Taxes

Inside The Tax Return of Your Farm's Future

Thu, 09 Apr 2026 14:31:55 GMT

The traditional process of preparing agricultural tax returns has long been defined by manual data entry and the complex reconciliation of income. However, the integration of artificial intelligence into financial systems is ushering in a more sophisticated era of tax management. For the modern farm, the future of filing lies in a seamless pipeline where software handles the heavy lifting of data organization, leaving the high-level strategy to human experts.

Comprehensive Data Integration

The foundation of a modern tax return is the accounting system. Platforms like QuickBooks, Xero or specialized farm management software are becoming increasingly autonomous. In the near future, these AI agents will do more than simply record expenses; they will analyze them in real-time.

With direct links to bank feeds and digital invoices, AI can categorize expenditures with precision. It can distinguish between capital investments, such as machinery or land improvements, and standard operating costs like seed and fuel. This continuous synchronization means by the end of the fiscal year, the financial records are already in a format that mirrors the requirements of a tax return.

Automated Document Reconciliation

A significant portion of tax preparation involves matching — ensuring the farm’s internal records align with the documents issued by third parties. A preparer of a farm tax return may spend more time making sure all of the income is in the right box then planning to optimize the income tax level.

AI is uniquely suited to handle this high-volume verification. The system can automatically ingest Form 1099-PATR (cooperative distributions), 1099-G (government subsidies) and other Form 1099s and W-2s and verify them against recorded deposits.

If a document is missing or a figure does not match the ledger, AI identifies the specific discrepancy immediately, allowing for a targeted correction rather than a manual search through months of records.

The Role of Human Oversight

While AI provides the technical framework for the return, the final stage remains firmly in human hands. Once the software has mapped the data to the appropriate tax schedules, it produces a comprehensive draft for professional review.

This allows the farmer or a tax consultant to transition from a data entry role to a strategic advisory role. Instead of spending hours verifying line items, the human reviewer can focus on critical tax planning decisions including accelerated depreciation choices or income averaging that require professional judgment and an understanding of the farm’s long-term goals.

The result is a more accurate, defensible and efficient tax filing process. By automating the clerical aspects of the return, AI allows agricultural producers to maintain focus on their operations while ensuring full compliance with the evolving tax laws.

How the $15 Million Estate Tax Exemption Changes Your Farm Succession Strategy

Mon, 26 Jan 2026 20:01:09 GMT

The world of estate planning for farmers has changed dramatically after the passage of the One Big Beautiful Bill Act. This permanently increased the lifetime gift and estate tax exemption to $15 million indexed starting Jan. 1. With the federal estate tax exemption at historically high levels, most family farms are no longer at risk of paying federal estate tax. However, this shift has brought a new focus to income tax planning and the importance of preserving the step-up in basis at death.

Understand the Step-Up in Basis

When a person passes away, the value of their property is generally reset to its fair market value at the date of death. This is known as a “step-up in basis.” For farm families, this is a crucial benefit. Farmland and other agricultural assets often appreciate significantly over time. If heirs inherit these assets, they receive them at the new, higher value. This means that if they later sell the property, they will owe little or no income tax on the appreciation that occurred during the original owner’s lifetime.

Why Estate Tax Is Less of a Concern

With the current high exemption, only the largest farm estates face federal estate tax. For most families, the bigger risk is not estate tax; it’s the potential for large income taxes if the step-up in basis is lost. This can happen if assets are given away during the owner’s lifetime, rather than being passed on at death.

The Pitfalls of Lifetime Gifting

Many farmers consider making large gifts during their lifetime, worried that the estate tax exemption will drop in the future. While this can be a good strategy for very large estates, it can be costly for smaller farm operations. When assets are gifted during life, the recipient takes over the original owner’s basis, which is often much lower than today’s value.

If the recipient later sells the property, they could face a significant income tax bill. In contrast, if the property is inherited, the basis is stepped up to current value, minimizing or eliminating income tax.

Likely the best asset to gift during lifetime is farmland that will be retained in the family for multiple generations. The step-up in this case is not as valuable because we can’t depreciate farmland, and if it is not going to be sold, the heirs are not worse off. Plus, appreciation in farmland can be very volatile and could cause the farm couple to owe estate tax.

Hidden Cost of Gifting Negative Capital

Many farm operations are structured as a partnership for income tax purposes and farms with debt will typically create what is called a negative capital account and, in many cases, this can easily exceed $5 to $10 million for larger farm operations. Gifting any interest in these partnerships during a lifetime will create ordinary income to the farmer because the “debt” eliminated exceeds the basis in the partnership’s assets, which is typically zero. Whereas holding until death eliminates the tax for their heirs. However, a drawback is that the older generation might still be on the hook for the debt until they pass.

For the vast majority of farmers, estate tax planning is now about smart income tax planning. Preserving the step-up in basis at death can save heirs substantial taxes and help keep the family farm in the family. Careful planning today can help protect your family’s legacy for generations to come.

Paul Neiffer has been tracking the latest in tax policy and government programs. Learn more about what you should factor into your farm business and potential tax implications at Top Producer Summit, Feb. 9-11 in Nashville. View the agenda and register today !

Plan for Now, Adjust Later: Create Your Estate Plan Before It's Too Late

Wed, 22 Oct 2025 17:05:38 GMT

Nobody wants to think about death, but it’s something Polly Dobbs, an estate planning and wealth transfer attorney with Dobbs Legal Group LLC, thinks about every day.

“When I was a new lawyer, I was so nervous to say dead or death,” Dobbs recalls. “I was in a meeting with a partner and his client once when I stumbled over something and said, ‘in the unfortunate event you should pass away.’ After that meeting, the partner yanked me out in the hallway and said, ‘Stop stuttering. Just say when you die. It’s not if, it’s when.’”

She’s been dealing in death ever since, but she says that perspective allows her to serve her clients better.

“What if you got hit by a bus tomorrow?” Dobbs asks. “You should have a plan in place that fits today’s circumstances. If your grandson is playing with John Deere toys in the sandbox, let’s not create a succession plan that hinges on that grandson coming back to farm. Let’s have a plan in place that fits right now, in case you die tomorrow. If you don’t die and you get to see how those grandkids turn out and which direction their lives take, you can adjust that plan.”

People often think they can figure out their estate plan later – when they are older, richer, sicker, free from debt and the list goes on.

“Too often, people don’t have a plan, and they end up dying before they’ve got it just how they want it,” Dobbs says. “Have something that fits for today and dust it off as needed.”

What Should Drive Decisions?

When it comes to estate planning, Dobbs says there is no cookie-cutter-approach.

“You can’t copy what your neighbor did,” she says. “It has to be customized for your family, your facts, your assets, your goals, your family members and your farm.”

She often challenges farmers with tough questions like should your off-farm kids get bought out?

“Should they get bought out of equipment, improvements, grain bins, shops, shed and all of the silver things that we build on top of gravel lots to use in production agriculture?” she asks. “Do you feel like your off-farm heirs are entitled to a share of these operating assets? If so, fine. If not, that’s OK, too.”

Part of what Dobbs does is give permission to people to treat their children differently and to define their children’s inheritance.

“It’s not necessarily one quick check after an auction after your funeral,” she points out. “It is absolutely fine to treat your children differently. I preach over and over again that fair does not mean equal. There is no law that says the columns for your children must tally to the penny and be exactly equal with the assets they receive at your death. You’re aiming for a fair balance, and you define what is fair.”

Ultimately, she says, it comes down to peace of mind when you lay your head on the pillow. Do you have a fair plan in place?

Talk Now, Don’t Wait

Communicating the estate plan during your lifetime is very important, but it’s often the step that farmers fail to complete. She says transparency helps avoid entitlement.

“When someone thinks they’re going to get a certain amount of the value of your assets, they’re already calculating it and counting on it,” she says. “After your death, if the plan is different, that’s when the entitlement rears its head.”

She emphasizes the details must be defined by the farmer.

“A lot of my clients would rather put their head down and have the plan unveiled after death,” Dobbs says. “I understand that’s challenging. But it’s far better to have transparency and throw everything out on the conference room table so you can shine a light on it and talk about it.”

In addition to getting all the family in the room, Dobbs believes there should be more than one adviser at the table at a time.

“This is how you get the best plan, and you will always have a better plan if your advisers speak to each other,” she adds. “There is this falsehood out there that you need to stop your lawyer from talking to your accountant because that means they’re both charging you at the same time. I promise it will always be cheaper in the end, and a better plan, if your advisers talk to each other.”

Touchy Subjects

One of the sensitive subjects many farmers are dealing with today is the issue of sweat equity and treating it like deferred compensation, she says.

“When we have a successor coming in, depending on how long that successor has been working side by side with the senior generation, they’ve earned something,” Dobbs says. “We’re not talking about giving them a handout. If we give them a discounted price, or we give them assets off the top as a part of the succession plan or part of the estate plan, that’s not a handout.”

Deferred compensation says that if a young person had gone to work in a factory right out of school, they would be earning and investing in a 401K or perhaps stock compensation. They probably would have health insurance and HSA accounts that most family farms just don’t have, she explains.

“When the senior generation is putting together their succession and estate plan, consider the benefits the successor gave up by not working off farm,” she says. “Having some sort of benefit, discounts, family-friendly terms in the succession plan and in the estate plan should be considered deferred compensation.”

Read More:
Tax Acts and Estate Plans: What You Need to Know About the Changes for 2026

One Big Beautiful Bill Passes, What Does It Mean for Dairy Farmers?

Tue, 08 Jul 2025 15:00:00 GMT

After passing the “One Big Beautiful Bill act” (OBBB) last Thursday, the American dairy farmer has new legislation to hopefully help aid prices, offer tax relief and boost current insurance programs. Now that the dust has settled and the ink has dried, here is a closer look at what will affect the average dairy producer going forward.

The OBBB first and foremost extended the Dairy Margin Coverage (DMC) through 2031. This will ensure that producers have no gap in the insurance coverage that helps support income through the RMA. There are a few key changes made to make it a little more attractive to the producer such as changing the Tier 1 coverage limit from 5 million to 6 million pounds of milk per farm. As production per cow increases and farm sizes grow, this 20% increase was seen as necessary to support the farms that feed us. Another important change is farms can now use the highest production year from 2021-2023 as their baseline. There is also a 25% discount for producers to commit on multiple year enrollment on their premiums.

In an effort to ensure transparency for Class III and IV milk, both the House and Senate agreed that requiring a biennial USDA cost survey of dairy processors should be mandatory. The goal is to better align make-allowance estimates with timely real costs of producing cheese, butter and nonfat dry milk so the processor has less marketing power and help ensure the long-term pricing fairness.

As many dairy producers also have row crops, there are many benefits shared by extending the commodity and risk management programs like ARC and PLC as well. Higher payment caps (12.5%), higher ARC coverage (90%), higher reference prices and the ability to update base acres are a few of the highlights to help farmers.

There are many tax benefits on this bill as well. One key change is allowing farm implements to be deducted in full year one. Making it no longer a requirement to deduct large equipment purchases over several years. This puts the financial decisions in the farmer’s hands for how they want to expense large purchases. The bill also made the Section 199A deduction permanent to deduct up to 20% of business-related income as well as increasing the small business expense threshold.

For our future family farms, there are provisions that allow death tax exemptions which are now permanent. It increases the doubled Death Tax exemption which will aid in passing down farms and assets to the younger generation. While the new farmers are getting started, they have now increased the Beginning Farmer premium subsidy which helps cover a part of the cost of crop insurance and extended it from 5 to 10 years of aid.

On the animal health front, the bill ads verbiage that the USDA must spend $233 million per year on animal disease research and response efforts. This pumps significantly more money into the National Animal Disease Preparedness program as well as research in the vaccine production. With all eyes on screwworm lately, this is important for response time and veterinary preparedness to help diagnose faster as well as aid in the training of state responders on all diseases but highlights the importance of controlling threats such as new world screwworm.

