Agribusiness Blog http://blogs.claconnect.com/agribusiness Farm CPA Today Mon, 22 May 2017 13:04:24 +0000 en-US hourly 1 https://wordpress.org/?v=4.7.5 53853350 http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Man-Laptop-Online-Purchase.jpg Are You Taming The Deferred Tax Monster?! http://blogs.claconnect.com/agribusiness/are-you-taming-the-deferred-tax-monster/ http://blogs.claconnect.com/agribusiness/are-you-taming-the-deferred-tax-monster/#respond Mon, 22 May 2017 13:04:24 +0000 http://blogs.claconnect.com/agribusiness/?p=5790 The Farm Doc Daily just released a new article today titled “The Deferred Tax Monster“.  Current deferred taxes is comprised of the estimated taxes owed on deferring crop sales and prepaying farm expenses.  Intermediate deferred taxes are the taxes owed on selling farm equipment.  Long-term deferred taxes are the amounts owed on selling farm land.  It is highly unlikely that all deferred taxes would ever be owed at one time, but it can happen.

The article presents three graphs.  In the first graph, it shows the average deferred tax by type of asset from 2003 to 2016 based on their database of Illinois farmers.   Beginning with the ethanol mandate, current deferred taxes accelerated compared to the others.  It peaked out in 2012 with the extra revenue generated by high corn and soybean prices and crop insurance proceeds.  It has now dropped back to being on par with intermediate and long-term deferred taxes.  Intermediate and long-term deferred taxes increased at a steady rate and did not have the volatility of current deferred taxes.

Graph 2 shows the amount of deferred tax due to land, machinery and buildings.  As expected, the greatest amount of deferred tax in this chart is land at an average of about $1.8 million per farm.  This is an increase of almost $1.3 million from 2003.  Machinery deferred taxes has increased from about $200,000 to $600,000 during the same time period.  This is primarily due to the use of Section 179 and bonus depreciation.  Farm buildings has showed the lowest amount of increase primarily due to Section 179 not being allowed on farm buildings (in most cases).  It has not quite reached the $200,000 level yet.

Graph 3 shows Total Deferred Tax vs. Net Worth.  The ratio of deferred tax to net worth peaked in 2008 at 27.3% and had decreased slightly to 24.5% in 2016.

Most farm financial statements do not show deferred taxes since most expect it not to be owed.  However, as farmers approach retirement (especially if there is no successor), deferred taxes becomes a “real” liability.  A good farm financial manager will calculate this liability each year and know how to manage it.  Others will be surprised when it “comes home to roost”.

 

 

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Business-People-On-Wheat-Field1.jpg Soybean 2016 ARC-CO Reports http://blogs.claconnect.com/agribusiness/soybean-2016-arc-co-reports/ http://blogs.claconnect.com/agribusiness/soybean-2016-arc-co-reports/#respond Sun, 21 May 2017 19:10:38 +0000 http://blogs.claconnect.com/agribusiness/?p=5778 I am attaching reports for several of the major soybean producing states that show the estimated 2016 soybean ARC-CO to be paid in October.  As mentioned before, these calculations are based on NASS data and the final yields can be different.  However, due to the large increase in soybean yields for most states, the difference will likely not affect payments if the chart shows no payment for your county.  If there is no NASS data, then the final column will show “N/C”.

The state reported are as follows:

Illinois

Indiana

Iowa

Minnesota

Nebraska

Ohio

South Dakota

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Man-Laptop-Online-Purchase.jpg Only One Minnesota County to Get Soybean ARC Payment http://blogs.claconnect.com/agribusiness/only-one-minnesota-county-to-get-soybean-arc-payment/ http://blogs.claconnect.com/agribusiness/only-one-minnesota-county-to-get-soybean-arc-payment/#respond Wed, 17 May 2017 12:46:35 +0000 http://blogs.claconnect.com/agribusiness/?p=5767 In our previous post, we estimated that only two Iowa counties would get 2016 soybean ARC payments (to be paid this October).  This is due to the higher yields in that state.

In Minnesota, it now appears that only one county may get a 2016 soybean ARC payment.  We are estimating that Kittson County might get a $12.17 payment based on NASS yields.  All of the other counties reporting NASS yields indicate no payments.  It is likely that more countries will result in payments since many of the upper state counties did not have NASS yields.

