1. Interpreting A Tax Estimate
How to get the most tax bang
for your buck!
By: Pauline Van Nurden, Waseca FBM Instructor
November, 2007

2. Objectives Understanding your tax estimate
Understanding the tax tables
Maximizing your investments to minimize taxable income
Understanding your estimate – a refresher on the details of the Schedule F, Federal, and State planners and how these fit together to your estimated tax liability.
Understanding the tax tables – an overview of tax rates for different income levels. Also, learn how to maximize each bracket.
Max investments to minimize tax – here we will look at the effect different income and expense options could have on your tax liability, if completed by year end.

3. Schedule F Planner
The Schedule F Planner allows you to input income and expenses you have incurred and expect to incur during the 2007 tax year. It has many pre-set categories, but can be customized to meet the needs of your unique operation. Here is a sample from John Doe, a local dairy farmer. As you can see he has many typical income and expense categories. As we look further at his information we will see some unique differences that can impact his taxable income and therefore, his tax liability.
With milk prices where they have been this year and the fact that John deferred crop insurance losses from 2006 to this year he is expecting to have a significant tax liability. John is even considering deferring a milk check until 2008 or prepaying feed and crop input costs for next year. Let us further look at his situation to see if these are good ideas or not.
First off, the gold column on the income and expense side is what has occurred thus far in This will then total at the bottom of the column.

4. Schedule F Planner
2. The blue column contains estimated income and expense items until the end of the year. These should be the true situation – with no income deferral or additional prepaying factored in. These possible scenarios will be laid out later in the planner.

5. Schedule F Planner
3. As mentioned earlier, each column will total, showing your gross profits for the year, along with additional estimated income.

6. Schedule F Planner
4. Just like the income side, the total farm expenses for the year will be calculated.

7. Schedule F Planner
5. Finally, John can see his cash net farm income. Today John would have a $1,911 net farm loss. Factoring the additional income and expenses for the rest of the year will leave John with $13,142 in net farm income.

8. Depreciation On Capital Purchases
Another component of the Schedule F planner is the new depreciation that will be incurred this year from capital purchases. This is found directly below the net farm profits. This does not factor in any Section 179 expensing you may choose to do. This will be found on the Federal Tax Planner and we will discuss this in more detail later.
Here the capital purchases for the year are inputted, along with their original cost value. The value is again inputted in the proper column based on useful life. In John’s example he purchased new machinery totaling $32,019 during Machinery is 7 year property, so it is inputted there. In general, here as typical asset purchases and their depreciated life.
3 yr property – Purchased Breeding Hogs
5 yr property – Computers; Purchased Dairy, Beef, and Horse Breeding Stock; and Light Trucks
7 yr property – Machinery; ½ ton trucks or greater; Grain Bins; Fences
10 yr property – Specialty Farm Buildings; Pits & Slats
15 yr property – Tile
20 yr property – General farm buildings
As you can see, John will also add an additional $3,429 in expense for this year from new depreciation. The “old” depreciation was added above as a farm expense. We will now move onto the Federal Tax Planner page to see how these numbers transfer.
Estimated Depreciation for the year on new purchases – using a typical accelerated depreciation method

9. Federal Tax Planner
Your Federal Tax Planner should look much the same. Pictured here is the top of this sheet. General details that you need to be sure are accurate for your situation:
Marital Status
Number of children college-aged and under that you can claim as a dependent. Less than 19 here is not completely accurate.
These two inputs are then used to determine your standard deductions and exemptions below.
Currently the only figures seen here are those that have automatically inputted from the Schedule F planner. Typically you will leave option 1 as the current picture and then make scenario changes to options 2 – 4. As you can see, these figures are what we expected from the previous page. And, with the new depreciation factored in, our Net Farm Profit comes in at $7,802.

10. Additional Self-Employment Earnings
Net earnings from wife Mary’s self-employed business
Many farm business have additional self-employment income – either from a spouse or another business entity. This income and expense can be entered here on the Federal Tax Planner. Mary, John’s wife, has her own business. The net income from that business is entered as additional farm income. If there are W-2 wages to factor into the tax equation, they will be entered below.
Adding Mary’s net business income changes the total profit of the couple to $21,467. All of these earnings will be subject to federal, state, and self-employment taxes.