While there are imperfections in all government programs, the aim of this bill was to help the American farmer and to support the family farm as well as the communities around them. We’ll learn more as time goes on about the good and the bad this bill brings but the intentions of the bill are clear and the benefits to the dairy farm, while subtle could be what makes the next five years a little easier on dairy farm economics.

Sarah Jungman is a commodity broker with AgMarket.Net and AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Sarah’s office is located in Winterset, Iowa and she may be reached at 515-272-5799 or through the website www.agmarket.net .

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Breaking Down the Biggest Differences in the Big Beautiful Bill Proposals and Potential Impact on Agriculture

Fri, 20 Jun 2025 14:14:35 GMT

Senate republicans are racing against the clock to finish their version of President Donald Trump’s Big Beautiful Bill. As the Senate continues to roll out its versions of the reconciliation bill, there are some differences between the House and Senate proposals when it come to agriculture.

The main variations come down to changes in the tax provisions, but it’s key to note proposed changes to the farm safety net are similar in both the House and the Senate.

What’s Next?
The House and Senate will now need to work out their differences in the two versions of the Big Beautiful Bill. President Trump said he wants to sign the legislation on July 4, but many reports cast doubt Congress can meet that approaching deadline. Politico even reported this week the Senate GOP’s version of the bill is “facing major headwinds in the House.”

Read More: Big, Beautiful Bill: What’s in it for Agriculture?

Farm CPA Paul Neiffer believes the July 4 deadline isn’t likely as the debate heats up, but he still remains optimistic the bill is close to the finish line.

“I think July is the date, but not July 4,” Neiffer says. “They’ll get it done before the August recess. I think they’re actually pretty close. The media out there talks about how they’re really far apart on Medicaid and state and local taxes. But I think when push comes to shove, the president has a lot of clout, and they’ll come up a compromise. So, I’m pretty optimistic they’ll get it done.”

Weighing the Differences Between the Senate and the House
Neiffer says he would grade the Senate’s overall budget reconciliation proposal as a “B” for ag, which is slightly below how he rated the House’s proposal. One reason is what the Senate is proposing for Section 199A:

The Senate has a Section 199A deduction of 20%, while the House’s version is 23%.
Both the House and Senate are calling for 100% bonus depreciation, but the Senate’s would be permanent. The House’s version would expire at the end of 2029.

“With the Senate making that permanent, that’s a really good deal for ag,” Neiffer says. “They would now have some certainty all of the assets that a farmer purchases — combines, tractors, buildings and everything but land — they can deduct 100%.”

Neiffer says another difference is on state and local tax deductions.

The Senate is keeping the current $10,000 deduction and reducing the benefit of the pass-through entity tax deduction.
The deduction is at the $40,000 level in the House and retains the pass-through entity deduction in full for farmers.

Beefed Up Farm Safety Net
Under the Senate’s version, Neiffer says farmers would be paid the higher calculated payment rate under Price Loss Coverage (PLC) or Agricultural Risk Coverage (ARC) during the 2025 crop year.

The Senate Ag Committee’s proposal also increases the reference price formula, and instead of having a floor based on 85% of the Olympic moving average marketing year price, the Senate is proposing an increase up to 88%.

“That actually results in a boost on the corn PLC price by about $0.15. And I think on soybeans, it’s about $0.35,” Neiffer says. “So, that’s very beneficial. Now, I was hoping they were going to boost the ceiling. Right now, the ceiling is 115% of the EFR. And they had talked last year about boosting it up to 120%. I think that was too much for the budget, so they kept it at 115%.”

The Differences on 45Z
When it comes to the 45Z Clean Fuels Production Tax Credit, there’s one major difference. The Senate allows foreign feedstocks to be eligible for the credit, just with a 20% “haircut.”

In the House’s version, only feedstocks produced or grown in the United States or Canada qualify for the tax credit. That change would help detour some of the used cooking oil imports from China.

“To me, a 20% haircut means there’s got to be some senators out there maybe pandering to somebody that I don’t know about. Because really, they should eliminate the whole foreign feedstock and just give you a credit based on domestic production,” Neiffer says.

The Bigger Issue with 45Z
Peter Meyer of Muddy Boots Ag says no matter what version of the 45Z tax credit makes the final cut, there’s a bigger issue at hand. The Trump administration needs to provide guidance and rules around 45Z — something the Biden administration failed to do during its time in office.

“We’re just clamoring for clarification, right? All I want is clarification. They can say all they want about extending this to 2030. That’s great. That’s a positive. But tell me what the rules are. We still don’t know the rules,” Meyer says.

Meyer knows there’s been so much talk about 45Z and sustainable aviation fuel, but little action in terms of demand. Meyer says the lack of action in terms of demand is largely because there’s no clarity around the tax credit.

“We need more demand for the ethanol they’re producing,” Meyer says. “Soybean oil can be converted to sustainable aviation fuel. But you just cannot produce sustainable aviation fuel without a credit. You can’t.”

What's Missing in the Big Beautiful Bill When It Comes to Agriculture?

Tue, 10 Jun 2025 17:04:35 GMT

The fate of President Donald Trump’s One Big Beautiful Bill is with the Senate. The 1,000-page bill includes nearly $4.9 trillion in tax breaks and budget cuts, and is also packed with priorities that cover agriculture . That includes one provision that will allow community banks to pass along lower interest rates to ag producers. However, not all of agriculture’s wants are in the bill.

American Farm Bureau Federation (AFBF) recently dug into the details of the massive bill being debated in Washington. According to the nonpartisan Congressional Budget Office (CBO), the House-passed version of the One Big Beautiful Bill Act would increase spending for agriculture-facing programs by $56.6 billion over the next decade. Of that increase, $52.3 billion is for enhancements to the current farm safety net, including higher reference prices for ARC and PLC, and $4.3 billion is for trade promotion, livestock biosecurity, research and rural school funding.

According to AFBF, the One Big Beautiful Bill Act would increase agriculture-facing programs spending by $56.6 billion over the next decade (fiscal years 2025–2034).

(American Farm Bureau Federation (AFBF) )

According to AFBF, here’s what the current version of the bill includes for farm bill provisions (Title 1, Subtitle B-Investment in Rural America):

Updates and funding for many core agriculture titles through 2031.
Enhancements to safety nets including ARC, PLC and Dairy Margin Coverage (DMC) through the 2031 crop year.
Increases to reference prices for major covered commodities between 11% to 21% under the farm bill provisions of the bill.
Addition of a reference price escalator mechanism beginning in the 2031 crop year, which AFBF says would increase reference prices by 0.5% annually on a compounded basis. That increase is capped at 115% of the original statuary value.
Permits for farmers to add up to 30 million new base acres
Updates to ARC by adjusting revenue guarantee and the payment cap beginning in 2025. That would increase the coverage threshold to 90% of benchmark revenue, and increase the payment cap of 10% to 12.5%.
Enhancements to the DMC program and an increase of Tier 1 coverage eligibility from 5 million pounds to 6 million pounds per farm.

Proposed changes to the safety net

(AFBF)

Changes to Conservation Programs
AFBF’s analysis of the reconciliation bill shows long-term funding authority for USDA’s major conservation programs will continue through 2031. That includes the Environmental Quality Incentives Program (EQIP), Conservation Stewardship Program (CSP) and Agricultural Conservation Easement Program (ACEP).

The levels are higher than what was included in the 2018 farm bill, but align with funding under the Inflation Reduction Act (IRA), making these programs permanent baseline versus new program expansions.

AFBF says the bill doesn’t retain all IRA-funded initiatives.

“For example, it rescinds $450 million in unobligated IRA funds that had been allocated for competitive forestry grants to non-federal landowners. According to the Congressional Budget Office, these adjustments collectively result in a net reduction of $1.8 billion in conservation spending over the next decade,” said the AFBF analysis. “The bill also renews smaller initiatives that were not funded in the last farm bill extension. This includes the Grassroots Source Water Protection program, which safeguards well water, and the Voluntary Public Access and Habitat Incentive program, which rewards farmers for opening land to hunting and recreation. In addition, the Feral Swine Eradication and Control Pilot Program, a vital initiative to combat over $1.6 billion in annual damages caused by invasive wild pigs, is extended with new funding through 2031.”

Focus on Trade
Another important element included in the House version of the Big Beautiful Bill includes establishing a new Agricultural Trade Promotion and Facilitation Program, which would be similar to Market Access Program (MAP) and Foreign Market Development (FMD), while also providing $285 million annually in permanent, mandatory funding through a separate account.

“Because the bill does not modify or replace MAP or FMD, which are typically funded at $200 million and $34.5 million per year, respectively, the new program effectively doubles USDA’s total trade promotion capacity,” said AFBF’s analysis.

National Pork Producers Council (NPPC) CEO Bryan Humphreys says the trade portion of the bill, as well as the tax provisions, are a “win” for livestock producers.

“We’re very pleased with what came out of the House version. We included in there were animal health priorities, some additional funding for MAP and FMD to promote our product internationally, and then, of course, the tax package was included in there on things like 179, bonus depreciation and estate taxes,” he says. “We are very pleased those were in there even if some of our other assets we need to be in the farm bill weren’t able to make it in there.”

Humphreys says the House version of the reconciliation bill includes funding for animal health priorities, including $233 million per year on animal disease prevention and response.

What’s Not in the Bill?
According to Humphreys, there’s one major priority that didn’t make it into the Big Beautiful Bill — and that’s provisions for Prop 12.

“We still need a farm bill to address Proposition 12 in California. At the end of the day, this is an issue that, as California continues to regulate outside of their borders, is not just a pork industry issue. It is an American agriculture issue,” he says. “We’ve been asking — along with the American Farm Bureau, Corn, Soy and others — for Congress to address this issue of California regulating farmers outside of their borders. And we still need that to be addressed.”

Humphreys says a farm bill is still needed to address Proposition 12 in California. But if a farm bill doesn’t happen this year, Humphreys says NPPC is exploring other options to do it.

“Even though there are other solutions for Proposition 12 and other potential vehicles out there that we’ll continue to explore with our friends on the Hill, at the end of the day, we still believe as American pork producers that America and the pork industry need a farm bill — a skinny version, a large version or whatever. We need to maintain that coalition not just for now, but for decades to come as well. We’re not ready to give up on that yet,” Humphreys says.

Renewable Energy In The Bill
Energy programs are another area of focus under the reconciliation bill. According to AFBF, USDA’s farm energy and biofuel programs are reauthorized through 2031 to spur renewable energy innovation in rural America. That would include the Biobased Markets Program, which is a program that promotes biobased products through federal procurement. It also addresses the Bioenergy Program for Advanced Biofuels, which provides payments to producers of biodiesel, cellulosic ethanol and other next-generation fuels.

Tax Provisions That Would Benefit Ag

Farm CPA Paul Neiffer calls the tax provisions within the House version of the bill “very favorable for agriculture,” rating them a 8 or 9 out of 10. Here’s why:

As of Jan. 20, farmers will have 100% bonus depreciation for the next four years
The Section 199A deduction that was at the 20% level will now be bumped up to the 23% level.
Cooperative deductions will still be included
Starting next year, Section 179 will increase to $2.5 million, up from $1 million
An increase in the gift tax exemption amounts to $15 million per individual and $30 million per couple, adjusted for inflation annually.

Neiffer say farmers who’ve built net worth through land or other assets, there’s a piece of the legislation that will also benefit them.

“The lifetime exemption starting next year will be $15 million, and it’s made permanent,” Neiffer says.

Lower Interest Rates for Ag Producers?

If the bill passes, agricultural producers could also see lower interets rates for loans. According to Jeff T. Kanger, president of First State Bank in Lincoln, Nebraska, there’s another provision that will allow community banks to pass along lower interest rates to ag producers and rural housing.

“The community banks have less tax exposure and can therefore pass along some interest savings to customers,” Kanger told AgWeb. “This provision is very important to a lot of our growers.”

It’s called the “Exclusion of interest on loans secured by rural or agricultural real property.” According to the provision text, it “allows for a partial exclusion of interest on certain loans secured by rural or agricultural real estate. Speciﬁcally, it allows for the exclusion of 25 percent of interest received by a qualiﬁed lender on any qualiﬁed real estate loan.”