As a comparison, for the 2014 crop, 57 counties had soybean ARC payments.  For the 2015 crop, 34 counties received soybean ARC payments.

For Illinois, in 2014 only 7 counties received soybean ARC payments.  For the 2015 crop year, this jumped to 90 counties receiving payments and for the 2016 crop year, we are projecting that 5 counties will receive soybean ARC payments as follows:

  • Alexander $48.67
  • DeWitt $10.18
  • Gallatin $.97
  • Pope $48.67
  • Pulaski $18.75

We will continue to provide this information on additional states in later blog posts

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Farming-Family-in-Field.jpg Only Two Iowa Counties Projected to Get Soybean ARC Payments http://blogs.claconnect.com/agribusiness/only-two-iowa-counties-projected-to-get-soybean-arc-payments/ http://blogs.claconnect.com/agribusiness/only-two-iowa-counties-projected-to-get-soybean-arc-payments/#respond Mon, 15 May 2017 19:24:11 +0000 http://blogs.claconnect.com/agribusiness/?p=5765 Corn has been the big payer of ARC payments for 2014 and 2015 crop years and even 2016 appears to be getting good size payments in several states.  Soybeans on the other had has not paid any PLC payments for 2014-2016 (2016 is not final, but there is no chance of the final MYA price dropping below $8.40).  Soybean ARC payments have been sporadic and the size of payment is usually lower than corn payments.

I am updating my spreadsheets for soybean payments and started with Iowa.  The 2014 crop year resulted in 51 Iowa counties getting ARC payments.  Clayton County had the largest payment at $65.27 and Palo Alto was not too far behind at $60.12.  The 2015 crop year bumped the number of counties reporting payments to 67 (out of 99) with Cedar and Clayton tying at the highest with $67.49.

Now we come to 2016.  The current soybean MYA price from FSA is $9.55.  Kansas State University is estimating a soybean MYA price of $9.57.  I have assumed the FSA price of $9.55 and inputted that data along with the NASS yields for Iowa counties.  All counties reported yields, however, final ARC yields can vary a bit from NASS yield.  In most cases, the final soybean revenue for each county was so high compared to the guarantee revenue that a bump down in yields by even 5 bushels would not change the bottom line.

For 2016, we are estimating that Dubuque County might get a soybean ARC payment of $27.97 per base acre (remember final payment will be lower due to the 85% of base acre adjustment and the sequestering adjustment).  Washington County is expected to receive $6.23.

The soybean benchmark price is $11.87.  86% of this number is $10.21.  Although the final MYA price is lower than the “guarantee” price, the primary reason for almost no county in Iowa getting a payment is the increase in soybean yields.  The average bump in yield for 2016 was 23%, thus resulting in little or no soybean ARC payments for Iowa counties.

I will release the Iowa breakdown along with the other key corn belt states later.  I still need to do a fair amount of inputting.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/12/Farming-Family.jpg Farm Income Appears to Stop Dropping???? http://blogs.claconnect.com/agribusiness/farm-income-appears-to-stop-dropping/ http://blogs.claconnect.com/agribusiness/farm-income-appears-to-stop-dropping/#respond Thu, 11 May 2017 16:11:23 +0000 http://blogs.claconnect.com/agribusiness/?p=5755 The Federal Reserve of Kansas City just released their latest Ag survey and based on the title “Regional Farm Sector Stress Intensifies” you would think the news was bad.  But as I ready the article, the news seems to suggest that the farm economy, although not in great shape, is also not getting worse and may be bottoming out.

Bankers have reported expectations for lower income for four straight years, but the number of bankers reporting lower levels is decreasing.  In their district which is Wyoming, Colorado, Northern New Mexico, Nebraska, Kansas, Oklahoma and Western Missouri, the stress levels are more significant in the western region than the east.  This is primarily due to the heavier concentrations of livestock and wheat in those areas.

There is a good chart breaking down the number of bankers reporting lower farm income in the two regions (West and East).  Up until 2013, this number for both regions was less than 20% (very healthy).  Beginning in 2014, this number jumped to 30% for the East and 40% in the West.  In 2016, the numbers peaked out at 75% for the East and almost 90% for the West.  This year, the numbers dropped down to less than 60% for the East and about 80% for the West.

