Taxes

4 Things Farmers Should Know About A Lesser-Known Tax Deduction

Mon, 13 Apr 2026 16:30:26 GMT

“This is something I’ve been talking about since 1992, but all of the sudden in the past five years, people thought it came out of nowhere,” says Roger McEowen, professor at Washburn University School of Law.

McEowen is referring to the residual soil fertility deduction, which the IRS provided comments—while not official guidance—on how landowners can deduct the value of excess soil fertility applied on recently acquired land.

“With the run-up in land values, there is a lot more interest than six years ago. This isn’t new, but it’s like pouring gas on a fire,” McEowen says.

When purchasing farmland, a portion of the purchase price can often be attributed to “residual fertility"—nutrients already present in the soil from the previous owner’s applications that exceed the base levels.

CropQuest, a soil testing business based in Kansas, has been doing reports for this tax deduction since 2020.

“It probably doubles every year or more,” says Nathan Woydziak, precision ag manager at Crop Quest. “Today, we’re doing this testing for hundreds of farmers across our service area.”

Who Qualifies for the Deduction?

Only the owner of the farmland (or pastureland) qualifies for the deduction, and the land must be used for agricultural production. Second, the land needs to have been purchased or transferred with stepped-up basis recently.

What Drives The Value of the Deduction?

“The big driving force is time of purchase,” says Adam Brenneman, a sales representative at Boa Safra Ag, which produces the required soil fertility reports. Boa Safra advises landowners consider any acquisitions since 2010.

“We won’t survey properties older than 2000,” Brenneman says. “For example, our averages for properties are around $1,000 to $1,700 an acre for the value of the deduction, but if it’s acquired in 2005 would be around $300 an acre, 2000 gets closer to $150 per acre.”

In this process, it’s the market value of nutrients multiplied by your excess.

“The deduction based on your excess nutrient load in the property since time of purchase. When you bought the property, you bought the structure and geographic space, you also bought the 8” zone in the soil of where agriculture takes place. The nutrients in that zone, any of them, above baseline are able to be part of the deduction process,” Brenneman says.

What’s Required to Document the Deduction?

Farmers should maintain detailed records, including the purchase agreement, soil test results, and the methodology used to calculate the dollar value of the nutrients.

For the soil test, this includes macro and micronutrients. For example, the Crop Quest and Boa Safra reports detail 11 soil nutrients.

“Good documentation is key. We’ve done some where we went back in history on those fields but regularly we go back 5 years. And your accountant has to be on board,” Woydziak says.
To claim this deduction, you must prove that the nutrient levels are “excessive” compared to a standard baseline.

How is the Deduction Filed?

If land is in a trust, S corp or LLC, the deduction applies to the ownership of the property. And it’s up to the accountant to determine the schedule of the depreciation, which is commonly applied across three to seven years.

“There is no code section. The only guidance we have is the scant things IRS said 34 years ago,” McEowen says. “Have the soil analysis done as close to the time of acquisition as possible. That’s the most bullet proof thing if the IRS challenges it with an audit.”

McEowen says some tax professionals will not include these deductions because of the lack of clarity from the IRS.

“We aren’t sure if it’s depreciation, depletion, or amortization. I think it’s depletion. It’s a natural resource like oil and gas. Fertility gets mined over time. So the theory is you are entitled to the deduction in the nutrient deposit in that soil. So most tax professionals just massage this in as depreciation. And some will put it in section 180 and then separately track it. I don’t know if it’s the wrong or right approach. But that’s as good as we can do.”

Brenneman emphasizes this is a process that requires a team of professionals.

“We don’t do tax advice. We work in the dirt,” he says. “Our audit rate is less than 2%. We stand behind our reports within your auditable years. And we have a 100% audit defense success rate.” Brenneman says.

McEowen adds, “I foresee a statute from Congress and IRS writing rules to carrying out the statute. It could be in the reconciliation bill or the skinny farm bill. That’s the approach I think is going to happen. We need a statute.”

