ATRA has many provisions that may have an effect on a farmer's income tax liability each year beginning with 2013, but the following example illustrates the impact of those changes discussed above.

Brett is a single farmer with $600,000 of Schedule F net income for 2013. During 2013, he sold some farmland and has a long-term capital gain in the amount of $800,000 from the sale. In addition, he has $60,000 in itemized deductions comprised of deductible interest and charitable donations. In the earlier discussion regarding ATRA tax bracket changes, the new ATRA tax brackets and the "non-ATRA" brackets (which would have prevailed for 2013 without the ATRA legislation) were presented. This allows some comparative "ATRA vs. non-ATRA" tax calculations to be made to determine the impact of these changes on Brett's tax liability for 2013. The following table compares the highlights of the detailed tax calculations for Brett.

 

 

Because of the impact of the ATRA changes discussed, Brett will pay an additional $59,883 in taxes for 2013. This increased tax liability is due to the following ATRA changes:

  • A substantially reduced itemized deduction amount
  • A personal exemption amount that is reduced to zero
  • Additional tax on farming income that falls into the top tax bracket with a 39.6% rate (which would not be paid if the top tax bracket remained at 35%
  • Additional capital gains tax from the new 20% rate which would not be paid if the top capital gains tax rate remained at 15%

Note: While some of the $59,883 difference in tax liability calculated is attributable to the indexing of tax brackets for inflation from 2012 to 2013, this amount is minimal (under $500).