Expectations are still for lower income, however, the extent is starting to drop.  Credit conditions are also worse in the Western portion of the District versus the East.  Higher renewal/extension rates and lower repayment rates are hovering around 60% in West and under 35% in the East.  Carryover debt increased by 40% in the West region and less than 20% in the East.

Values for farmland decreased by about 3% in the East since the first quarter of 2015 but have dropped 24% in the West during the same time period.

In conclusion, this district shows stress on farmers, however, it appears for the Eastern portion, the stress is getting lower, while in the West, it may be getting worse.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Open-Road.jpg More County Corn ARC data http://blogs.claconnect.com/agribusiness/more-county-corn-arc-data/ http://blogs.claconnect.com/agribusiness/more-county-corn-arc-data/#respond Tue, 09 May 2017 17:57:13 +0000 http://blogs.claconnect.com/agribusiness/?p=5748 As per our previous blog post regarding corn ARC-CO estimates for 2016, here are four more states.  Remember that these are estimates based on NASS data.  Final yields can be different and the difference can be material.

Here are the states:

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Advisor-Working-with-Client.jpg 2016 ARC-CO County Data for Key Corn Belt States http://blogs.claconnect.com/agribusiness/2016-arc-co-county-data-for-key-corn-belt-states/ http://blogs.claconnect.com/agribusiness/2016-arc-co-county-data-for-key-corn-belt-states/#comments Sun, 07 May 2017 17:29:34 +0000 http://blogs.claconnect.com/agribusiness/?p=5738 I had promised last week to provide data by county for several states for 2016 corn ARC-CO payments to be received in October of this year.  This data is based upon NASS county yield data posted February of this year.  Final yield data can be different and in some cases, the difference can be material.

The listings below show the estimated gross payment per base acre.  To get your final payment, you will need to multiply by 85% times the sequestering discount (which I believe is around 7%).  I have included the 2014 and 2015 payment data as a reference point.  If the final column has a dollar amount in it, then that is the estimated payment amount.  If it has a zero, then no payment will be made for that county.  If there is an N/C in the column, then no yield data was available for that county.

You can estimate the yield for any of those countries by multiplying your county estimate yield by the 2016 National MYA corn price of $3.40 (as of April 2017).  You will then compare that to the 2016 Guarantee Revenue calculation.  If your calculation is less than the guaranteed, then you will get a payment subject to the 2016 maximum payment limit in that column.

Here are the state county estimates that I have prepared so far:

These estimates could be used for your 2017 budgets and bankers may want to use it in creating work-ups for their farm clients.  However, please understand that these are estimates only and final numbers may change and the change may be material.

I will continue to add more states in the near future and will post those results at that time.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Advisor-With-Seniors-Table.jpg Where’s Waldo (Paul)? http://blogs.claconnect.com/agribusiness/wheres-waldo-paul-2/ http://blogs.claconnect.com/agribusiness/wheres-waldo-paul-2/#respond Thu, 04 May 2017 14:41:33 +0000 http://blogs.claconnect.com/agribusiness/?p=5723 I am starting to get many queries about where I will be speaking this year.  The following is a list of where I am speaking based on my schedule so far.  Many of these will qualify for CPE for CPAs.  I look forward to meeting as many readers as possible over the next few months.  Here is a listing along with links as applicable.

These are the public seminars that are on my schedule for now.  The Farm Tax Update sponsored by the individual state societies is a full day update on farm income tax.  We present this seminar for state societies on an every other year basis.  My colleague Chris Hesse is also doing several of these as follows:

  • May 4, Kansas Society of CPAs, Salina, Kansas
  • June 2, Oregon Society of CPAs, Portland, Oregon
  • July 18, Indiana Society of CPAs, Indianapolis, Indiana
  • August 15, South Dakota Society of CPAs, Sioux Falls, South Dakota
  • August 17, North Dakota Society of CPAs, Grand Forks, North Dakota
  • August 24, North Dakota Society of CPAs, Bismarck, North Dakota
  • August 28, Iowa Society of CPAs, Des Moines, Iowa
  • September 25, Minnesota Society of CPAs, Detroit Lakes, Minnesota
  • September 28, Montana Society of CPAs, Lewistown, Montana

