes for 1 997 



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. For more details, 

 you and your tax adviser may wish to consult the 

 sources referenced in the square brackets [thus] 

 (see footnote) . 



Follow Up from 1995's Tax Pointers 



Neither the tax credit of $500 for each 

 dependent child nor the reduction in long-term 

 capital gains taxes passed into law in 1996. 

 This perhaps illustrates the unwiseness of 

 managing your business around future tax law 

 changes. 



New Tax Legislation 



Three pieces of legislation that between 

 them contain many tax-related provisions were 

 enacted into law in the last year. The 

 Taxpayer Bill of Rights 2 establishes the 

 office of Taxpayer Advocate, intended to assist 

 taxpayers in resolving problems with the IRS, 

 and provides other taxpayer protections. If you 

 have to make installment payments, are 

 subject to collection, or have similar dealings 

 with the IRS, be sure that your tax preparer or 

 attorney is fully aware of your new rights under 

 the law. There is one minor obligation of the 

 taxpayer: where you previously gave your 

 name and address to a payee (on Forms W-2, 

 1099, etc.) you must now also include your 

 telephone number. [Rights 2, §1201). Changes 

 brought about by the Health Care Portabil- 

 ity and Accountability Act and the Small 



Business Job Protection Act (also known as 

 the Minimum Wage Increase Act) are 



described below. 



Health Insurance for the Self Employed 



If you are a self-employed individual 

 eligible to take a deduction for health insurance 

 (on Form 1040 line 26, in 1995 and 1996 at the 

 rate of 30%), then in 1997 you will be able to 

 deduct 40% of the cost of health insurance paid 

 for yourself and your family. The amount 

 increases to 45% in 1998 and ultimately (by 

 2006) to 80%. [Health Act §311]. 



Medical Savings Accounts (MSA's) 



Beginning in 1997, MSA's are available to 

 employees covered under an employer-spon- 

 sored high-deductible plan (if the employer is a 

 small employer) and to self-employed individu- 

 als. With a structure somewhat like an 

 individual retirement account (IRA) an MSA is 

 intended to provide funds free of taxes for 

 medical expenses (not health insurance). 

 Within limits, contributions to an MSA by an 

 eligible individual are deductible from taxable 

 income, employer contributions are excludable 

 from income, interest earned on funds in the 

 MSA is not taxable, and distributions from the 

 MSA for medical expenses are generally 

 excludable from income. The dollar limits of 

 contributions and the terms italicized above 

 are defined in the Act. This is a pilot program 

 and the total number of plans that can be set up 

 nationwide in any one year is limited. Any self- 

 employed person or small employer not 

 participating by December 31, 2000, loses the 



14 



Fruit Notes, volume 6I (Number 4), Fall, 1996 



