It's no secret that December will be a harsh month. The president's Deficit Commission will issue its report shortly after the November election. And Congress will be dealing with the commission's tax increase recommendations.

The 10-year-old Bush tax cuts expire in 2011, which were across the board. No action by Congress raises taxes on everyone, not just the upper-income crowd. The president's budget calls for an increase only in the top two rates, moving those to 36 percent and 39.6 percent plus about 2 percent for phased-out itemized deductions and exemptions. In the chart below, 2013 is thrown in to reflect what is already in the law from the health care bill. Earned income incurs an extra 1 percent; Medicare tax and investment income nearly another 4 percent.

WHO'S HIT

The Obama budget and the Medicare legislation aim at single filers with more than $200,000 of income and joint filers above $250,000. The threshold is adjusted gross on the front of your return, not the bottom line taxable income. For many active farm producers and those selling land, this is attainable territory.

STRATEGIES

Most business owners will be stuck with this extra tax burden. But cash method farm producers have some flexibility to accelerate income into 2010 ahead of these last-minute tax increases. Those with farm corporations who draw their 1040 income via salaries will need to be nimble in the last days of December. (The corporation sells grain and compensation moves it to the 1040 late in the year.)

For the many self-employed proprietorships and partnerships, the cash method rules offer opportunity. Grain can be sold late in the year for payment in early 2011. Then, if helpful at tax time, an election can be made to accelerate those sales back into 2010 via opting out of the installment method. (Technically, cash method deferred grain sales are installment sales capable of elective timing.) If the deferred payment grain sales are in smaller increments, there will be flexibility to retroactively pull the right amount of income back into 2010 if the newly enacted 2011 tax rates are too harsh.

Finally, capital gains and dividends are expected to jump from 15 percent to 20 percent. Time is short, but if there is a parcel of land to be sold to Junior, 2010 will be a better answer than 2011. And for those with liquidity sitting in farm C corporations, the "tax sale" on dividends is likely to end Dec. 31.

TOP TAX RATES (percent including Medicare tax)
	2010	2011	2013
Business income (non-self-employed)	35%	42%	42%
Business income (self-employed)	38%	45%	46%
Salaries	36%	43%	44%
Capital gains	15%	20%	24%

Editor's Note: DTN Tax Columnist Andy Biebl is a CPA and principal with the accounting and financial consulting firm of LarsonAllen in New Ulm, Minn., and a national authority on ag taxation. He writes a monthly column for our sister publication, The Progressive Farmer, as well as a regular "Ask the Taxman" column for DTN. Pose your tax questions by e-mailing AskAndy@dtn.com and watch for responses in upcoming columns.

(MZT/AG)

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