Inside The Tax Return of Your Farm's Future

Thu, 09 Apr 2026 14:31:52 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 20:05:13 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 !

Voters Approve Initiatives for Food in Colorado and Water in Texas

Thu, 06 Nov 2025 18:54:51 GMT

While most of the 2025 election attention turned to the coasts — California’s redistricting proposal and the New York City mayoral race — there were a few food- and ag-focused items on more central U.S. ballots. And all four items passed, most with strong margins.

Coloradans Fund Universal School Food

Just over a third (35.6%) of registered voters turned out in Colorado for the off-year 2025 election. Both of Colorado’s statewide ballot issues that dealt with funding the state’s universal free meals for public school students — Propositions LL and MM — were approved by voters. Both propositions, in different ways, aimed to help fund the state’s Healthy School Meals for All program and its Supplemental Nutrition Assistance Program.

Prop LL asked voters if it could keep $12.43 million in excess tax money it previously collected from high-income taxpayers and put it into the HSMA program and SNAP. This question was put to voters because of Colorado’s Taxpayer Bill of Rights, which requires the state to return excess tax revenue to the taxpayers unless voters allow the state to keep it.

According to the Colorado secretary of state’s office , Prop LL passed 64.7% to 35.3%, a difference of roughly 425,000 votes.

Prop MM passed with a slightly narrower margin — 58.1% for and 41.9% against, representing a difference of about 236,000 votes — according to the Colorado secretary of state’s office. Prop MM asked to raise up to $95 million annually by reducing the itemized or standard state income tax deductions high-income earners can claim. Currently, those deductions stand at $12,000 for single filers and $16,000 for joint filers. With the passage of Prop MM, these will drop to $1,000 and $2,000, respectively.

The Colorado secretary of state’s office estimates that Coloradans with a federal taxable income of $300,000 or more will see their income taxes increase by an average of $486 as a result of the passage of Prop MM.

Texans Opt for Untaxed Feed and Money for Water

Just under 16% of Texas voters turned out to voice their desires on two different amendments to the state constitution. Proposition 4 asked voters if the state could ear-mark up to $1 billion in its sales and use taxes for water infrastructure, and Prop 5 asked voters to not count animal feed stored for retail sale among property taxes. Both passed with noteworthy margins.

Prop 4 passed with a more than 40 percentage-point spread at 70.4% in favor and 29.6% opposed, a difference of about 1.2 million votes, according to the Texas secretary of state’s office .

The state constitutional amendment proposed to earmark the first $1 billion dollars after $46.5 billion is collected via sales and use taxes each fiscal year for the Texas Water Fund. This fund, administered by the Texas Water Development Board, goes to fund other water-related projects and initiatives throughout the state.

The amendment also requires that no less than 50% of the money that goes into the Texas Water Fund as a result of this measure must go to the New Water Supply for Texas Fund and/or the State Water Implementation Fund for Texas . Together, these two funds focus on increasing water supplies in the state. This can be through efforts like reservoir building, recapture and reuse projects, acquiring water or water rights from nearby states, or desalination efforts.

Prop 5 passed with 63.6% voting in favor and 36.4% voting against. With the passage of this amendment, “animal feed held by the owner of the property for sale at retail” will no longer be subject to property tax. According to Texas state Rep. Cody Harris, R-District 8, who authored the bill, the amendment will bring added consistency to how the state handles animal feed as it relates to taxes.

Across the state, only 15.7% of eligible Texas voters cast their vote on this issue. Perhaps unsurprisingly, however, voter turnout for this amendment was higher in small, rural counties.

Paul Neiffer: Should I Boost Income to Increase Social Security Benefits?

Tue, 26 Oct 2021 01:00:49 GMT

I am frequently asked: “Should I maximize my earned income for a few years before retirement to increase my Social Security retirement benefits?” My answer is the typical, “It depends.”

