Estimating
Farm and Ranch Income Tax
James D. libbin. Extension Farm Management Specialist
Every farmer and rancher should estimate his income
tax liability in October or November each
year so there will be enough time left in the year
to do something about it. Many opportunities
especially for equipment purchase (to use depreciation
and investment credit provisions), are lost by
waiting until late December to attempt to affect
the current year's tax liability.
Using the Worksheet
The tax estimate worksheet on the following page
can help plan year-end tax management strategies.
The form is fairly easy to use - simply put in yearto-
date totals from your business account book,
estimate receipts and expenses for the remainder
of the year, and add the figures for the year's total
for each category. It is obvious that an up-to-date
set of business and home financial records will be
valuable in estimating the current year's tax liability.
Depreciation and investment credit on current
year purchases must be estimated using the
latest rates. These rates can be found in IRS Publication
225, "Farmer's Tax Guide." A discussion
of calculation procedures and options for depreciable
assets held last year, as well as new purchases,
is in 400Z-19.
Guide Z-805
FRBMH 10-210
Items 13 and 14 are calculated using current tax
rate schedules and the current rate for selfemployment
tax. Those rates can be obtained from
IRS Publication 17, "Your Federal Income Tax,"
or from the nearest IRS office.
Item 11, tax credits, changes from time to time.
In addition to current and carryover investment
credit, federal gas tax credit, income tax withheld
and estimated tax paid, there are energy credits,
both personal and business, child care credit, and
earned income credit. The best information source
for the latest rules is the "Farmer's Tax Guide."
Time Well Spent
The time and effort expended by the taxpayer
to complete the tax estimate worksheet is time well
spent. Of course, a complete and up-to-date set of
records is essential. By estimating receipts and expenses
and tax liability well before December 31 ,
the taxpayer is able to plan tax management strategies
and has adequate time to implement those
strategies before year's end. See 400Z-18 for a further
discussion of income tax management
strategies. If a loss is expected, you may want to
consider filing a Net Operating Loss return. This
may allow you to obtain tax refunds for prior years.
9/84
Published and distributed in furtherance of the Acts of Congress of May 8 and June 30. 1914. by the Cooperative Ex tension Service of ew
Mexico State University. John W. Oren. director. and the U.S. Department of Agricul t ure. cooperating. New Mexico State University is an
equal opportunity employer . All programs are available to everyone regardless of race, color. religion. sex. age. handicap. or national origin.
30 cents 1.5M
RECEIPTS
Sales of products raised(-) and miscellanous receipts:
Cattle, hogs, sheep and wool ••
Poultry, eggs and dairy products
All crop sales • • • • • • • • •
Custom work, prorations, refunds and
agriculture program payments •
Total sales and other income • • •
Sales of purchased market livestock. (--)$
Cost of purchased market livestock. .(---)$
$
(1)
Amount to
Date
Gross profits on sales of purchased livestock (sales - cost)
Gross farm profits (Item 1 + 2) •••••••••••
(2)
(3)
EXPENSES
Labor hired • • • • •
Repairs, maintenance.
Interest ••••
Rent •••••••••
Feed purchased ••••
Seed, plants purchased.
Fertilizers •
Chemicals • • • • •
Machine hire. • • •
Supplies purchased
Breeding fees: ••
Total cash expenses. • • • • • • • • • •
Depreciation on machinery, improvements,
dairy and breeding stock
Total deductions (Item 4 + 5).
Self employment income
(Item 3 - 6) •••••
Net taxable gain from Schedule D (sales of dairy
and breeding stock, machinery and other
capital exchanges) •••••••••
Taxable non-business income. • • • • •
Adjusted gross income (Item 7 + 8 + 9)
Less: Excess itemized deductions,
from Schedule A • • • • • • • • • • $
Personal exemptions. • • • • • • • • • $
Total non-busine~s deductions and 'exemptions
Taxable income (Item 10 - 11) •••••••
Estimated income tax (from applicabie tax
rate schedules) •••••••
Estimated self employment tax
(Item 7 x current rate) •••
Veterinary, medicine $
Gasoline, fuel, oil.
Storage, warehousing
Taxes •••
Insurance. • • • •
Utilities. • • • •
Freight, trucking.
Conservation expenses.
Other.
Other.
Other.
(4) $
(5)
(6)
(")(7)
• (8)
· (9)
.(10)
.( 11)
.(12)
• (13)
.(14)
TOTAL TAX (Item 13 + 14) ••• • ••••••••••• (15)
Credits: allowable investment credit and
carryover, gas tax, income tax withheld
and estimated tax paid •
Estimated tax due (Item 15 - 16)
• Omit for accrual method.
.(16)
.(17)
-- For accrual method, adjust for change in inventory and new livestock purchases •
••• For accrual method, includes sales of all livestock.
Estimated
Rest of
Year
Estimated
Year's
Total
NMSU Cooperative Extension Service and Agricultural Experiment Station Publications