What’s Next?
The Senate could roll out its version of bill later this week, which is expected to include changes from the House’s version that passed in May by one vote.

House Speaker Mike Johnson also said this week he still believes July 4 is a realistic target for passing President Donald Trump’s “big beautiful bill.”

The Best Time to Start Your Retirement Plan

Mon, 09 Jun 2025 19:35:34 GMT

Farmers historically have struggled to invest money in anything other than their farm operation. However, by investing in retirement plans including an IRA, a farmer can more easily save up for retirement and make the transfer to the next generation much easier.

The power of compounding is the financial seventh wonder of the world. Based on your annual investment return, you can determine how quickly your investment will double by dividing it into 72. For example, if you average 3% on your money, it will take 24 years to double. However, if you can earn 8%, then it only takes nine years.

The younger you start to invest, even small sums, the more money you will have at retirement. Let’s compare the results of placing $10,000 into a retirement account at either age 20 or 40.

The farmer who does this at age 40 and then pulls the money out at age 70 will have $100,627. However, the farmer who starts at age 20 will have $469,016, and if they can earn 10%, will have $1,173,909.

The cost of maintaining a solo 401k plan is very inexpensive and married couples can set aside at least $14,000 into an IRA each year. The fees on those accounts are minimal and you can make sure to invest in low-cost ETFs or mutual funds. High-cost funds could quickly reduce your returns substantially.

Most of the earnings will result in the last 10 years, so the sooner you get started, the more funds you will accumulate.

Risk Protection Benefits
There’s another big reason to make this investment. Funds in a retirement plan are fully exempt from bankruptcy, and we all know farming can be a very risky business. The full exemption does not apply to IRAs, but the amount that is exempt is fairly large.

This amount gets updated every three years. On April 1, 2025, the exemption amount was raised from $1,512,350 to $1,711.975 through March 31, 2028.

Most farmers have IRAs less than this amount, so it’s likely they will have a full exclusion if bankruptcy was to occur. Amounts rolled over from a 401k plan or other retirement account, including earnings associated on that account, are fully exempt.

In some states, IRAs are fully exempt or at least partially exempt.

The bottom line is to invest in an IRA or retirement plan. I hope you never need the protection, but it is a good insurance policy.

Big, Beautiful Bill: What's in it for Agriculture?

Thu, 15 May 2025 20:06:14 GMT

House Republicans are holding hearings this week about President Donald Trump’s “big, beautiful bill.” The bill could benefit agriculture, including positive tax provisions for farmers, an extension for 45Z and an increase in farm bill reference prices. However, potential changes to SNAP and putting more of the burden on states are also raising concerns.

Pieces of the overall bill passed both the House Agriculture Committee and the House Ways and Means Committee this week. Committee markup is the first test the provisions had to pass. The provisions from each committee will then be inserted into the overall bill.

The House Ways and Means Committee’s portion includes making 2017 tax cuts permanent, eliminating the estate tax and reducing taxes on interest income for agricultural loans.

Farm CPA Paul Neiffer calls the tax provisions very favorable for agriculture, rating them a 8 or 9 out of 10. Here’s why:

As of Jan. 20, farmers will have 100% bonus depreciation for the next four years
The Section 199A deduction that was at the 20% level will now be bumped up to the 23% level.
Cooperative deductions will still be included
Starting next year, Section 179 will increase to $2.5 million, up from $1 million
An increase in the gift tax exemption amounts to $15 million per individual and $30 million per couple, adjusted for inflation annually.

Neiffer say farmers who’ve built net worth through land or other assets, there’s a piece of the legislation that will also benefit them.

“The lifetime exemption starting next year will be $15 million, and it’s made permanent,” Neiffer says.

The draft legislation also includes an extension of 45z tax credit. Established by the Inflation Reduction Act that was passed in 2022, it provides a tax credit for the production and sale of low-emission transformation fuels.

Increase in Reference Prices

On Wednesday night, the House Agriculture Committee passed its portion of the budget reconciliation package, but not without debate around farmer interests versus food stamps.

According to the House Ag Committee, the provisions increase Price Loss Coverage (PLC) reference prices to levels proposed last year. Those include:

$4.10 per bushel for corn
$10 for soybeans
$6.35 for wheat

“Essentially, they took the proposal from last year and are going to stick it in this bill,” Neiffer says. “We’re going to have about a 10%-to-20% increase. Since it was effective immediately, I thought it might apply to the ’24 crop, but Jim Wiesemeyer reached out to let me know it’s likely going to apply for ’25. The problem I have with that, they were talking about immediate help for farmers, which if they’re applied to ’24, they’d be getting the help in October ’25. Now, if it’s applied to ’25, their help isn’t going to be until October ’26, at the earliest.”

In the proposal, farmers would also see payment limits increase from $125,000 per individual or entity to $155,000, starting with the current 2025 crop year.

Those in favor of the increase in reference prices on the House Ag Committee argue this is a vital lifeline for farmers at a time of great financial need.

“Since 2019, SNAP costs have skyrocketed from $60 billion to $110 billion annually, an 83% increase, while enrollment has grown from 36 million to 42 million,” said House Ag Committee Chairman Glenn “GT” Thompson (R-PA).

“The truth is our current farm safety net hasn’t kept up — it’s outdated and often it doesn’t even get triggered when prices drop,” says Rep. Zach Nunn, R-Iowa. “This is an investment that will provide predictability when prices fall and another provision to keep our crop insurance programs strong and intact.”

The Fight in the House Ag Committee Over SNAP

That includes a projected $290 billion cut to the Supplemental Nutrition Assistance Program (SNAP) over the next decade.

The plan also removes $290 billion from the program, redirecting some of that money to farmers by expanding support for commodities and crop insurance.

But Democrats on the committee spoke out against the cuts to SNAP benefits calling them a non-starter.

“The average SNAP benefit is about $6 per day. Let me say that again, $6 a day. You don’t build a life on SNAP. You build a bridge to the next paycheck,” says Rep. Angie Craig, D-Minn. “The cuts you are proposing to SNAP would be the largest rollback of an anti-hunger program in our nation’s history.”

Both the Committee’s portion of the legislation will also be rolled together into the bigger reconciliation package and must be reconciled with the Senate bill.

While it’s a long road until the complete bill is passed in Congress, Trump has said he wants this passed and plans to sign it on July 4.

Ag Groups React

The majority of ag groups support the tax provisions, saying this will be beneficial to farmers.

National Cattlemen’s Beef Association (NCBA) says the tax package must be approved by the House of Representatives as part of the reconciliation process.

“The Death Tax is a death warrant for family businesses and the top threat to family-owned cattle operations. NCBA has been working with members on and off the Ways and Means Committee for months to educate them about the needs of cattle producers and advocate for the tax provisions that are the most effective for cattle operations,” said NCBA President and Nebraska cattleman Buck Wehrbein. “This work would not have been possible without the broad participation we had in NCBA’s tax survey from producers, who detailed the struggles they have had with paying the Death Tax and what they would like to see in a broader tax package. This is a huge victory for grassroots advocacy and everyone that made their voice heard—from the producers that have not paid the Death Tax yet—to those that have paid it multiple times to avoid losing their livelihoods.”

Associations representing row crop farmers applaud the House Ag Committee’s push to adjust reference prices.

“We appreciate Chairman Thompson’s efforts to include key agricultural investments in must-pass legislation,” said Illinois farmer and National Corn Growers (NCGA) President Kenneth Hartman Jr.

However, the cuts to SNAP are a concern for others. The National Young Farmers Coalition, a group who says its vision is to create a future where farming is “free of racial violence, accessible to communities, oriented towards environmental well-being, and concerned with health over profit,” is against the proposed cuts.

“This budget proposal is a betrayal of the values that sustain our food system. These are not the investments young farmers need,” said Erin Foster West, Policy Campaigns Director of the National Young Farmers Coalition . “Instead of passing a bipartisan Farm Bill that builds resilience for farmers and families alike, this bill fast-tracks harmful cuts to nutrition programs that serve as both a safety net for families and a revenue stream for farmers. It trades long-term food security for short-term austerity.”

How Your Income Taxes Will Change This Year

Tue, 25 Mar 2025 14:14:15 GMT

The Trump tax cuts, officially known as the Tax Cuts and Jobs Act (TCJA) of 2017, have been a topic of significant debate since their inception. It appears the Republicans might have enough political capital to both extend the TCJA and enact additional tax cuts that could help farmers.

The major tax cuts that have helped farmers since 2017 include (but not limited to):

Reduction in most tax rates
100% bonus depreciation through 2022
Section 199A 20% net deduction on farm income
Doubling the estate tax exemption (currently $13.99 million)
Increasing the child tax credit to $2,000

However, there were also some provisions that penalized many farmers:

Limiting the state and local tax (SALT) deduction to $10,000
Eliminating the tax-free treatment of equipment trades
Reducing 100% bonus depreciation (there will be none starting in 2027)
Dropping the corporate tax rate to 21% (most farmers paid 15%, so this was a 40% tax increase)

The House Republicans passed a budget bill to allow income taxes to rise by $4.5 trillion over 10 years. The Senate is proposing to ignore the budget effect of making the Trump tax cuts permanent, and the House could go along with this proposal.

This effectively allows Congress to make the Trump tax cuts permanent and allows for an additional $4.5 trillion of reduced taxes in other areas such as:

Eliminating taxes on tip income
Eliminating taxes on social security income
Eliminating taxes on overtime
Eliminating estate taxes
Reducing the corporate income tax rate to 15% for domestic production

However, there are many provisions of the Trump tax cuts that some Republicans are not in favor of, such as the $10,000 cap on the SALT deduction. Eliminating this cap would cost about a trillion over 10 years. Most republicans are also not in favor of the Inflation Reduction Act “green” provisions and many of them will be repealed or reduced, that could include the Section 45Z fuel tax credit.

The bottom line is income tax law will change this year, and it will be dramatic. Our crystal ball right now is fairly cloudy as to the final provisions, but for most farmers the changes will likely be beneficial.

The Tax Man Cometh To The Farm

Wed, 19 Feb 2025 16:44:43 GMT

Everyone can benefit from a practical reminder from time-to-time. In this case, Paul Neiffer wants to remind farmers that the 2017 Tax Cuts and Jobs Act is set to expire at the end of 2025.

“We’ve had these tax cuts for eight years now, but farmers may not be thinking about this and what it could mean for them,” said Neiffer, principal of FarmCPAReport.com and a Top Producer columnist.

Neiffer addressed the topic of what farmers need to know now and address from a tax standpoint during the 2025 Top Producer Summit in Kansas City.

“Certainly, farmers are aware of the lifetime estate tax exemption dropping in half after this year. But I think a lot of these other provisions that would hit them, they’re probably not quite as aware of them,” he said.

Neiffer highlighted three provisions he believes U.S. farmers are likely most interested in seeing extended or made permanent. They include:

1. The 100% Bonus Depreciation. Neiffer said he believes the 100% provision will be made permanent, though it’s currently only 40%.

“We think that will come back to farmers,” he said. “The practical benefit is when they purchase equipment or farm buildings they’ll be able to deduct 100% of that item in the year of purchase. Also, there is a chance that trade-in of farm equipment will be similar to the old rules and non-taxable in most situations.”

2. The increase in the lifetime exemption for estates. If the current law is left unchanged, as of Jan 1, 2026, the present lifetime estate and gift tax exemption will be cut approximately in half. It currently is almost $14 million.

Neiffer is optimistic about the exemption. “I think the likelihood on the estate exemption is very good. I think that’ll stay at least at the current level,” he said.

3. The Section 199A Cap. This provision allows individuals, trusts and estates with pass-through business income to deduct up to 20% of qualified business income (QBI) from taxable ordinary income. Schedule F farmers are also granted the 20% deduction.

While Neiffer said there is some bipartisan support in Congress for extending the Section 199A deduction beyond 2025, he is ambivalent about that happening. “With that 20%, it would be a lot more costly to enact,” he noted.