I have several other private seminars lined up through out the year.  If you would like our firm to do a presentation on farm income taxes, estate taxes, succession planning, farm financial standards, etc., please send me an email and we can get it lined up for you.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/12/Father-Son-On-Farm.jpg Iowa ARC-CO Update http://blogs.claconnect.com/agribusiness/iowa-arc-co-update/ http://blogs.claconnect.com/agribusiness/iowa-arc-co-update/#respond Mon, 01 May 2017 14:55:04 +0000 http://blogs.claconnect.com/agribusiness/?p=5720 In my post yesterday, I indicated that Iowa might only have 19 counties that qualify for corn ARC-CO payments for this year.  After inputting more data for additional counties in other states, I noticed that I had made an error in my spreadsheet.  Some of the 2015 county yield data had not come over correctly.  In some cases, this would affect the calculation of the benchmark yields.  In other cases, it would not since that yield would be thrown out in calculating the Olympic average yield.

After correcting these yields, the actual number of counties in Iowa that should get some type of payment has now changed from 19 to about 49.  There are 17 countries showing less than $10 of estimated payments and if the corn MYA increases a bit or final yields increase, they would likely not receive any payment.  This means the final number may be closer to 30 counties than 49.

The high range for some counties has gone up too.  The highest county is now Johnson County at a maximum payment of about $85. Grundy County is around $61 and there appear to be no other counties over $50.

I will continue to update the spreadsheet with additional counties over the next week or so and once I have most of the county data for the key corn belt states inputted, I will release the spreadsheet so you can look up your county.  It takes a fair amount of time to input NASS data since there is no one full database.  There is a fair amount of manual entry to get the county yield into a spreadsheet.

I am sorry about the mistake, but dealing with this much data, it can catch you once in a while.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Farmer-Inspecting-Corn.jpg Only 19 Iowa Counties Likely to Get Corn ARC Payments http://blogs.claconnect.com/agribusiness/only-19-iowa-counties-likely-to-get-corn-arc-payments/ http://blogs.claconnect.com/agribusiness/only-19-iowa-counties-likely-to-get-corn-arc-payments/#comments Sat, 29 Apr 2017 18:48:12 +0000 http://blogs.claconnect.com/agribusiness/?p=5717 We have entered the 2016 NASS county yield estimates for Iowa into our ARC-CO estimator and it appears that for the 2016 crop based on the current MYA corn price of $3.40 that only 19 out 99 Iowa counties will receive any corn ARC-CO payment in October of this year.  The payment range goes from a low of $.42 in Jones and Webster County to a high of $57.70 in Johnson County.  These are gross payments per base acre.  They have not been reduced to reflect the 85% of a base acre payment rate or any Sequestering adjustment so actual payment amounts will be even lower.

The breakdown in payment ranges are as follows:

  • Zero to $10 per acre – 11
  • $10 to $20 per acre –  4
  • $20 to $30 per acre – 1
  • $30 to $40 per acre – 1
  • $40 to $50 per acre – 0
  • $50  to $60 per acre – 2

These payment amounts and number of acres is substantially lower than the payments made for the 2014 and 2015 crop year.  Since the yields were so high in 2016 and the 2016 Benchmark price was lowered from $5.29 to $4.79, we knew that payments would likely go down, we just did not know by how much.  Now we have an idea.

These yields are based on NASS data provided back in February.  Final yield numbers may be off, but usually not by more than a bushel or 2.  It is likely that even if final yields are adjusted down a bit, the bottom line numbers will not change much.