THE CALCULATION

First, understand how Social Security retirement benefits are calculated. You find your highest 35 years of indexed earnings based on wage inflation. After you determine your indexed earnings by year, add the 35 together and divide by 420 to arrive at the total average monthly indexed earnings (AIME). However, this is not your monthly benefit.

We now apply up to three factors to these earnings to arrive at your primary insurance amount (PIA), which will be your monthly benefit at your full retirement age (67 for most farmers).

The first factor (or bend point) is $996. We value these earnings at 90%. Average earnings between $996 and $6,002 are valued at 32% and any average earnings over $6,002 are valued at 15% (2021 values).

Let’s assume a farmer has an AIME of $7,500 ($90,000 annual income). The first $996 is valued at 90% ($896.40). The amount be-tween $996 and $6,002 is valued at 32% ($1,601.92). The excess of $1,498 is valued at 15% ($224.70). The PIA is $2,723, which she would receive at age 67. If she retires early, PIA would be reduced, and if she waits until age 70, she will earn an extra 24% (no benefit to wait until after age 70).

EARNINGS BEFORE RETIREMENT?

For farmers who have consistently earned at least $70,000, reporting extra earnings before retirement gains little. Why? Since the val-ue is 15%, it will take the farmer 30 years to break even.

If a farmer earns $100,000 in 2021, the maximum monthly amount of benefit the farmer could earn is $35.71 per month ($100,000 / 420 x 15%). The farmer paid in $15,300 of Social Security and Medicare tax to achieve $35.71 per month. It would take over 35 years to break even. This also assumes the farmer is replacing a zero-income year with these earnings, which rarely occurs.

If the farmer is in the lowest “bracket,” the break-even time is about six years. In the second bracket, it increases to 17 years. If your spouse has little or no work history, the break-even periods would be decreased by about a third.

The bottom line is paying in extra Social Security taxes rarely has a great return. Review this with your advisers to see what makes sense for you.

Scan to listen to Paul visit with business-minded farmers and ag experts on The Farm CPA Podcast.

Paul Neiffer is a tax principal with CLA and author of the blog, The Farm CPA. He grew up on a farm in central Washington and still resides in the state.

Paul Neiffer: 2022 Year-End Tax Planning Tips

Thu, 20 Jul 2023 19:11:42 GMT

Tax planning seasons is rapidly approaching for farmers. The normal process is to determine the optimum amount of taxable income to report. Then you determine how much income to defer into the next year or how much farm in-puts to prepay this year.

Rarely do we want to show no taxable income. Our goal is to show enough income to soak up the standard deduction plus pay tax in the 10% and 12% tax bracket. Higher income farmers will soak up even more income.

However, this year has some changes. Here is a brief guide.

Should we elect to defer crop insurance proceeds and Emergency Relief Program (ERP) payments? Many farmers will collect crop insurance this year. A farmer is allowed to defer their crop insurance proceeds to the following year if they meet the following requirements:

They are a cash-method farmer.
They normally report 50% or more of their crop sales in the year after harvest.
The crop insurance proceeds were for damage in 2022.

However, any part of crop insurance proceeds related to price cannot be deferred (The IRS finally updated their Publication 225 to reflect this.). A lot of crop insurance proceeds this year will include both damage and price. The crop insurance company will usually let you know how much to expect.

None of the proceeds from the ERP can be deferred. Proceeds received in 2022 relate to damage that occurred in 2020 or 2021. Even payments related to the 2022 wheat crop likely are for drought damage that occurred in 2021 and can’t be deferred.

What about expensing farm equipment purchases? Due to supply chain issues, a farmer might not be able to receive their new farm equipment before year end. If so, the deduction will need to be taken in 2023 even if you received and paid an invoice in 2022. Remember, 100% bonus depreciation will drop to 80% next year unless Congress extends it at year end.