Practical Next Steps Farmers Can Take
Looking ahead, Neiffer said he believes the likelihood of having a major tax bill before the end of 2025 is slim. At best, the bill would be ready by November or December.

For that reason, Neiffer’s recommendation to farmers is for them to plan on pushing income into 2026 but to have the flexibility to bring that income back into 2025.

“The reason is if the tax cuts don’t get extended that means 2026 tax brackets are going to be a lot higher,” Neiffer explained. “So, we would want to bring income into 2025. Now, farmers have the ability to do that using deferred payment contracts and some other elections that they can make – but only if they plan ahead accordingly. They definitely want to make sure they do that,” he added.

Your next read: It’s Tax Time: Your Guide To Calculate Farm Income

It's Tax Time: Your Guide To Calculate Farm Income This Year

Mon, 27 Jan 2025 22:19:26 GMT

Various farm programs as established by the Farm Service Agency have various limits based on the farmer’s adjusted gross income (AGI). However, some of these programs also allow for either a double payment amount or an increase in the payment limit.

For example, the Emergency Relief Programs allowed for an increased payment limit if more than 75% of your AGI is from farming. Remember, AGI is income after expenses. Most farms now have a fair number of farm equipment trades, and they usually show net gains on Form 4797 and a net loss on Schedule F.

Are farmers allowed to net those two items and show net income from farming? The answer is it depends.

If other farm AGI is greater than two-thirds of total AGI, the farmer is allowed to include those equipment gains as part of farm income. Most farmers are not able to meet that definition.

USDA Versus IRS Farm Income Definitions
Our understanding is that USDA has this rule because the IRS does not consider equipment gains to be farm income. However, the IRS changed the rule a few years ago as a result of the Tax Cuts and Jobs Act and now automatically considers equipment gains to be farm income. We hope USDA will update their AGI rules to reflect this.

There are many sources of income that USDA considers to be farm income that the IRS does not. Some of them are:

Cash rent income
Gains on selling farmland
Processing, storing and transporting farm goods
Income from renewable energy

These items are not farm income for IRS purposes, but they are according to USDA.

One good change is the new economic aid package that was passed at the end of 2024 allows for a higher payment limit if 75% of your gross income is from farming and not based on AGI. Gross income is primarily your sales of ag products without any reduction for farm expenses. However, if you purchase ag products to resell, you likely will need to reduce your income by those costs.

Because it is based on sales and not AGI, it is going to be much easier for a farmer to be a “farmer” under this requirement. Even having equipment gains not treated as farm income might not hurt the farmer.

An Example
Roxanne has an average sale of farm products of $2 million. She has equipment gains of $400,000 and other non-farm income of $50,000. Her farm gross revenue is 81.6% of total revenue. She qualifies as a farmer. If equipment gains are treated as farm income, her farm percentage would increase to 98%.

Gross income is an average of 2020 to 2022 items on your income tax return. However, we must wait on USDA for regulations to determine what they consider to be farm income. Either way, gross revenue is much easier for the farmer to be a “farmer” than AGI.

‘Biggest Bill in American History’ Has May Deadline Among GOP Leaders; Tariffs Could Help Pay For It

Mon, 06 Jan 2025 18:47:04 GMT

Speaker Mike Johnson (R-La.), in an interview on Fox News’ Sunday Morning Futures, announced plans to pass a sweeping bill addressing President-elect Donald Trump’s priorities, including border security, tax cuts, and deregulation, by May. Johnson said he wants this bill done by the House the first week in April, with the goal of getting it to Trump’s desk by the end of the month, though Johnson acknowledged yesterday that the bill could slip into May.

Channeling Trumpian lingo, Johnson has called it “one big, beautiful bill.” Using the Senate’s reconciliation process, Republicans aim to bypass Democratic opposition, but internal GOP divisions over the bill’s scope and timeline may pose challenges.

Key Elements of the Bill and Funding

Key elements of the bill include funding for mass deportations, extending 2017 tax cuts, addressing the debt ceiling, and dismantling federal regulations. Other reports note it will include unprecedented spending to tighten borders and remove people here illegally, energy deregulation. The bill reportedly will include Trump’s popular “no tax on tips” campaign promise.

There will be unprecedented spending cuts to help pay for it all. Republicans are searching for ways to pay for parts of the plan via spending cuts plus energy revenue. (See next item for some potential details of cuts.)

Some GOP Opposition

Sen. Lindsey Graham (R-S.C.) called for prioritizing border security separately, criticizing the “cram-it-all” approach. Sen. Ron Johnson (R-Wis.) suggested a two-step process to manage legislative complexity.

Urgent Timeline

Johnson emphasized the importance of swift action, targeting Trump’s signature by May, ahead of the 2026 midterms.

Of Note:

Trump publicly voiced support for this approach in a social media post Sunday. Trump said Republicans must “Secure our Border, Unleash American Energy, and Renew the Trump Tax Cuts.” The president-elect also called for his “no tax on tips” pitch to be in the bill. Trump said the cost of these policies will “all be made up with tariffs.” Republicans face internal debates on whether consolidating or segmenting Trump’s priorities is the most viable path forward. Trump’s 2017 tax cuts are set to expire at the end of this year without legislative action.

Other Proposals to Reduce Spending

Republicans are considering several programs and areas to cut funding or reduce spending to help pay for tax cuts in 2025. Here are some possibilities being mentioned:

Welfare Programs

Medicaid: Republicans are considering implementing caps and deep cuts to federal Medicaid funding through block grants and/or per capita caps. This could result in significant reductions in Medicaid spending.
SNAP (Food Stamps): There are proposals to roll back funding for the Supplemental Nutrition Assistance Program by limiting what items recipients can purchase and potentially adding work requirements.

Environmental Regulations

Republicans are likely to repeal environmental regulations implemented by the Biden administration, which could free up federal funds. This includes:

Repealing the Inflation Reduction Act
Lowering energy costs and increasing oil and gas production

Green Energy Subsidies

Observers indicate that Republicans are likely to look at cutting green energy subsidies from the 2022 Inflation Reduction (Climate) Act to help balance out the cost of their new tax proposals. But biofuel program stakeholders in the energy and ag sectors, and farm-state lawmakers, do not want to alter tax incentives programs like 45Z.

Federal Spending Cuts

The incoming administration is expected to cut federal spending to programs they don’t prioritize, such as:

Environmental regulations
Prescription drug coverage in federal health care programs
Adding requirements to welfare programs

Tariffs

Trump has proposed adding tariffs to imports to supplement lowering taxes for Americans, although many economists have opposed this idea.

Trump’s aides are exploring a tariff plan targeting critical imports from all countries, according to the Washington Post. The proposal represents a shift from the broader 10%-20% universal tariffs suggested during Trump’s campaign. Economists warn such measures could inflate consumer prices and disrupt global trade patterns. However, the WaPo story “incorrectly states that my tariff policy will be pared back,” Trump said on Truth Social. “That is wrong.” Trump added that the sources in that story don’t exist.

Other Potential Areas

Reducing funding for the Internal Revenue Service
Cutting clean energy programs that benefit conservative districts
Implementing a financial transaction tax on stock, debt, and derivatives transactions
University endowment tax hike — Some Republicans have floated boosting the 1.4% tax on endowments to as high as 35% for certain universities

While these are areas Republicans are considering, the specific cuts and their extent may change as negotiations progress and the political landscape evolves.

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Tax Turbulence: How Sunsetting Provisions Could Change Your Bottom Line

Thu, 19 Dec 2024 15:47:00 GMT

With 30 tax provisions set to expire at the end of 2025, the tax liabilities for family farms could increase at a time America’s farm families can ill afford any additional hits to the budget. Uncertainty surrounds the 2017 Tax Cuts and Jobs Act (TCJA) and American Rescue Plan Act (ARPA)–especially as a new administration is in route to the White House.

“The cost of the TCJA is significantly higher than was originally estimated in 2017. The newest estimate we’ve seen is that a full extension of the TCJA is going to cost $7.75 trillion through 2035,” says Pinion’s Beth Swanson. “With the budget reconciliation process and the expected cost, we’re worried that Congress is going to have to pick and choose which provisions of the TCJA are going to get extended next.”

According to research from USDA ERS, the impact of these expiring federal income tax provisions would increase tax liabilities for farm households by almost 9 billion. That’s a $2,200, or 12%, average increase per farm.

Increase in tax liabilities resulting from expiring Tax Cuts and Jobs Act (TCJA) provisions that would increase tax rates, decrease deductions, and restore personal exemptions.

(USDA, Economic Research Service and USDA, National Agricultural Statistics Service, 2018–2021 Agricultural Resource Management Survey)

Broken down by farm size, that looks like:

Low sales farms: Tax increase of about $700
Moderate sales farms: Tax increase of about $2,300
Very large farms: Tax increase of nearly $28,000

“Interestingly, in percentage terms, moderate sales farms are expected to have the greatest increase in tax liabilities at about 16%,” says Tia McDonald, USDA ERS. “They’re in an in-between area where they’re not quite getting some of the exemptions that higher income folks can take advantage of like bonus depreciation and even 179.

Farm CPA and Top Producer columnist Paul Neiffer adds, “Another part of it is the percentage increase of going from a 12% tax bracket to a 15% tax bracket. A lot of those moderate-income farmers also have 2, 3 or 4 kids that, under the current rules, qualify for the $2,000 tax credit, which is going to drop down to a $1,000 tax credit.”

As far as which provisions are the most important for farmers and ranchers, McDonald says the biggest impact will come from be provisions providing reduced individual income tax rates, an increased standard deduction, a cap on state and local tax deductions, and the elimination of the personal exemption, which would create an increase in total tax liability of $4.5 billion for all farm households.

“The reason for that is that it touches almost every farm household. So, the reach is quite broad,” she explains.

The Qualified Business Income Deduction
The second most important provision set to expire that McDonald lists is the qualified business income deduction, which provides farm households with positive business income a deduction equal to 20% of their qualified business income.

“Approximately 40% of low sales farms to almost 80% of very large farms receive that qualified business income deduction,” McDonald says.

Estimated Impact of Expiring QBI Deduction

(USDA, Economic Research Service and USDA, National Agricultural Statistics Service, 2018–2021 Agricultural Resource Management Survey)

Referring to the results of a recent survey, Kent Bacus of National Cattlemen’s Beef Association (NCBA) says even though this deduction hasn’t been around long, it’s been valuable to producers.

“As far as the 199A qualified business income deduction, with that being relatively new, we still had over half of the [1,200] respondents who have used it, and they’ve considered a very important tool,” Bacus says. “I think that’s something that we want to see continue in the next package.”

Child Tax Credit and Bonus Depreciation
McDonald says additional provisions, such as the child tax credit, the estate tax exemption, alternative minimum tax provisions and bonus depreciation, will likely have less of an impact on tax liabilities overall.

“Those are really targeted toward higher income farm households, so they don’t have quite the reach,” she explains.

Swanson, however, says the loss of bonus depreciation would still be notable for many.

“For bonus depreciation, sunsetting is a concern – especially because Section 179 isn’t really a one-for-one trade. With commodities that are heavier on equipment, producers tend to use bonus depreciation year after year,” Swanson says. “It’s more than just a timing difference. The loss of bonus depreciation will be a significant annual effect to many of the farmers that we work with [at Pinion].”

This is echoed by the results of NCBA’s survey as well.

“When you look at Section 179 and bonus depreciation, one of the key things we ask is, ‘If these tools weren’t available, how would that impact you?’,” Bacus says. “What we found is without access to these tools, about 25% to 30% of the respondents would have had to pay an additional $20,000 in taxes.”

The Timeline
Once the new administration is in place, Bacus believes we can expect Congress to act quickly.

“We have new leadership in the Senate and new leadership in the administration. They’re going to try to prioritize a couple of key things that will be important to the new administration, and a couple of those are going to be border security and taxes.” Bacus explains. “We’re looking for a lot of movement in those first 100 days.”

But Swanson says it’s possible that movement may not be focused on extending these provisions in the beginning.