If you are doing budgets for this year and farm in Iowa, I would not count on much of a corn ARC-CO payment.  We will be calculating other state payment estimated rates here in the near future and we will post those estimates as we update them.  You can always send an email to me to request your actual estimated county rate if you do not see the numbers published.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Family-Looking-at-Combine-in-Field.jpg Fuzzy Details On Trump Tax Plan http://blogs.claconnect.com/agribusiness/fuzzy-details-on-trump-tax-plan/ http://blogs.claconnect.com/agribusiness/fuzzy-details-on-trump-tax-plan/#comments Thu, 27 Apr 2017 14:08:15 +0000 http://blogs.claconnect.com/agribusiness/?p=5714 As expected the Trump Tax Plan released yesterday is very fuzzy on the details.  Here are the key points that we know and don’t know:

  • Top corporate tax rate of 15% – This would be a great benefit to large corporations.  For a lot of farm corporations, they are already keeping income at the 15% tax rate so benefit may be minimal.
  • Top Flow-Through tax rate of 15% – This could be very beneficial to farmers.  However, this is likely to be only the top tax rate on “business income” since Trump is trying to create growth and jobs.  Whether this top rate will be applied to rental income for farmers is to be seen.
  • Allowing only mortgage interest and charitable donations as itemized deductions – Many farmers do not itemize so this may not create issues for them.  However, for farmers with larger amounts of income in high tax states such as California, Oregon, Minnesota, etc. this could create a 3-5% bump in their tax rate.
  • Eliminating the estate tax – Sounds great, but we need to see the details.  If it eliminates the estate tax, keeps step-up in basis and does not have capital gains tax at death, then farmers will be happy, but we need to see the details.  Also, if the gift tax is still in place, then farm families may still have issues to deal with.

Again, details on these proposals are not available right now.  President Trump’s economic team is meeting daily with Congress on working out these details and we may see the final proposal in the next few months or it may blow up like health care repeal and reform (which may still happen).  We will keep you posted.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Businessman-Thinking-At-Laptop.jpg Will Farmers See Top 15% Tax Rate Under Tax Reform http://blogs.claconnect.com/agribusiness/will-farmers-see-top-15-tax-rate-under-tax-reform/ http://blogs.claconnect.com/agribusiness/will-farmers-see-top-15-tax-rate-under-tax-reform/#respond Wed, 26 Apr 2017 14:18:19 +0000 http://blogs.claconnect.com/agribusiness/?p=5712 President Trump is in the process of releasing his plans for tax reform over the next few days.  We have heard his plan is to tax all business income whether in the form of a corporation or a pass-through entity at a top rate of 15%, down from the current top rate of 39.6% for individuals and 35% for corporations.

If this happens, farmers would then likely see a top tax rate of 15%.  However, the devil is in the details and we have not seen those yet and may not see them for several months.  Some of the details I would worry about are the following:

  • This top rate applies to business income.  Over the years, farmers have set up many entities to separate their land holdings from the business.  Part of this was for liability and ease of transfer purposes, but much of these entities were set up to reduce self-employment tax.  The income from these entities under the tax proposal would be subject to the top rate (whatever it might be).  It likely would not qualify for the lower rate.
  • There is a good chance that the top tax rate could be 15-20% on pass-through entities, but it is likely that Congress may implement the application of some percentage of income automatically subject to self-employment/payroll taxes.  A 70/30 split has already been discussed.  This means all of your income including wages paid to you would be calculated and the self-employment/payroll taxes would be applied to 70% of this income and 30% would be exempt.  This would increase the tax rate to about 30% on net farm income under the $125-200,000 level and then the amount above that could be a few percentage points higher.  We have posted on this in the past.
  • There will likely be restrictions in place to prevent normal “wage” income being converted to business income.  We don’t know what these restrictions are, but they could be material.

As you can see, a top rate of 15% sounds great, however, many farmers could actually see their tax burden go up dramatically if some of the above “details” happen.  We will keep you posted.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/12/Train-With-Grain-Elevator.jpg Why Program Payments Should Not Be Paid Based On Plantings http://blogs.claconnect.com/agribusiness/why-program-payments-should-not-be-paid-based-on-plantings/ Tue, 25 Apr 2017 14:24:28 +0000 http://blogs.claconnect.com/agribusiness/?p=5709 FarmDoc Daily had a very good article recently on how generic acres may have been influencing farmers to plant more acres than they otherwise may have.  Generic acres refer to cotton base acres under the Farm Bill.  Cotton growers did not directly participate in the Farm Bill.  Rather, they were allowed to take their cotton base acres and convert them to “generic” acres.  These generic acres were then enrolled in either PLC or ARC and would be paid based upon the crop planted each year.