Should I try to create a loss? A net farm loss can be carried back two years to offset income reported in 2020 and 2021. But, this applies only to the net farm loss, and you can only offset about $524,000 (singles can offset half this amount) against other income. If you still have a net taxable loss, you can carry it back two years or make the election to carry it forward to 2023. If you expect income to be higher in future years, then electing to carry it forward might make the most sense.

THE BOTTOM LINE

This year, more than ever, requires you to spend time with your tax adviser to pin down the right amount of taxable income to report. Good luck.

4 Year-End Tax Tips for Farmers from Paul Neiffer

Mon, 21 Nov 2022 20:36:17 GMT

Before you flip the calendar to 2023, cross a few important tax to-dos off your list, encourages Paul Neiffer, CPA and principal with CLA.

1. BE SPECIFIC WITH PREPAID EXPENSES

Supply chain struggles have put a damper on prepaid expenses. To obtain a valid prepaid expense, a farmer has to request a certain quantity of a product. If a supplier can’t provide that quantity, it isn’t a valid prepaid expense for the year.

“So many farmers think they can go down to the co-op and put a deposit down on a product for large sums of money,” Neiffer says.

“We’ve had several clients go through audits and fail on that front, despite our warnings. It just doesn’t work.”

2. STAY OFF THE TAX TREADMILL

Farmers sometimes climb on a tax treadmill ride that can last for decades. With COVID-19 aid, it might be even harder to hop off in 2022. Plus, farmers have received Emergency Relief Payments this year. These types of payments are similar to crop insurance, but you can only defer to the year after damage was incurred.

“These payments are for damage that occurred in 2020 and 2021,” Neiffer says. “2022 is the latest you could defer 2021 payments, and since producers collected them this year, they’re stuck with reporting these payments in 2022.”

3. DRAFT A PLAN FOR UNWANTED REVENUE

With the drought in the West, some cattle producers have been forced to downsize their operations. If you fall into this camp, consider a deferment.

“If a producer normally sells 500 head in a year, and this year they sold 1,000 head, they get to take that extra 500 head and either defer for one year, or up to four, five or six years — depending on how long the drought goes on,” Neiffer says.

4. COUPLE EQUIPMENT PURCHASES WITH TAX PLANNING

If you’re planning to buy farm equipment before the end of the year, here’s a refresher on two tax tools you can use .

Section 179: For 2022, the Section 179 deduction limit is at $1.08 million with an equipment spending cap phasing out beginning at $2.7 million. It can be used for new and used equipment.
Bonus depreciation: Bonus depreciation provides a 100% additional first-year depreciation deduction for qualified property through 2022.

For example, if you buy a new piece of equipment for $300,000, you can depreciate that amount this year. Or you can depreciate the asset out over its useful life, Neiffer says. For example, a new combine can be depreciated out over five years.

“If you pay cash for equipment, deducting all of the depreciation up-front is fine,” he says. “But if you are financing 100%, you may want to elect out of full depreciation and match up the yearly depreciation amounts with your loan payments.”

Jenna Hoffman is a content creator who investigates the issues in Washington, D.C., that matter most to farmers.

Buying Farm Equipment? Here’s How to Take Advantage of Tax Savings

Thu, 27 Oct 2022 19:35:10 GMT

If you’re planning to buy farm equipment before the end of the year, here’s a refresher on two tax tools you can use.

Section 179

The Section 179 deduction limit for 2022 was raised to $1,080,000 with an equipment spending cap phasing out beginning at $2,700,000. It can be used for new and used equipment.

“So with the Section 179 deduction, if you spend less than $1.08 million this year, you can write off the equipment in full and reduce your income, says Paul Neiffer , CPA and principal with CLA.

Bonus depreciation

The concept of depreciation is pretty simple, Neiffer says: “You purchase an asset and then deduct part of that cost each year until it is fully written off.”

Bonus depreciation provides a 100% additional first-year depreciation deduction for “qualified property” through 2022. Eligible property includes all farm assets, other than land.

