Most farmers prepare a budget at the end of the year to present to their bankers and then promptly put it away and forget about it until the following fall.  I like to envision a budget is similar to a road map.  A map has many ways to get from point A to point B.  Sometimes, you may want to take the most direct and fastest route for your trip and other times, you may get lost because you did not refer to your map.

A budget gives you the fastest way to get from point A to point B, i.e. your bottom line profit.  At the start of your journey, you look at what is your projection for crop yields and pricing.  You then project your total costs including the value of your time and management costs.  The end result is your bottom line profit, or point B on the road map.

When you start on the trip, you must continue to look at the road map to see if you are still on the direct highway to point B.  If your costs start to get out of whack, what steps can you do to reduce or eliminate certain costs.  Have you hedged your fuel and fertilizer costs if pricing is at a optimum point. 

Also, right now is a seasonally good time to be locking in pricing for your current year crop.  Are you using a good marketing service to help you with this.  This is all part of the road map to get you to point B.

Just like a good traveler continues to review their road map when they are on their journey, as a good farmer, you should review your budget each month or even each week to see if you are still on the right road to your profit objective.  The sooner that you catch either larger costs or lower revenues, the easier it is to get back on track.  There is some point, where it becomes impossible to get back on track.  You do not want to reach that point.

Remember, use your map (BUDGET).

I have been reading several articles lately on the possible estate tax law changes that will be coming.  The Bush changes from about 8 years ago will be changed and soon.

Most agree that the estate exemption will most likely be around $3.5 to $5 million and indexed for inflation.  Also, the gift tax exemption will also go back to being the same as the estate tax exemption.  There are also signs that they will allow any unused exemption for the spouse who died to be carried over to the surving spouse.

For example, under the current law, if one spouse dies first and has nothing in their name, their estate tax exemption expires worthless.  Under the proposed changes, if a spouse dies with assets of $2,000,000 and the estate exemption is $3.5 million, then $1.5 million would carry over to the surviving spouse.

A great change for farmers is an increase in the special use allowance up to about $3,5 million.  This allows many more family farms to pass tax free to their heirs and keep it in farming.  The special use valuation is a method that reduces the value of farm property to what it would be worth as farm use only.  Many farmers are close to cities and their land is worth substantially more as development property than farm property.  This special use allows the estate to value it as farmland only.  There are many restrictions on this, but for those who it applies to, it can save substantial taxes and keep the land in the family as farmland.

As these changes wind their way through Congress, I will keep you updated.

The US Court of Federal Claims issued a decision in 2008 indicating proceeds from selling life insurance stock companies that had de-mutualized were in fact tax free.  There have been serveral large life insurance companies such as Metropolitan, Principal, Prudential, etc. that have de-mutualized over the last several years.

The IRS had argued that when these stocks were sold that 100% of the proceeds were subject to capital gains taxes.  The Court ruled that the sales were not taxable, but simply a return of capital.

For more details, including a copy of the decision, please visit the site set up by Chuck Ulrich, a CPA who has battled with the IRS on this matter for many years.

If the sales occurred in the 2005 or later, you can still file an amended tax return to get your refund.  You need to be warned that the IRS has appealed this decision, but for right now, this is the new law on this situation.

Please make sure to check this with your tax advisor, you may be entitled to a very large refund plus interset.