Did you have fun doing your tax return this year? The tax reform package that
Congress passed last year was neither reform nor did it make completing your tax return
any easier. If you struggled through it, you can still file an amended tax return
(1040X), or if you filed for an extension you can still get help. Some of the
changes that might affect horse people include:
For individuals, the death tax relief exemption will have a phased-in increase to $1
million. For family farms and small businesses, the credit jumps to $1.3 million in
Closely held businesses such as farms are eligible for a 20 year low, or no, interest
installment payment option on death taxes.
A 10% capital gains rate applies to individuals in the 15% bracket (i.e. married couples
with taxable income up to $41,200 and singles with taxable incomes up to $24,650).
And a 20% capital gains rate applies to individuals in the 28% and higher tax brackets.
Lower capital gains are not subject to the Alternative Minimum Tax. (Be careful
of the AMT trap. Even if your tax picture hasn't changed in years, you may still get
tagged by the AMT because it doesn't take inflation into account. More people are
becoming subject to the IRS sense of humor.)
After the year 2000, a special 18% rate (8% for those in the 15% bracket) would apply
to assets held five years or more.
Also look for favorable tax treatment of livestock sold due to certain weather-related
The phase out limit for regular IRAs has increased to between $50,000 and 60,000 AGI
(adjusted gross income) for married couples and $30,000 to 40,000 for singles. These
amounts will increase slightly over the next ten years.
The 10 percent early withdrawal penalty will not apply if funds are used to pay for
qualified higher education expenses or for "First Time" home owners (not to
exceed $10,000 per person). By the way, you can be a "First Time" home
owner even if you've owned a home before, provided it's been at least two years since the
last time you owned a home.
If you're not an active participant in an employer-sponsored pension plan, you can now
make deductible contributions even if your spouse is under such a plan.
The most significant reform of the IRA is the new ROTH IRA. The principal
difference is taxability. Regular IRA contributions and investment growth are only
tax deferred (you pay tax on everything when you withdraw the money). The ROTH
contribution is fully taxable, but the investment growth is not taxed provided the IRA is
held at least five years and the owner is at least 59-1/2 before starting to withdraw the
If your AGI is below $100,000, you can transfer your regular IRA to ROTH. The
transfer is fully taxed, but future investment income generally grows tax free.
Taxes on ROTH transfers made this year may be paid over four years. If you wait
until next year or beyond, you must pay the entire transfer tax during the year of the
So, the tax reform didn't make filing your taxes any easier, but it may help you to
save some money. Consult a tax professional regarding your individual circumstances.