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Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
Congress back in 2001 dropped the maximum tax rate on dividends received by a taxpayer from 39.6% to 15% (plus any applicable state income taxes). But under the so-called Sunset Rule, these special low rates expire at the end of 2010. Beginning in 2011, the top rate is expected to go back to 39.6% and beginning in 2013, the effective top rate will be 43.4% after taking in account the new Medicare surtax of 3.8%.
What this means to a farmer who has a C corporation that is in the top tax bracket both at the corporate level and at the individual level is as follows:
A tax planning tip is to review your current retained earnings and see how much you should drop out to you in the form of dividends. If the corporation needs the working capital, you can always loan it back to it at very cheap interest rates.
This is interesting information. People so often think that tax increases only apply to the super rich, or large corporations like AIG. They don't think about the thousands of farms and small businesses that will be impacted or the impact that will have on economic recovery and jobs! Thanks for the info.
This should have been part of your tax planning for the last two years. We knew the tax rate would change. We all need to plan ahead and not wait till the last 6 months. I am not happy but this should not be a surprise.
And in Iowa, don't forget to add about 10% in State income tax, like the cherry on top! OMG.