All other farmers were paid upon their enrolled base acres.  It did not matter what they planted; they would be paid the same.  Most generic acres are in areas of the country where peanuts are also grown (primarily the SE portion).  When the Farm Bill came out, almost 100% of peanut growers signed up for PLC since the reference price was in excess of current market prices.  This provided an incentive for farmers with generic acres to plant peanuts since it would provide for a far larger farm program payment.

The report indicated that these growers received an average of $162 per acre in 2014; $265 in 2015 and projections for 2016 is even higher possible payments.  Also, the amount of generic acres planted to peanuts rose from 708,000 acres in 2014 to almost 1 million acres in 2016.

During this same period, the largest corn payments rarely exceeded $100 per acre with other crops being much less.  In addition, peanut farmers have their own separate payment limit of $125,000 per person/entity.

As you can see, when there is a direct subsidy based on what you plant, farmers are smart enough to take advantage of that subsidy.  Whether that is the correct way of managing crop prices or not is up to Congress to decide.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Farmer-and-Combine-Harvester.jpg Late Options On Bonus Depreciation Are Available http://blogs.claconnect.com/agribusiness/late-options-on-bonus-depreciation-are-available/ Thu, 20 Apr 2017 15:01:46 +0000 http://blogs.claconnect.com/agribusiness/?p=5707 In a recent Private Letter Ruling, the IRS allowed a large corporation to change their election related to bonus depreciation.  Bonus depreciation allows farmers to deduct some upfront percentage of their fixed asset purchases that are new during the year.  The current percentage if 50% (it has been as high as 100% during parts of 2010 and all of 2011).  This can be a very powerful tax planning tool, however, in many situations, farmers would rather not take bonus depreciation.  Let’s look at an example:

Farmer Sue purchases is a sole proprietor and purchases a new JD S680 for $500,000 in 2017.  Her net farm income for the year is $50,000 before taking into account bonus depreciation.  If she deducted the full bonus plus regular depreciation she would have a loss of about $250,000.  Instead, she makes an election to not take bonus depreciation and her farm income ends up close to zero for the year. If she had not made the election, it is likely that her self-employment income in future years would be much higher due to bonus only creating an net operating loss that can’t be offset against farm SE income.

There are other situations where it may not make sense to take bonus depreciation.  In order to do this, the farmer must make an election on the tax return.  This election can only be revoked in writing to the IRS.  The recent Private Letter Ruling showed one example of this being allowed.  There are multiple other examples.  However, in order to get a written ruling from the IRS, the cost can easily approach $25,000 or more between the IRS fee and the cost to prepare the request.

Therefore, make sure to fully review with your tax advisor your bonus depreciation decisions.  Doing it wrong can cost you.

 

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/12/Farmers-Shaking-Hands.jpg A Webinar This Thursday http://blogs.claconnect.com/agribusiness/a-webinar-this-thursday/ http://blogs.claconnect.com/agribusiness/a-webinar-this-thursday/#comments Tue, 18 Apr 2017 12:19:33 +0000 http://blogs.claconnect.com/agribusiness/?p=5703 Tax Season is barely done and I will be doing an one hour webinar for the University of Arkansas Ag Law Center this Thursday April 20 at noon Eastern Time to 1 PM.  I will cover some of basics of Ag Taxation and then dive into how tax reform may affect farmers (although that is getting foggier by the day).

If you are interested in listening to the webinar, here is a link to it.  There is no signup required.

 

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Casual-Businessman-Listening-to-Collegue.jpg Another Tax Season Comes to an End http://blogs.claconnect.com/agribusiness/another-tax-season-comes-to-an-end/ Mon, 17 Apr 2017 12:40:53 +0000 http://blogs.claconnect.com/agribusiness/?p=5695 I have talked to some CPAs who actually ended all of their CPA work last Friday.  I was not so lucky.  I will go down to the end tomorrow dealing with many last minute clients (both on their end and our end).  Almost all of my farmer’s tax returns are finished (but not all; working on one right now).