“We are worried about President-elect Trump’s varied tax commitments and the distraction those might provide to getting the TCJA extended,” Swanson says. “I think the best thing we can do is wait and see. We will hope that the legislative process goes fairly quickly and Congress is able to avoid all of those distractions that may prevent us from getting TCJA expansion done.

Once these provisions are in focus, Bacus believes there are a few avenues it could take.

“With those tight margins in the House and the Senate, you are going to have to have some kind of bipartisan package that comes together. The big question is, are they going to update the tax code? Are they just going to extend it? Or will we potentially see a default if all these efforts fail,” Bacus says. “I think it’s unlikely that the efforts have failed, but the aggressive timeline that’s been proposed is always subject to the minutia and the swamp nature of Washington. That tends to slow things down.”

Neiffer expects an extension with a few key changes.

“I don’t think we’re going to see a permanent TCJA,” Neiffer says. “We’re going to see another three to five or five to seven years. Some of the provisions may become permanent and some will disappear. And you’re going to see some new ones come into effect.”

Your Next Read: Will the Tax Cuts and Jobs Act Get a Second Life?

How To Leverage The 0% Tax Bracket

Wed, 27 Nov 2024 16:53:05 GMT

There are many situations where farmers can sell assets they have held for over a year and owe no federal income taxes on the gain.

Capital gains that are taxed in the old 15% tax bracket are actually taxed at a zero rate. For 2025, single taxpayers hit the top of this tax bracket at $48,350 of taxable income. Married couples top out at twice that amount, or $96,700.

Remember, these taxable income numbers are after itemized deductions or your standard deduction. The standard deduction for 2025 increases to $30,000 for a married couple, which means a farm couple could have long-term capital gains of $126,700 and owe no federal income tax (assuming they have no other income).

This can have great planning opportunities.

First, if a farmer has a C corporation and a personal income that is low for the current year, then paying a dividend from the corporation makes sense because the divided will be tax free. Plus, the corporation does not even need to pay out any cash. It can instead elect to distribute a “deemed” dividend, which is simply a paper entry to debit dividend and credit paid in capital. This also has the result of increasing the tax basis in the corporate stock, which can be helpful if the corporation is liquidated or converts into an S corporation.

Capital Gains Planning Example
Jim and Sara estimate their taxable income for the year will be about $50,000. Their corporation issues a deemed dividend to them of $75,000 because they would like to keep the cash in the corporation for operating purposes. They can also elect to pay a cash dividend to themselves and then loan the proceeds back to the corporation. This income added to their personal return will be taxed at zero for federal income tax purposes. They will pay state income if their state has such taxes.

Another option involves selling stock investments at a gain if you know the gain will be tax-free. There is a rule against repurchasing stocks within 30 days if you have sold the stock at a loss, but in this case, you are actually locking in long-term capital gains to be taxed at zero. The worst that can happen is you might be out a little bit of a bid/ask spread on repurchasing the stock if you use an online no-commission company.

Selling Assets Example
Andy and Gretchen estimate their taxable income at zero. They were early investors in Tesla and elect to sell Tesla stock that generates a long-term capital gain of about $125,000. They decide to not repurchase Tesla but will elect to use it as working capital for their farm operation. This gain will be tax-free at the federal level.

The bottom line as you do your tax planning at year-end is to review any assets you have held for at least a year to determine if your taxable income remains in the 15% tax bracket. If so, you might want to consider selling all or part of that asset to lock in tax-free money (at least at the federal level). Or, if you have a C corporation, always review that each year to determine how much of a tax-free dividend you can pay out.

Could 100% Bonus Depreciation Make a Return Under a Trump 2.0 Administration?

Fri, 08 Nov 2024 19:59:55 GMT

President-elect Donald Trump is preparing for his second term as president. While it’s not two consecutive terms, his history during the first term could serve as a possible playbook on how the next four years could impact agriculture.

“You have to remember, Trump is a populist,” says Jim Wiesemeyer, Farm Journal Washington correspondent. “He learned a lot from his first four years. So, he’s better prepared now. He won’t choose a lot of cabinet people who will eventually write books negative about him. He learned that lesson.”

The parlor game of whom will be named to key cabinet positions, including the U.S. Secretary of Agriculture , will continue during the next few months. One of the biggest anticipated changes that could impact farms across the U.S. is the possible change to the tax policy.

“You can up the odds that you’re going to have many, if not most, of the expiring Trump 2017 tax cuts that expire at the end of 2025 renewed. That’s good for the U.S. sector because of the estate tax exemptions will probably remain as they currently are,” says Wiesemeyer.

While anticipated changes continued to be weighed by political analysts, one agricultural tax expert thinks farmers can count on one major thing.

“I think we’re definitely going to see no tax increases. That’s for sure,” says Paul Neiffer, Farm CPA and contributor to AgWeb.

Neiffer says even though Trump campaigned on no tax on tips and no taxes on social security, Neiffer doesn’t see those proposals passing, as it would leave too big of a hole in the federal budget deficit.

“But certainly, the lifetime exemption that next year will be almost $14 million, I think that’s going to be made permanent. And that’s great news for our farmers that possibly are facing some estate taxes,” Neiffer says.

Neiffer also thinks the Section 2032A deduction, which permits an alternative method for valuing certain real property used either as a farm for a farming purpose or in a trade or business other than farming, is something that could get bumped up to $14 million per taxpayer. He believes it would be a “good deal” for farmers.

The other benefit, according to Neiffer, is the extension of the Section 199A Deduction and additional changes he expects to occur with the corporate tax rate.

“The lower rates for 199A capital will likely to be extended,” Neiffer says. “We could even see a reduction in the corporate tax rate down to maybe 15% for farmers. And if that happens, you could see a lot of farmers switching from being an individual farmer to being a corporate farmer.”

According to Neiffer, 100% bonus depreciation could also make a comeback under Trump.

“We think, perhaps, 100% bonus depreciation might be coming back for farmers,” says Neiffer. “When they buy equipment or buildings, farm buildings, etc., they’ll be able to deduct 100% of that in the year of purchase.”

Neiffer points out farmers need to be careful and make sure they optimize their depreciation related to their debt, but the idea of 100% bonus depreciation would be a welcome change for farmers.

Wiesemeyer also says the relief for farmers is there will be no major changes to capital gains taxes, which is something the democratic nominee Kamala Harris had proposed during her campaign.

Your Next Read: Washington Insiders Weigh in on What the Election Means for Agriculture

Advice to Farmers: The Do’s and Don’ts of a Line of Credit

Fri, 27 Sep 2024 14:32:38 GMT

With the ups and downs of the market come an unsteady cash flow. This is something most producers understand all too well, as a volatile market is typical for agriculture.

Phil Young, AgCredit Said It podcast host and account officer, says a line of credit (LOC) is like a credit card.

“By having a line of credit, you can take advantage of opportunities when you see fit, like purchasing inputs for the next crop season when prices are lower or having the flexibility to purchase feed when you need it,” he says.

According to independent dairy financial consultant, Gary Sipiorski, producers need to make sure they understand the terms when it comes to when and how the interest is calculated.

“The interest rate on a LOC normally changes monthly,” he says. “It is a variable rate.”

Sipiorski also says producers should ask their lender the following questions.

Will the LOC have to be paid in full by the end of the year? Does it then have to be renewed?

If the LOC rolls from year to year, when does it mature?
What is the agreement with the lender as to how and what purposes is it to be used for?

Curtis Gerrits with Compeer Financial offers the following do’s and don’ts of a line of credit.

Do’s of a line of credit:

In times of tight cash flows and decreased income, utilize your lines of credit as an extension of cash flow to stay current with your vendors and operating expenses.
Set up automatic and regular payments to be applied to your lines of credit to ensure payment down on the principal balances. This will also allow for the availability of funds in times when they are needed.
For tax planning purposes, use your lines of credit to prepay expenses for your next fiscal year. This can assist with tax liabilities and may also create opportunities for early discounts with some vendors.
Monitor your lines of credit closely, just as you would your checkbook. Have a good understanding of what you have applied to your line of credit, along with when and how much you can pay down. This will better help your planning for future months and keep the accrued interest at a minimum while utilizing your lines of credit.

Don’ts of a line of credit:

Do not use lines of credit when cash is sufficient for operating expenses. Avoid creating additional operating costs from increased interest expense when it is not necessary.

Do not defer to interest-only payments with your lines of credit. Set up regular and automated payments to pay down principal balances. You can always pull funds back from the line of credit if needed.
Do not use your lines of credit for purposes they are not intended for. This will ensure that funds are available when you need to utilize your lines of credit for their intended purposes.

Lines of credit are a great cash flow tool for both starting farmers and well-established producers. Leading financial experts underscore the importance of farmers understanding the do’s and don’ts that will help them during the downside of the rollercoaster markets they have gotten to know.

It's Not too Early to Think about Tax Planning

Thu, 29 Aug 2024 20:16:42 GMT

Does it seem too early to start planning for taxes? Not according to Bethany Johnston, Nebraska Extension Educator and Aaron Berger, Nebraska Extension Beef Educator.

Even though many crops still stand in the fields, September and October are excellent times to meet with your tax accountant and start looking ahead for tax purposes, say Johnston and Berger.

They encourage producers to begin tax planning before the end of the year as it allows discussions about upcoming income and expenses.

By pre-tax planning, producers better understand if they should make or hold off on major equipment purchases, and sell or wait to sell livestock and crops. The planning process can help producers avoid unforeseen tax implications.

What should you do when planning a pre-tax meeting with your tax accountant? Johnston and Berger offer these tips.

Start early. Set an appointment with your accountant. September and October will allow for time to make end-of-the-year decisions. Planning in advance is an advantage for cattle producers, where livestock are not as easy as crops to sell quickly, if needed, and sale checks are sometimes larger.

Come prepared. Get your books up to date and bring these to your pre-tax meeting. Email your tax accountant any reports for the year. Electronic bookkeeping programs, like Quickbooks and Quicken, have templates for reports, or you can create a custom report, and share information in Excel or PDF form.

Look ahead. What are estimated future expenses? Will any additional income come in before Dec. 31?

Did you purchase or trade any equipment? Bring the purchase agreements/trade papers for this year’s equipment purchases.

After reviewing the numbers, if your operation has a surplus, what sound business decisions can you make with the profit?

Estate and transition planning for your operation. Some of your attorney’s fees may qualify as tax-deductible expenses.
Maintenance and repairs. Schedule a time before the end of the year to repair equipment, buildings, pivots, or make land improvements, such as fence, new tanks or stock wells, or control invasive species.
Pay down debt, with a plan. According to Tina Barrett, Executive Director of the Nebraska Farm Business Inc, “excess funds are tricky.” To have extra cash to pay down debt, you need taxable income. “But if someone takes $100,000 and pays down a land note, they may get to the end of the year and realize their taxable income is $100,000 higher than usual. It is not a pleasant surprise, when there is no money to pay expenses,” explains Barrett. Every situation is different, so ask your accountant about your position.
Do not spend money on tax deductible expenses, just to reduce tax payments. “If you didn’t spend that $100,000 on stuff that’s not needed, and if instead, you could have spent $30,000 on taxes and $70,000 to reduce debt you would be further ahead financially,” Barrett comments. Again, each tax situation is unique, so ask what works best for your operation.

Ask your accountant how hard it has become, or if it’s still a good plan, to try and meet the March 1 deadline to submit taxes for agricultural producers. An alternative is to make an estimate by Jan. 15, pay the estimate, then producers have until April 15 to file and pay the difference. This can be beneficial with late information, or if income is higher this year than the previous year.As we begin Q4, it’s not too early to consider tax planning with your accountant.

For more information, visit check out the beef producers toolkit.

Your Next Read: ‘Cheap’ Corn: Economists Encourage Producers to Pack the Bunkers and Plan Ahead

Here Are The Notable Changes In The House Farm Bill

Tue, 04 Jun 2024 19:04:11 GMT

The House Ag Committee recently released and approved their initial version of the long-awaited 2024 Farm Bill, which included changes to several areas important to production agriculture – such as reference prices, base acres and federal programs. During an episode of the Top Producer podcast, Farm CPA Paul Neiffer explained how farmers could expect those changes to affect them.