For example, if you buy a new piece of equipment for $300,000, you can depreciate the entire amount in this year. Or you can elect out of bonus depreciation, Neiffer says, and depreciate the asset out over its useful life. For example, a new combine can be depreciated out over five years. Used farm equipment is depreciated over seven years.

“If you pay in cash for equipment, deducting all of the depreciation up front is fine,” Neiffer says. “But if you are financing 100% of the purchase, you might want to elect out of the full depreciation and match up the yearly depreciation amounts with your loan payments.”

Currently, first-year bonus depreciation at 100% will remain in effect until January 1, 2023. After that, the following phase-down will occur:

80% for property placed in service after Dec. 31, 2022, and before Jan. 1, 2024.
60% for property placed in service after Dec. 31, 2023, and before Jan. 1, 2025.
40% for property placed in service after Dec. 31, 2024, and before Jan. 1, 2026.
20% for property placed in service after Dec. 31, 2025, and before Jan. 1, 2027.

With the current supply chain challenges, Neiffer says you cannot use bonus depreciation or Section 179 unless you have the new asset on your farm — it can’t just be ordered.

As with any large investment decision, Neiffer recommends you visit with a CPA about your goal before making a purchase.

Read More

4 Tax Items to Cross Off Your Operation’s 2023 Checklist

4 Tax Items to Cross Off Your Operation's 2023 Checklist

Thu, 20 Oct 2022 13:42:50 GMT

The end of the year is closing in. Are you thinking about taxes? According to Paul Neiffer, farm CPA at CLA Connect, you should be.

Here’s a tax checklist Neiffer recommends based on events in 2022.

1. Be Specific When Writing Prepaid Expenses

Historically, Neiffer says farmers have taken advantage of “prepaid expenses,” but supply chain struggles have put a damper on that system.

“Producers can go to, say, a local cooperative and request a certain amount of fertilizer or diesel. That can be done now, but it’s getting tougher with availability,” says Neiffer. “This is when we run into a valid prepaid issue.”

In order to obtain a valid prepaid, a farmer has to request a certain quantity of a product. If a supplier isn’t able to provide that quantity, it isn’t a valid prepaid on additional business expenses for the year.

“So many farmers think they can go down to the local coop and put a deposit down on a product for large sums of money,” says Neiffer. “We’ve had several clients go through audits and fail on that front, despite our warnings. It just doesn’t work.”

For producers to take advantage of these last-minute prepaid business expenses, Neiffer suggests they lock in a “specific item, for a specific quantity, at a specific dollar.”

While preparing final prepaid expense checks, Neiffer says it’s equally as important to consider the checks handed out given by the government.

2. Stay Off the Tax Treadmill

Farmers sometimes climb on a tax treadmill ride that can last, in Neiffer’s experience, 40 to 50 years. With COVID-19 aid revenue attached to the tax treadmill in recent years, Neifer says it might be even harder to hop off in 2022.

The Biden administration released various phases of Emergency Relief Payments (ERP) to producers this year. These types of payments are similar to crop insurance and yes, they can normally be deferred one year, but the farmer can only defer to the year after damage was incurred.

“These payments are for damage that occurred in 2020 and 2021,” Neiffer says. “2022 is the latest you could defer 2021 payments and since producers collected them this year, they’re stuck with reporting these payments in 2022.”

Neiffer feels some ERP phase 2 payments might be deferrable, assuming it was for 2022 damage. However, “at the speed that FSA is proceeding,” he doesn’t think those odds are looking good.

The plans for unwanted revenue and deferments don’t stop at ERP.

3. Draft a Plan for Unwanted Revenue

With the ongoing drought in the West , some producers have been forced to make changes in the size of their operations.

Chip Flory, AgriTalk host, questioned Neiffer on whether cattlemen who are selling numerous head due to lack of feed and resources can plan a deferment .

“The good news is yes,” says Neiffer. “If a producer normally sells 500-head in a year and this year they had to sell 1,000-head, they get to take that extra 500-head and either defer for one year, or up to four, 5 or 6 years—depending on how long the drought goes on.”

