Just a reminder if your income is dramatically higher this year, remember to consider using farm income averaging. Even if it does not reduce your income tax for the year, if may help you reduce your income tax in 2013 or beyond.
In brief, farm income averaging allows you to elect to spread a certain amount of your income over the last three years. If you are in a 25% or higher tax bracket this year and the last three years are in a lower tax bracket, you will be able to reduce this year's tax. The allocation of this spread of income is done equally to each of the past three years. You can not pick and choose how much to allocate to each year, but rather, they must be spread equally.
Farm income averaging does not reduce your self-employment tax and for 2013 it will also not reduce your net investment income tax that may arise if your AGI is greater than the threshold. These taxes are imposed without regard to your taxable income.
Some farmers think that if there is no tax saved, they do not need to utilize farm income averaging. This is not always correct. Let's assume a farm couple made $70,000 each year for 2009-2011 and in 2012, they made $140,000. Since they are in 25% tax bracket for all four years, they elect to not use farm income averaging. In 2013, they now make $200,000. Since about $60,000 is in the 28% tax bracket, they elect to carry this back to 2010, 11 and 12 to soak up those 25% tax brackets. This works for 2010 and 2011, but since they did not elect farm income average in 2012, they are still in the 28% tax bracket and owe an extra $600. It would have been very easy to save the $600 by doing farm income averaging in 2012 to reduce their 25% tax bracket for that year.