Reference Prices
According to Neiffer, the proposed farm bill would increase reference prices across the board, with the smallest increases in barley, oats and corn and the largest in rice. The changes for other crops include:

• Legumes: ~19%
• Peanuts: 17.8%
• Cotton: 14.4%
• Wheat: 15.5%
• Soybeans: 18.5%

It’s important to note, however, these likely won’t be the final numbers in the farm bill.

“I think this is going to increase the cost of the farm bill by – over a 10-year period – maybe $15 billion to $20 billion,” Neiffer says. “If they need to cut some, they can cut it out of here.”

Base Acres
Another update includes base acres. In the new House-approved language, if you have planted more acres than you have base acres, the excess acres will now qualify to be increased to reflect what your plantings were over the average of 2019 to 2023 crop years.

“This is a pretty good deal. It’s a one-time opportunity – not a reallocation of your current base,” Neiffer says. “Let’s say you have corn and soybeans, but the last five years you only planted corn. This base acre update will be based on what you planted. So, if you only planted corn, you’ll get an increase in corn base acres.”

In addition, non-covered commodities, such as potatoes or onions, can now be used on up to 15% of total farm acres.

The House proposal does not restrict who qualifies for the program.

Agriculture Risk Coverage Program
Like reference prices, the Agriculture Risk Coverage program (ARC) also sees an increase in this proposal.

The guarantee of benchmark revenue jumps from 86% to 90% and the maximum payment also rises from 10% of benchmark revenue to 12.5%.

Marketing Loans
Neiffer says that while some may go up slightly more than others, almost all marketing loans increase by about 10%.

“There are a couple of situations where that helps. If you want to get a loan, you can get more of a loan,” he says. “But it could also hurt you in a way.”

He goes on to explain price loss coverage (PLC) payments are calculated as the difference between the effective reference price and market year average (MYA) price and the MYA price cannot drop below the loan rate. So, with the increase in the market loan rate, PLC payments could be smaller.

Livestock Programs
On the animal side, changes have been made to the dairy margin program and livestock indemnity payments.
“The big one [for the dairy margin program] is the tier one coverage gets more of a subsidy from 5 million lb. up to 6 million lb. That’s a 20% increase,” Neiffer says.

The payment rate for livestock indemnity payments is also increased to up to 100%. Neiffer says that increase is for animals that have been killed by a federally protected species, such as wolves.

He adds if a pregnant animal is killed in this situation, the owner could be paid up to 85% of the unborn animal’s lowest weight class.

Partnership Tax Payments
Another payment change to watch involves how operations are classified. In the past, Neiffer says, operations taxed as partnerships – such as an LLC or S corporation – were limited to one payment. The new proposal does not have a payment limit for qualified pass-through entities, which could be any LLC not electing to be a C corporation, any S corporation or any general partnership or joint venture. The one-payment limit would still apply to C corporations.

“I don’t know if this will happen,” Neiffer says. “The 2018 Farm Bill had certain provisions similar to this in the House bill but didn’t happen.”

Farm Income Definition
The House proposal also broadens the definition of what counts as farm income.

“Under the current definition of farming, gains from trading in farm equipment typically is not considered to be farm income. This farm bill specifically states that is farming, as well as agritourism and direct-to-consumer marketing,” Neiffer says. “That’s good news.”

Conservation Reserve Program
The maximum Conservation Reserve Program (CRP) payment more than doubles in this draft – jumping from $50,000 to $125,000.

“For farmers who maybe have acres that really shouldn’t be farmed, this is allowing more of those acres to get enrolled,” Neiffer says.

Crop Insurance
The final area Neiffer highlights with notable changes is supplemental crop insurance.

He shares the 85% cap on revenue protection policies is increased to 90% for individual yield or revenue coverage, but it’s aggregated across multiple commodities. The supplemental coverage option (SCO) is also increased from 86% to 90%.

“This is really welcome news for farmers in North Dakota, Texas, Oklahoma or southern Missouri where the cost of crop insurance is so high,” Neiffer says. “By increasing the subsidy, this is probably going to allow a lot of those farmers to buy revenue protection at 60% or 65% and then use SCO to go up to 90%.”

There’s also a 10-percentage point subsidy increase for those who qualify as beginning or veteran farmers. This has been expanded from five years to 10 years as well.

5 Year-End Tax Planning Tips

Fri, 15 Dec 2023 16:27:10 GMT

As we approach year-end and harvest has passed for most farmers, we turn to how we minimize the income tax impact from our farm operations. Many farmers want to eliminate income taxes, but rather, we strive to optimize the amount paid each year. We like to report enough income to soak up the top of certain tax brackets. For example, the top of the 12% tax bracket for a married couple is about $90,000 of taxable income. This is about the lowest tax rate we will see over the next several years.

Here are five key year-end tax planning opportunities to consider, but don’t forget to meet with your tax adviser to pin down what works for you.

1. Estimated Tax Payments
An option only available to farmers is to file and pay income taxes by March 1, or simply pay one estimated tax payment on Jan. 15. Many farmers prefer to use the March 1 option, however, it’s usually better to pay the Jan. 15 estimate and then take care of the remaining amount on April 15 – especially with higher interest rates. The required payment is the lesser of either 100% of the previous year’s tax or two-thirds of this year’s tax.

Example: Assume last year’s tax was $10,000 and you will owe $100,000 this year. You either pay the $100,000 on March 1 or pay $10,000 on Jan. 15 and the remaining $90,000 on April 15. Assuming 8% interest, the savings on the $90,000 deferred from March 1 to April 15 is $907.

2. Deferred Payment Contracts
A favorite year-end tax planning tool is to sell grain on a deferred payment contract. This allows the farmer to lock in their price but defer getting cash until after year-end. A unique benefit of these contracts is we can elect to bring that income into this year’s tax return if we need to increase taxable income. However, this must be on a contract-by-contract basis so make sure to have some smaller and mid-size contracts instead of one large contract.

Example: Assume you sell 50,000 bu. for $250,000. You can either defer it using one contract or use five contracts. When working up the tax return, we find we need an extra $50,000. If we have five contracts, it is easy for us to bring the needed income, whereas the one large contract would result in an extra $200,000 of income.

3. Deferring Crop Insurance Proceeds
Most farmers can elect to defer crop insurance, but only the portion related to yield loss. The price portion can’t be deferred. Crop insurance companies will calculate these two amounts, but we can estimate it by calculating the loss based on electing yield insurance only. The difference between revenue protection and yield would be your price portion that can’t be deferred.

Example: Assume you have 200 bushels APH and elect 85% coverage. Your final yield is 160 bushels, and you collect $100 per acre of proceeds. Ten loss bushels multiplied by $5.91 equals $59.10 of yield loss that can be deferred. The remainder can’t be deferred.

4. Paying Your Kids
We typically see farmers either “forget” to pay wages for their kids who complete work on the farm, or they don’t pay enough wages. If the child is under age 18, there are no payroll taxes on the wages. If they are older, simply paying them with grain will yield the same result. If the child is going to college and needs $25,000 for tuition and costs, then we can really bump up the savings. For 2023, the child can earn an almost $14,000 tax return. If we have gifted them $13,000 of grain that they hold at least a year, the profit from selling it is tax-free because the “Kiddie Tax” won’t apply to them due to the wages being more than half their support. The parents reduce their income by $27,000 and the child pays no taxes.

5. Electing to Capitalize Repairs or Fertilizer
Another option that is available to increase income if needed is to elect to capitalize repairs or fertilizer. This allows us to optimize taxable income.

Use Portability to Avoid a Potential Multi-Million Dollar Estate Mistake

Thu, 20 Jul 2023 18:37:49 GMT

A common financial mistake married farm couples make occurs when the first spouse dies, and the surviving spouse fails to “elect portability.”

It’s a process by which any unused federal gift or estate tax exemption can be transferred from the deceased spouse to the surviving spouse, according to Polly Dobbs, founding partner of Dobbs & Folz, LLC Peru, Ind.

What portability helps the surviving spouse achieve, ultimately, is to put the farm assets in the best position to be transferred upon his/her death, to the next generation without estate taxes being owed.

For 2023, each spouse has a $12.92 million exemption from federal gift and estate taxes, but that amount is set to “sunset” to around $6.6 million each in 2026. Electing portability can lock in that high exemption if a spouse dies before the sunset date.

Straightforward Process
To elect portability, the surviving spouse must file Form 706 Federal Estate Tax Return with the IRS.

“It’s not something that happens automatically, and it’s a crucial action to take – even if all the assets were jointly owned and no taxes are owed when the first spouse dies,” Dobbs says.

“Many certified public accountants (CPAs) and lawyers are unaware of portability, or don’t believe it’s worth checking into, but it is,” she adds. In fact, she tells advisers for their own protection to get it in writing if a surviving spouse declines to elect portability.

Portability is a recent process available to married farming couples, which is why many CPAs and lawyers are not aware of it.

One Form To Complete
IRS has simplified the process to elect portability in recent years.

“A certified public accountant or a lawyer can help the surviving spouse use shortcuts when filing a Form 706 just to elect portability, like skipping appraisals and valuations. The value of the assets may be estimated only to the nearest quarter million dollars of value at the first spouse’s death,” Dobbs says.

Form 706 generally must be submitted to the IRS within nine months of the first spouse’s death. That deadline can be extended automatically with Form 4768, however, for an additional six months.

Additional Time Available
If a surviving spouse missed the initial deadlines for filing, they can still elect portability up to five years from the date of their spouse’s death by invoking “Relief under Revenue Procedure 2022-32,” Dobbs notes.

Dobbs estimates the costs to have an adviser’s help to complete the form and submit the paperwork will total less than $3,000, depending on the assets that need to be reported.

“The costs incurred are minimal when compared to the millions of dollars of estate taxes that could be saved,” she says.

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Extending the Tax Cuts and Jobs Act is Good for American Farmers

Sun, 23 Apr 2023 22:01:26 GMT

The day-to-day work life of economists and farmers might look different, but both can agree on the following statements:

The truth speaks for itself;
Growth is desirable but requires a hospitable environment; and
The nurturing benefits of tax relief and low, globally competitive tax rates created by the 2017 Tax Cuts and Jobs Act has had a pivotal, positive effect on our prosperity.

One of the most significant expenditures in a family farm’s budget is equipment. New John Deere combines cost more than $350,000, and a new John Deere cotton picker will set you back around $1 million. These must-have items feed the world while keeping our farms competitive in global markets.

The Tax Cuts and Jobs Act included an important provision called “bonus depreciation,” which allows businesses to immediately take a deduction up to 100% of the cost of assets placed into service by the end of 2022. This provision made it easier for farmers to afford important and expensive purchases, just as it did for other businesses considering making productivity-enhancing investments.

Unfortunately, the percentage immediately deductible was reduced to 80% on Jan. 1, 2023 , and will continue dropping by 20% each year until it reaches zero. The result will be that deductible amount is spread out over the life of the equipment, delaying when farmers (and other businesses) receive the tax offsets they might need to be able to buy the equipment.

For family farms, the ability to manage cash flow through this provision cannot be understated. The following hypothetical story outlines the benefits, not only to the farmer but also to the economy.

Farmer John is planting wheat. The price of his fertilizer has skyrocketed because of Russia’s war on Ukraine, but the price of the wheat he produces has also increased because Ukraine is a large global supplier of wheat. Farmer John will therefore make a profit from the wheat he produces, but doing so requires purchasing a new piece of equipment. In addition to making a profit, he can help offset the reduction in the global supply of wheat, which has contributed to increased prices for consumers at the grocery store . The purchase of his equipment will allow him to increase his yields, thereby increasing the supply of food on grocery store shelves across the country and around the world.

However, as Farmer John looks to the next growing season, he has doubts. Today, many are speculating that wheat prices might experience a significant drop next year. If prices go down, the profit Farmer John made this year could be eliminated next year because input costs are still high when he plants, but wheat prices might drop by harvest. It would be less beneficial for Farmer John to take an additional depreciation on his equipment, which was specifically used to support the higher output.