11. Federal Tax Planner Continued
Here you can see the additional information from the Federal Tax Planner.
First off, any other income received is entered. This includes interest, rent, capital gains from asset sales (both livestock & non) and other non-farm wages.
In John’s situation – he has sold some land as Contract For Deed previously. Therefore, he has interest income and Capital Gain income received for this year. He also has cull cow sales as seen in line 17. Neither him or Mary have any W-2 income. If there was W-2 earnings, the Gross Value is entered in line 18 and the deductions are later.

12. Federal Tax Planner Continued
Here you can see the additional information from the Federal Tax Planner.
First off, any other income received is entered. This includes interest, rent, capital gains from asset sales (both livestock & non) and other non-farm wages.
In John’s situation – he has sold some land as Contract For Deed previously. Therefore, he has interest income and Capital Gain income received for this year. He also has cull cow sales as seen in line 17. Neither him or Mary have any W-2 income. If there was W-2 earnings, the Gross Value is entered in line 18 and the deductions are later.
Next, IRA participation is deducted. Then ½ Self-Employment Tax is automatically calculated. Then Self-Employment Health Insurance, HSA participation, and Hope or Lifetime Learning Credits are inputted in cell 22.
Next, the standard deduction and exemptions information is calculated, from what was inputted above. Then you are able to see your total taxable income.
As you move down the worksheet a few more entries are needed. These include your Child Tax Credit – this is $1,000 for each child under the age of 17. This needs to be manually inputted. Also, any Earned income credits, fuel tax credits, and federal taxes already withheld are inputted. In John’s case he has 3 kids under 17, so he will get a $3,000 child tax credit and he has paid in estimated taxes of $2,076 this year. These are both subtracted from the estimated federal tax due in line 29, leaving John with an estimated Federal Tax credit of $3,805.
Finally, lines automatically calculate and give the producer an idea of the Federal and Self-Employment taxes due. In John’s case, he has an estimated refund (or overpayment) of Federal tax of $3,805, Self-Employment tax due of $2,458, and Medicare tax due of $575. This gives him a federal tax estimate of a $772 refund.

13. Federal Tax Planner Continued
Next, the standard deduction and exemptions information is calculated, from what was inputted above. Then you are able to see your total taxable income.

14. Federal Tax Planner Continued
As you move down the worksheet a few more entries are needed. These include your Child Tax Credit – this is $1,000 for each child under the age of 17. This needs to be manually inputted. Also, any Earned income credits, fuel tax credits, and federal taxes already withheld are inputted. In John’s case he has 3 kids under 17, so he will get a $3,000 child tax credit and he has paid in estimated taxes of $2,076 this year. These are both subtracted from the estimated federal tax due in line 29, leaving John with an estimated Federal Tax credit of $3,805.
Finally, lines automatically calculate and give the producer an idea of the Federal and Self-Employment taxes due. In John’s case, he has an estimated refund (or overpayment) of Federal tax of $3,805, Self-Employment tax due of $2,458, and Medicare tax due of $575. This gives him a federal tax estimate of a $772 refund.

15. Federal Tax Planner Continued
Finally, lines automatically calculate and give the producer an idea of the Federal and Self-Employment taxes due. In John’s case, he has an estimated refund (or overpayment) of Federal tax of $3,805, Self-Employment tax due of $2,458, and Medicare tax due of $575. This gives him a federal tax estimate of a $772 refund.

16. State of Minnesota Tax Planner
Much of the information for the MN tax planner carries forward from previous entries. There are specific Minnesota details that need to be considered – which you should be aware of from the previous WebEx presentation by Jim Marzolf. Those that I will draw your attention to are:
Section 179 add back for expensing on the Federal side greater than $25,000
Input state refund received last year
K-12 education expenses for 2007
½ charitable contributions > $500
Long-term care insurance credit
The biggest consideration here will be Section 179 expensing greater than $25,000 for this year and the last 2 years!
The State of Minnesota income tax due is then shown and the Net tax due between state and federal is the last number seen on the bottom of the page.
John’s state planner is very straight forward, which may not be the case for you. He owes the state of Minnesota $963. So, his net tax liability will be $191, with his $722 refund on the federal side.

17. This concludes the information on how to look over and interpret your tax planner we will continue on the journey of maximizing your investment to minimize your taxes!