Before starting the blog, most of my tax season was spent in one office.  However, after starting the blog, it now appears that I spend a fair amount of time on the road and try to do tax returns too.  Just this tax season, my travels have been as follows:

January

  • Conference near Park City, Utah – Dealt with new technology for farmers.
  • Ag Boot Camp in Bettendorf, Iowa
  • Meeting in Colorado
  • Speaking at two separate meetings in Missouri for Farm Credit System banks there
  • Top Producer conference in Chicago

February

  • Missouri meetings with clients
  • Top Producer Executive Network meeting in Phoenix (better weather than here)
  • A one day flight to Des Moines to give a speech and fly home the same day (flights were all on time)
  • Granular GROW conference in San Francisco
  • Washington Grain Growers AMMO presentation in Spokane

March

  • Washington Grain Growers AMMO presentation in Walla Walla
  • California Farmers Ag Conference in San Diego (I did get to play Torrey Pines North Course; that was a treat)
  • Another one day trip to Des Moines for a client meeting

Luckily all of April so far I have gotten to stay in the office and get some work done.

I will post later this week my upcoming seminars for the summer.

If you have not filed your tax return yet, don’t panic, you can always file an extension until October 15, 2017.  This is an extension to file you return, not pay your taxes.  Make sure to get those paid with the extension.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2017/04/AICPA-Save-the-Date.jpg The AICPA Ag Conference Returns Next Year http://blogs.claconnect.com/agribusiness/the-aicpa-ag-conference-returns-next-year/ Tue, 11 Apr 2017 18:41:40 +0000 http://blogs.claconnect.com/agribusiness/?p=5692 We have gotten several questions about the timing of the next AICPA Ag Conference.  The last one was held last year in Denver, Colorado and the next one will be held next July in Las Vegas at Caesars Palace on July 16-18.  As the returning chairperson of the conference, I would like to welcome all that would like to attend and please send me an email with any topics or speakers that you would like to see.

The AICPA Ag Conference is a blend of tax, accounting and economic topics by nationally recognized speakers in the field and probably the best part is meeting other practitioners in your field of business.  Also, if you have any desire to become involved with helping getting the conference organized, please let me know.

Who knows, by then we may have major tax reform; the 2018 Farm Bill; and Health Care Reform to discuss.

Here is the link to sign up early (note the site may not quite be up).

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2017/04/Hesse-Ag-and-Tax-Reform.jpg CLA Testifies at House Ag Committee http://blogs.claconnect.com/agribusiness/cla-testifies-at-house-ag-committee/ http://blogs.claconnect.com/agribusiness/cla-testifies-at-house-ag-committee/#comments Thu, 06 Apr 2017 12:35:29 +0000 http://blogs.claconnect.com/agribusiness/?p=5681 My colleague Chris Hesse was invited to speak in front of the House Ag Committee yesterday and here is his update from the session:

Chris Hesse, a principal in the National Tax Office of CLA, testified today at the full House Ag Committee in Washington DC. Chris was raised on farm in the Portland Oregon area. Today, his son and nephew farm in Grant County in eastern Washington state. Due to Chris’ background, he has a wide knowledge of ag tax, including estate and gift tax provisions applicable to farmers.

The hearing was held to inform the Members of the House Ag Committee as to the various tax provisions used by farmers and ranchers in fulfilling their income tax responsibilities. Chris covered the gamut of the rules, including farm income averaging, the March 1 deadline, income deferral and prepaid expenses.

“The Members of the Committee seemed to be most interested in the tax reform proposal to make interest expense nondeductible. The Members were unanimous in their concern for agriculture if this becomes a reality.” The interest expense nondeductibility is proposed as a trade-off to allow full deductibility of depreciable asset purchases. Chris pointed out that over 90% of farmers today can deduct all of their equipment purchases under the Section 179 provision allowing expensing of up to $510,000.

Another concern was the border adjustment tax. Pat Wolff of the American Farm Bureau testified that Farm Bureau doesn’t have a position on the tax. Members and the witnesses expressed concern as to the uncertainty which will be created as a result of a new type of tax.

The estate tax and step-up in basis made it into the top three questions. One Member noted that with the increased exemption (currently, nearly $5.5 million), very few estates are subject to the tax. However, Chris pointed out that the numbers are deceptive, since taxpayers spend as much money planning to avoid the tax as the tax raises in actual revenue collected by the government. “This is a dead-weight loss. It doesn’t benefit the economy for our clients to pay us in consulting to avoid the tax. We aren’t producing anything for the economy.” Chris testified that the tax needs to be eliminated so that taxpayers don’t have to incurs expenses in that form of planning.