If you were Farmer John, would you invest in the new equipment?

The ability to fully depreciate the asset at the time of investment would align his cash flows, reducing uncertainty and making the investment more attractive. And we, the American people, want Farmer John to harvest more wheat when global supply is low. Yields directly affect grocery store prices, which supports the equipment manufacturers as well. This would be a net positive for our economy. By contrast, if he must spread out the deductions over time when he has considerable uncertainty about prices and optimal production, the investment becomes less attractive.

Although this story is fictional, it represents the challenges Miles Mendel, a South Dakota farmer, faces in today’s global economy.

“Volatility in the market is both a gift and a curse,” Mendel says. “We welcome the high prices we see, but we also know that our suppliers see those high prices and raise our inputs accordingly. However, when prices drop, the input cost decline is often much slower and creates huge problems for farms to remain profitable.”

Markets are dynamic. Our tax policy should reflect those dynamics and allow farm families to respond to volatility with flexible expensing policies such as bonus depreciation. Congress should extend this provision from the Tax Cuts and Jobs Act as it is long-term revenue neutral for the federal government and encourages timely investment in our economy. It is a win-win that both family farms and economists can be excited about.

Michael Faulkender is a former Assistant Secretary of the Treasury and Chief Economist at the America First Policy Institute.

Luke Lindberg is the President & CEO of South Dakota Trade and a Senior Fellow at the America First Policy Institute.

Bipartisan Group Pushes for Stepped-Up Basis Tax Rule Protections

Wed, 22 Mar 2023 17:54:17 GMT

A bipartisan group of lawmakers is trying to protect a tax provision that reduces the capital gains tax on inherited property, saying elimination would hurt farmers and businesses.

The Joint Committee on Taxation says the failure to collect these taxes costs $40 billion per year, and Democrats have proposed ways to eliminate the provision, while leaving an exemption for farmers.

The resolution, introduced Tuesday by Reps. Tracey Mann (R-Kan.), Adrian Smith (R-Neb.), Jim Costa (D-Calif.), Jimmy Panetta (D-Calif.), Angie Craig (D-Minn.), and Bob Latta (R-Ohio), would support the “preservation” of the rule and “oppose efforts to impose new taxes on family farms or small businesses.”

President Joe Biden’s budget request included changes that would tighten loopholes related to partnerships and the stepped-up basis rule and those who have over $100 million in wealth, according to the Treasury Department’s Greenbook . Democrats have said the provision allows the wealthy to avoid paying taxes.

Bottom line

The resolution cites a study from the USDA’s Economic Research Service that found 66% of midsize farms would see a tax liability increase if the stepped-up basis was cut.

First-Year Tax Bonus

Fri, 20 Nov 2020 02:20:52 GMT

The Economic Stimulus Act of 2008 may save you big bucks when tax time comes around.

“The direct expensing maximum limit increased to $250,000 for tax years that begin in 2008—it was $125,000 in 2007,” says Larry Burton, TelFarm manager and Extension educator for Michigan State University. An additional 50% bonus depreciation is also required for new property this year, he adds.

Eligible property includes farm machinery and equipment, single-purpose livestock buildings, drainage tile and pickups with more than 6,000 lb. gross vehicle weight.

Here’s how it works: If you purchased a new combine for $300,000 this year, $250,000 can be taken as a direct expense. The remainder is left for normal depreciation.

“Bonus depreciation is 50% of the remaining cost of $50,000, or $25,000,” Burton says. You would also be able to depreciate a portion of the remaining $25,000. On seven-year property such as combines, the first-year deduction on $25,000 equals $2,678.

“Our $300,000 combine is allowed a first-year total maximum depreciation of $277,678 ($250,000 plus $25,000 plus $2,678),” Burton says.

Are You Sending The Right 1099s?

Fri, 20 Nov 2020 02:04:31 GMT

As January comes to an end, businesses across the country are preparing 1099s. Do you send them to the right people? According to Paul Neiffer, principal and CPA with accounting firm CliftonLarsonAllen, most farmers aren’t 100% sure who they should be sending 1099s to, and why they might be receiving them.

Farmers should file 1099s for:

All landlords who have been paid $600 or more. ( Seriously .)
Machine rentals in excess of $600.
Services in excess of $600 provided by anyone who is not your employee. This includes your accountant, attorney, vet, custom farming hire, and even your mechanic.

Farmers could receive 1099s for:

Custom farm work or grain hauling you performed for someone else.
Rental payments you received in excess of $600.
Crop insurance proceeds in excess of $600.

Exclusions: S and C corporations are exempt from 1099s.

Deadline: The deadline to file these with the IRS is January 31, 2019.

First Thing Today: China's Big Plans for Ethanol to Hike Its Corn Needs

Thu, 12 Nov 2020 04:42:13 GMT

Good morning!

Firmer tone overnight... Corn futures enjoyed gains overnight and as of 6:35 a.m. CT most contracts are 2 to 3 cents higher. Soybean futures also favored the upside overnight and are currently up 5 cents. Wheat futures are 3 cents higher, while spring wheat is fractionally lower. The U.S. dollar index is posting modest losses, while crude oil futures are higher.

Export sales report expectations...

Commodity	2016-17 (MT)	2017-18 (MT)
Corn	NA	800,000 to 550,000
Wheat	NA	350,000 to 550,000
Soybeans	NA	1,000,000 to 1,300,000
Soymeal	0 to 150,000	50,000 to 250,000
Soyoil	0 to 20,0000	0 to 20,000

North Korea is threatening to “sink” Japan with nuclear weapons... North Korea threatened to use a nuclear weapon against Japan and turn the U.S. into “ashes and darkness” for passing fresh United Nations sanctions earlier this week. “Japan is no longer needed to exist near us,” the state-run Korean Central News Agency said today, citing a statement by the Korea Asia-Pacific Peace Committee. “The four islands of the archipelago should be sunken into the sea by the nuclear bomb of Juche,” it said, a reference to the regime’s ideology of self-reliance. Japanese Chief Cabinet Secretary Yoshihide Suga called the comments “extremely provocative.” Treasury Secretary Steven Mnuchin warned the U.S. may impose additional sanctions on China -- potentially cutting off access to the U.S. financial system -- if it doesn’t follow through on a fresh round of United Nations restrictions against North Korea.

China’s big plans for the ethanol industry hike its corn needs... China’s plans to roll out the use of gasoline containing 10% ethanol (E10) by the year 2020 could help the country to work through its 200 MMT corn stockpile in in just four years, according to Reuters calculations. It estimates that as much as 15 MMT of ethanol may be needed annually to meet this new source of demand, meaning that as many as 36 new ethanol plants may be needed. These factories would need 45 MMT of feed corn each year. Currently, 10 new ethanol plants in the northeast Corn Belt are planned, with many of them expected to be operational next year, according to JC Intelligence. It adds that this this should boost ethanol capacity by 3 MMT.

Strategy Grains lowers EU wheat export forecast... The European Union will likely export 23.1 MMT of soft wheat in 2017-18, says Strategy Grains, which is down 1.3 MMT from its previous forecast and 900,000 MT under year-ago levels. The consultancy explains that rain compromised the quality of Germany’s crop, plus the region is facing stepped-up export competition from Russia and Ukraine. The lower export forecast comes despite a 1.5 MMT increase in its soft wheat production peg for the bloc to 142.5 MMT.

Argentine exchange still calling for higher corn and wheat plantings in 2017-18... The Rosario Grains Exchange expects Argentine farmers to plant 6.2 million hectares to corn and 5.4 million hectares to wheat in 2017-18, which would be an increase from corn and wheat plantings of 5.85 million hectares and 5.3 million hectares, respectively, in 2016-17. But the exchange’s wheat plantings estimate was down slightly from its previous estimate as excessive moisture has caused problems.

Traders watching Egypt’s decision on poppy-tainted wheat cargoes closely... The poppy seeds detected in two wheat shipments from France and Romania to Egypt are “not very dangerous,” Egypt’s Ag Minister Abdel Moneim Al-Banna told Reuters. He says both shipments will be sieved before the country decides whether to allow them into the country. The French supplier argued that poppy in the shipment was a harmless variety not used in opium production that is common in wheat fields. Meanwhile, suppliers are monitoring the situation closely and say they may boycott the Egyptian market if the shipments are ultimately rejected. With last year’s wheat fungus debacle still fresh in their minds, they say the country’s excessive inspections make doing business with Egypt risky.

Trump, Democrats shape agreement to protect ‘Dreamers’... President Donald Trump and congressional Democrats closed in on a deal to give legal status to undocumented immigrants who were brought to the U.S. as children. The president’s move is partly out of frustration with GOP lawmakers, rather than a bid to shift to the center.

Tax reform timeline... Trump made clear Wednesday in tweets that he wants Congress to begin work now on major tax reform. Republican leaders are now giving themselves until mid-October to come up with tax-cutting legislation and a fiscal 2018 budget resolution -- GOP leaders, who are hoping to overhaul the nation’s tax code by year’s end, signaled they will release a more detailed framework for the high-priority initiative the week of Sept. 25.

Trump administration infrastructure plans waiting on tax overhaul... More-detailed plans on infrastructure legislation are being readied by the White House for Congress to use in putting together such a package, but an administration official told Politico the package will not come until after there is progress on tax overhaul. “Our position is to be ready to go when the president decides to transition” to infrastructure, the official said. Congress will take the lead in the effort, the official said, noting lawmakers have asked for more specific on how the administration envisions bringing state and private money into the mix. “We’ll do the principles, they’ll do the drafting,” the official said. Savings via cuts to other programs is where the $200 billion in federal money will come from for the infrastructure effort.

Americans’ grocery shopping habits have changed... Rather than going to a single store once a week, most U.S. consumers now buy their groceries in several ways, multiple times a week and from a number of different places, a new survey by the International Council of Shopping Centers shows. It also shows consumers still pick their groceries up at brick and mortar stores, even if they have made their purchases online. Ninety-nine percent of adults buy all or some of their groceries in person because they want the food immediately, want to choose their own meat, dairy, produce, etc., or they want to see their product options in person, according tot he survey. But Millenials, in particular, choose a more varied path in terms of how, where and when they shop.

More hopes for a cash cattle low... Futures are signaling more optimism about the potential for the cash market to put in a low this week, with the October contract nearly $2.60 above last week’s average cash price near $105. Friday’s online Fed Cattle Exchange auction saw cattle trade at prices near steady with week-ago, but sales volume was again light. So far, there have been just a few sales in Kansas and Iowa around $105.

Futures still have a pretty big cash market drop factored into prices... Weight data showing marketings are backing up on farms despite aggressive kill runs signals that more cash market declines are likely ahead, especially with farmers more likely to get busy with harvest in the weeks ahead. But futures already have a fairly big cash drop factored in -- the October contract was $7.80 1/2 below the cash hog index as of Wednesday’s close.

Overnight demand news... Jordan made no purchase in its international tender to buy 100,000 MT of milling wheat, but it has issued another tender to purchase the same amount of hard milling wheat from optional origins. An Israeli group of private buyers purchased at least 30,000 MT of corn, likely from the Black Sea region. Japan bought 55,645 MT of food-quality wheat from the U.S., as well as 50,142 MT from Canada and 33,595 MT from Australia.

Today’s reports:

7:30 a.m., Drought Monitor -- USDA/NWS
7:30 a.m., Weekly Export Sales -- FAS
11:00 a.m., Cotton & Wool Outlook: September 2017 -- ERS
11:00 a.m., Meat Price Spreads -- ERS
11:00 a.m., Oil Crops Outlook: September 2017 -- ERS
2:00 p.m., Feed Outlook: September 2017 -- ERS
2:00 p.m., Wheat Outlook: September 2017 -- ERS
2:00 p.m., Livestock Historical Track Records -- NASS
2:00 p.m., Turkey Hatchery -- NASS

First Thing Today: Firm Pegs Corn Crop Well Below USDA

Thu, 12 Nov 2020 04:42:07 GMT

Good morning!

