COLLEGE CORNER, Ohio — Of the 3.3 million U.S. farm operators, more than 1 million are women, a 20 percent increase since 2002. More than 75 percent of these women are full owners of their land, according to Larry Gearhardt, field specialist in taxation with Ohio State University extension, who spoke at the American Agri-Women conference this month.

“The role of women in agriculture is changing from one of production to one of management because it fits your knowledge, and it fits your style,” he explained.

“Ladies, you’re overlooking something that can affect the bottom line of your farm, and you allow other people to take care of it. I want you to become more involved in the tax planning of your operation.”

The agriculture economy has been strong over the last several years, Gearhardt said. In some ways that has been great, but not necessarily from a tax standpoint when high income is penalized. There is a new tax rate for people who make more than $450,000 annually.

“That sounds like a lot of money, but with $7 corn and $10 beans it might be fairly easy to reach that point,” Gearhardt said. “For those who made over $450,000, the tax rate went up to 39.6 percent. In addition, if you were in that 39.6 percent category, you paid a higher capital gains rate – 20 percent rather than 15 percent.”

There are also two new taxes to worry about, he explained. Both kick in for married couples filing jointly with an income of $250,000. The first is a Net Investment Tax, which is an additional 3.8 percent on net investment income, or unearned income. It is critical to know “investment income” includes rental income and capital gains.

“Plus, in order to help pay for the new Affordable Care Act, they added a 0.9 percent additional Medicare tax above a certain threshold (on earned income),” Gearhardt said. “Without proper planning, you could pay 44.3 percent in taxes, and that doesn’t include state tax. In Ohio the top rate is 7 percent. That puts us up over 50 percent in taxes.”

There are situations in which farmers need to decide “which side of the sword you want to be on,” he said – whether they are better off with earned or unearned income.

It is important to do year-end tax planning early. “If you don’t take anything else away from my talk, remember  this: You’ve got to do tax planning early enough in the year to allow yourself time to do something if you’re in trouble,” Gearhardt said.

“The first part of December is probably as late as you want to go before you sit down, look at your income and expenses and determine ‘which tax category am I going to be in and can we do something about it?’”

The most basic tax planning tip there is is timing one’s income, he said. Perhaps in the form of deferring income to the next year, and speeding up expenses. Producers can prepay fertilizer; they can consider waiting until the first day in January to take cattle to market. If there is any way to defer income and speed up expenses, it will aid in the goal of reducing taxable income.