The full hearing can be found here and the written testimony is attached below.

House Ag written testimony 20170328

 

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Business-People-Columns-Discussion.jpg Large Corporations Pay the Tax Bill (on Audits) http://blogs.claconnect.com/agribusiness/large-corporations-pay-the-tax-bill-on-audits/ Mon, 03 Apr 2017 16:00:26 +0000 http://blogs.claconnect.com/agribusiness/?p=5676 The IRS issues a data book each year and in the recent 2016 data book, we can glean quite a bit of data about taxpayers returns.  One of the items they spend a fair amount of time on is the type and number of taxpayers who get audited and the amount of revenue raised by these audits.

On page 27, they list the percentage of audits performed by average gross income (AGI).  Over 84% of all returns filed listed AGI of under $100,000.  The average audit rate on these returns (excluding ones showing net losses) was less than .8% and for returns between $25,000 and $100,000 the audit rate was less than .5%.

For taxpayers with AGI between $100,000 and $500,000, the audit rate was still less than 1%.  Once AGI went over $500,000, the audit rate jumped to about 2% up to a million; 4.6% for million to $5 million; 10.46% for $5 million to $10 million and 18.79% for those with more than $10 million of AGI (now we can see why President Trump gets audited). Less than 1% of taxpayers make more than $500,000 (.82% to be exact).

Page 28 then provides data on the revenue raised by all taxpayers.  Total revenue during October 1, 2015 to September 30, 2016 was about $12.2 billion.  Of this amount, Large Corporations generated almost $9 billion of revenue.  The other $3 billion was generated by individuals at about $1.7 billion; estate tax returns at $382 million; payroll tax returns at $309 million and gift tax returns at $235 million.

As you can see, the IRS likely spends their efforts on auditing large corporations since that is where the money is at.  Of the total $1.7 billion generated by individuals, almost half of it came from taxpayers with AGI of $1 million or more.

On a personal note, I was finally able to go out and disk my ground this weekend to get ready to plant some lavender.  We have had a lot of rain this year but it has finally dried up enough to get into the field.  I may not be a “real” farmer, but it felt good to till the ground.  I will provide some photos over the next month or so of getting it into the ground.

 

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Senior-Giving-Grandson-Piggyback.jpg Ag Groups Did Not Go Far Enough! http://blogs.claconnect.com/agribusiness/ag-groups-did-not-go-far-enough/ http://blogs.claconnect.com/agribusiness/ag-groups-did-not-go-far-enough/#comments Fri, 31 Mar 2017 14:34:52 +0000 http://blogs.claconnect.com/agribusiness/?p=5674 32 Farm Groups jointly sent a letter to the House Ways and Means Committee dated March 29, 2017.  This letter asked for Congress to repeal the estate tax AND keep basis step-up for farm families.  They noted that the tax laws passed in 2012 had helped American Farm Families retain their farms due to the about $11 million of joint assets not being subject to estate tax.

However, their other point was to ask for Congress to retain the basis step-up that heirs receive when they inherit property.  As an example suppose Farmer Sue owns land she bought 40 years ago for $100,000.  It is worth $1 million when she passes away.  The heirs will owe no estate tax and will get to reset the land cost basis at $1 million.  This means they can sell the land for $1 million and pay no capital gains tax.  It does not matter what Sue paid for it.

This is a very powerful income tax provision for our farmers.  However, in my opinion, the letter did not go far enough.  One option that is being floated around in Congress right now is to implement a capital gains tax at death similar to the Canadian tax system.  This means in our example of Farmer Sue, in the year that she passes away, her final income tax return would show a gain of $900,000 on her farm land.  The heirs would have to pay capital gains tax on this gain, but they would get a step-up to $1 million on the land.

I believe that the letter should have asked for Congress not to consider implementing a capital gains tax at death too since a capital gains tax actually provides for a step-up in basis, but not the way that most taxpayers would appreciate.  We will keep you posted.

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