Corrective trade lifts grain and soy futures overnight... The grain and soy markets enjoyed some corrective short-covering overnight. As of 6:30 a.m. CT, corn futures are mostly up 2 to 3 cents, soybeans are 5 to 6 cents higher, and wheat futures are up 2 to 4 cents in most contracts. The U.S. dollar index is marginally lower while crude oil futures are marginally higher.

Cool, wet forecast for much of the country... The National Weather Service forecast for Aug. 6-10 calls for cool, wet conditions across the bulk of the country. The exceptions include the Northern Plains where stressful dryness is likely to continue and areas west of the Rockies where heat is expected. The forecast is likely to remain a source of pressure for the corn and soybean markets.

Firm pegs corn crop well below USDA... INTL FCStone on Tuesday estimated the U.S. corn crop will yield an average 162.8 bu. per acre this year for a 13.590 billion bu. crop. The brokerage estimates the U.S. bean crop will yield 47.7 bu. per acre for a 4.235 billion bu. crop. For comparison, USDA in July estimated the U.S. corn crop at 14.255 billion bu. on an average yield of 170.4 bu. per acre. For soybeans, the department estimated production at 4.260 billion bu. with an average yield of 48.0 bu. per acre.

Uneven monsoon rains causing problems in India... While monsoon rains have brought India 1% more rain than normal so far this season, some areas are dealing with drought while others are dealing with flooding since distribution has been erratic. This has raised concerns about the country’s summer crops and led to talk India may need to increase imports of edible oils, sugar and pulses while restricting its exports of cotton, rice and feed ingredients. The India Meteorological Department details that while 58% of the country has received normal rainfall this year, the remaining 42% has received either excess of deficient rains.

Traffic again flowing on Mississippi River... The Mississippi River reopened to vessel traffic on Tuesday afternoon after a barge collision forced its closure just north of St. Louis for around 14 hours, according to the U.S. Coast Guard. Repairs to the lock were reportedly completed faster than anticipated.

Congress has a lot to do on a tight schedule... There are seven legislative days in the Senate until the August recess. There are just 12 days with both chambers in session until the end of the fiscal year on Sept. 30. Issues in focus include the need for a fiscal year 2018 budget, budget resolution and a debt-limit hike. GOP leaders have begun their multi-month focus on tax reform.

Administration readying to probe China’s trade practices... The White House is preparing to investigate China’s trade practices and suspected violations of American intellectual property, according to reports. He Weiwen, a former Commerce Ministry official and longtime trade expert who is now a senior fellow at the Center for China and Globalization, a Beijing research group, told the New York Times that the Chinese government would study any American trade case before deciding how to respond and whether to seek intervention from the World Trade Organization. “China thinks that the bilateral trade relation is governed by WTO rules, not American domestic law,” He said.

Democrats offer Cuba trade plan amid hurdles in Congress... Lifting the economic embargo against Cuba is the goal of legislation offered by a group of Democratic senators. “It is well past time for the United States to abandon the failed policy of trying to isolate Cuba,” Senate Finance Committee Ranking Member Ron Wyden (D-Ore.) said. “Decades of experience have proven the embargo will never improve the lives of the Cuban people. Instead, this policy only serves to shut U.S. exporters out of a natural market for American agricultural and manufactured goods.” The so-called U.S./Cuba trade Act of 2017 has little chance of becoming law.

EPA now looking into dicamba situation... Directions on use of the chemical dicamba are being reviewed in the wake of hundreds of reports of crop damage from chemical drift, a spokesperson for the Environmental Protection Agency (EPA) confirmed to Reuters. “We are reviewing the current use restrictions on the labels for these dicamba formulations in light of the incidents that have been reported this year,” said EPA spokeswoman Amy Graham said. EPA approved new formulations of dicamba late last year for two years as older formulations were known to drift from their initial target field. Scores of states are investigating damage reports from dicamba and some states have taken action to either bar its use or set restrictions on conditions under which it can be used.

Ethanol producers looking to alternative uses... Yesterday, Archer Daniels Midland Co. and Green Plains Inc. both said they will convert some fuel ethanol capacity into beverage and industrial alcohol production in addition to idling some mills as the ethanol producers continue to struggle with overcapacity and thin margins. In June, Pacific Ethanol announced it would by a beverage grade facility in Illinois.

ICAC expects slight decline in ending stocks from 2016-17 levels... The International Cotton Advisory Committee (ICAC) yesterday raised its 2017-18 global cotton production forecast by 320,000 MT from July to 24.89 MMT, which is a 1.860-MMT drop from year-ago levels. But consumption is also expected to climb from year-ago, which is expected to contribute to a 100,000 year-over-year decline in ending stocks to 18.80 MMT.

Stock market gains help lift cattle futures... The cattle complex enjoyed solid gains yesterday as traders noted the ongoing surge in the equities markets and futures’ discount to the cash index. And after a slow start to the day in terms of beef movement, load counts improved to 121 by the end of the day on mixed prices. Meanwhile, traders are still waiting for cash cattle trade to get underway.

Some positive signals for lean hog market... The pork cutout value fell $1.11 yesterday and movement picked up to an impressive 399.86 loads. Also encouraging, cash hog bids were mixed on Tuesday, with bids climbing in the western Corn Belt and Iowa/Minnesota markets but softening in the eastern Belt.

Overnight demand news... Japan says it will import 39,540 MT of feed-quality wheat and 14,345 MT of barley for livestock use via a simultaneous buy and sell auction. Bangladesh issued an international tender to buy 50,000 MT of milling wheat.

Today’s reports:

9:30 a.m., Weekly Ethanol Production -- EIA
2:00 p.m., Broiler Hatchery -- NASS

First Thing Today: China May Target Soybeans if U.S. Announces Trade Sanctions

Thu, 12 Nov 2020 04:42:07 GMT

Good morning!

Renewed selling overnight... Soybean futures dropped another 16 to 18 cents overnight as the market is on edge about trade relations with China and rains are moving across the Midwest. This helped pull corn down around 3 to 4 cents as well. Spring wheat futures are 6 to 7 cents lower, while winter wheat is down 3 to 5 cents. The greenback is slightly higher this morning.

Export sales expectations... USDA will release its weekly update on export sales activity at 7:30 a.m. CT today. Traders expect the report to show corn sales ranging from 500,000 MT to 900,000 MT, soybean sales between 350,000 MT and 750,000 MT, wheat sales of 300,000 MT to 500,000 MT, soymeal sales ranging from 25,000 MT to 275,000 MT and soyoil sales between 5,000 MT and 25,000 MT. These expectations are for both old and new-crop sales combined, with the exception of wheat.

China may target soybeans if U.S. announces trade sanctions... The Trump administration continues to mull action on China regarding intellectual property concerns. U.S. trade officials have long criticized China’s IP enforcement regime for failing to stem alleged online piracy of music, films, books, software, and video games. The U.S. Trade Representative also alleges that hackers affiliated with the Chinese government and military infiltrated the computer systems of U.S. companies and stole terabytes of data to provide commercial advantages to Chinese enterprises. China has several counter measures it could take in any official trade spat, including legal constraints on foreign companies and import curbs on specific sectors. Under a draft plan, Bloomberg reports soybeans have been singled out as the top product that can be dialed back, according to people familiar with the matter. Get more details .

Attache believes USDA too high on wheat and too low on corn crop for Argentina... An ag attache in Argentina estimates the country’s 2017-18 wheat crop will total 16.65 MMT, which is 850,000 MT below USDA’s official peg due to its smaller area estimate. “This will lower exportable supplies,” according to the attache. For corn, the post pegs the 2017-18 crop at 40.5 MMT, which is slightly above USDA’s forecast. Therefore, the attache estimates Argentina will export 29.5 MMT of corn, which tops USDA’s official projection by 1 MMT.

Global food prices climb in July... Global food prices climbed to the highest in 2 1/2 years in July as supply constraints and currency moves pushed up grain, sugar and dairy costs, according to the United Nation’s Food & Agriculture Organization (FAO). Its Food Price Index rose 3.9 points last month to 179.1 points. Also of note, FAO cut its global wheat crop forecast for 2017 by nearly 3.3 MMT to 739.9 MMT, due almost entirely to “smaller crops in the EU and Ukraine, where dry conditions are anticipated to reduce yields.”

Timeline for farm bill... The House ag panel’s goal is to report a new farm bill out of committee by Thanksgiving, with floor debate and votes by the first quarter of 2018. Senate Ag Chairman Pat Roberts (R-Kan.) has asked Senate Majority Leader Mitch McConnell (R-Ky.,) for two days of floor time for the farm bill. Meanwhile, USDA Secretary Sonny Perdue kicks off his five-state “Back to Our Roots” tour today with a trip to Wisconsin, where he will visit the state fair, participate in a farm bill listening session, tour the Hunger Task Force Farm and have a meeting with Blain Supply employees. He’ll make stops in Minnesota, Iowa, Illinois and Indiana later on in the farm bill tour.

Timeline for tax reform... House Freedom Caucus Chairman Mark Meadows (R-N.C.) said Wednesday that tax reform legislation needs to reach Trump’s desk by Thanksgiving and must be retroactive to the start of this year. Not meeting those goals would blunt the economic impact of reshaping U.S. tax laws, Meadows said at an event hosted by Americans for Prosperity. But a complex tax reform faces several hurdles and lengthy debate ahead.

Sen. Graham: Trump’s immigration plan would harm agriculture, tourism... Trump’s endorsed plan to reduce legal immigration to the U.S. “would be devastating to our state’s economy which relies on this immigrant workforce,” said Sen. Lindsey Graham (R-S.C.). “I fear this proposal will not only hurt our agriculture, tourism and service economy in South Carolina, it incentivizes more illegal immigration as positions go unfilled.” Graham said the legislation from Republican Sens. Tom Cotton of Arkansas and David Perdue of Georgia, which Trump endorsed, would reduce legal immigration by half. The bill faces high hurdles, especially in the Senate, and is not expected to clear Congress. Read more about the plan .

EIA report shows U.S. imported ethanol for first time since May... Ethanol imports averaged 38,000 barrels per day in the week ended July 28, the first time foreign supply has appeared in weekly data since May 5 and the highest since Sept. 18, 2015, a U.S. Energy Information Administration (EIA) report showed. Inventories declined 3.1% to 20.9 million barrels, the steepest decline since June 2.

JBS hires retired USDA food safety official... Brazilian meatpacking conglomerate JBS has hired former USDA Deputy Undersecretary for Food Safety Al Almanza as their head of global food safety, a newly created position, according to reports. Almaza retired this week after spending nearly 40 years at USDA and his hiring by JBS marks another effort by the company to shore up its reputation in the wake of a food safety scandal that rocked the Brazilian meat industry earlier this year. “I look forward to helping JBS maintain the highest food safety levels in the industry, and putting in place best-in-class benchmarks and safeguards to ensure that our products continue to exceed all industry standards,” Almanza said in a statement.

Cash cattle trade gets underway at better prices than trade anticipated... Cash cattle trade started at prices mostly falling in a range from $116 to $117 across the Plains yesterday, which was steady to down just $1 from the week prior. This was much better than traders anticipated, which helped futures to rally into the close yesterday. Followthrough buying is very much a possibility today given futures’ discount to the cash market.

Resilient cash hog market... According to USDA’s national summary, cash hog bids strengthened across the Midwest yesterday, signaling still solid packing demand. This adds to ideas the dramatic plunge in the cash market futures signal traders are expecting may not occur. Meanwhile, belly prices continue to slide, which weighed on the pork cutout value yesterday. Bellies are down nearly $11 for the week. But movement was again solid.

Overnight demand news... Japan bought 50,080 MT of food-quality wheat from the U.S. as well as 49,665 MT from Canada and 33,180 MT from Australia. Jordan purchased 50,000 MT of milling wheat.

Today’s reports:

7:30 a.m., Drought Monitor -- USDA/NWS
7:30 a.m., Weekly Export Sales -- FAS
2:00 p.m., Cash Rents -- NASS
2:00 p.m., Dairy Products -- NASS
2:00 p.m., Farm Production Expenditures -- NASS
2:00 p.m., Land Values -- NASS