Once the drought is over, Neiffer says cattleman could reinvest in the herd, even if it’s breeding stock.

“We had a rancher last year who kept track of how much livestock they had to sell due to the drought,” he says. “Based on the regulations, we were able to defer another $200,000 based on how the calculations were done.”

Another important calculation to consider tracking this year, according to Neiffer, is the adjustments in inflation.

4. Consider How Inflation Might Work in Your Favor

IRS released inflation adjustments this week for 2023. At a “whopping” 7 percent, Neiffer says this is the time when inflation can work in favor of anyone’s pocketbook.

“Because each tax bracket is going up by 7%, everybody is going to be able to participate in the benefit of that 7% increase,” he says. “That increase is actually greater than the exemption was until about 20 years ago, so that’s really good news for most of our farmers.”

The 2023 tax inflation adjustments will also be reflected in:
• Lifetime estate tax exemption
• Annual gifts
• Standard deductions

Neiffer says the bottom line is inflation helps us with our taxes, but in very few other ways.

More on taxes:
No, You Really Can’t Defer Your ERP Payment
Paul Neiffer: When Can Inflation Help You?
When Can You Defer Livestock Sales Due to Drought?
The Social Security Donut Hole

USDA Farm-Bill Outline: Work as a Food-Stamp Goal

Fri, 23 Sep 2022 21:28:57 GMT

(Bloomberg) -- A Trump administration outline for farm legislation calls for pushing some food-stamp recipients back to work, a GOP priority.

A four-page document released by the U.S. Department of Agriculture on Wednesday called for supporting “work as the pathway to self-sufficiency, well-being and economic mobility for individuals and families” on food stamps. The administration didn’t specify how it would change the law or whether it wants to cut funds for the program.

The department said it wants to discourage subsidies that make farmers dependent on the government. The document also called for cutting regulations, as well as improved monitoring of how other countries may impede agriculture exports, according to the outline released Tuesday in advance of a trip by Agriculture Secretary Sonny Purdue to Pennsylvania, where he’ll discuss the proposals.

The bill, whose cost has topped $100 billion in previous years, authorizes programs overseen by the Agriculture Department, including payments to growers of corn and soybeans and funds to prevent forest fires. The current farm law ends Sept. 30, after which subsidies begin to phase out.

The outline -- described by the administration as a statement of principles -- is meant to guide legislation proposed in Congress, Perdue said in an interview in his USDA office last week. The White House is ready to get more deeply involved if lawmakers veer far from the administration’s approach, Perdue added.

“You will see more of an evolution than a revolution” in this year’s law, Perdue said. “There are some things that we can do and will propose to do in the farm bill that can be helpful.”

Recommendations on the Supplemental Nutrition Assistance Program, or SNAP -- commonly called food stamps, -- are being watched especially closely, because a partisan dispute over that issue nearly derailed the previous farm law that ultimately passed in 2014. Nutrition initiatives, including SNAP, account for most of the bill’s costs.

“The only ugly issue on the scene is the food fight between the nutrition people and the crop-agriculture people,” said Harwood Schaffer, an agricultural economist at the University of Tennessee at Knoxville. “If we don’t have to steal from nutrition to make the commodity programs work, we may be able to avoid any major problems.”

Senate Agriculture Committee Chairman Pat Roberts, a Kansas Republican who has raised concern about fraud in the SNAP program, said that while some food stamp rules may be tightened, changes to the program aren’t likely to be dramatic, given a need to attract Democratic votes in the Senate. Perdue, in the interview last week, also said the administration wouldn’t be pushing for radical change to the program.

Many people who receive food stamps do work. In 2015, the Agriculture Department said that 57 percent of working age adults in the program either had a job or were looking for one; another 22 percent did not work because of a disability.

Farm-bill leadership has traditionally fallen to Congress, with the USDA in an advisory role, though different administrations have tried different approaches. George W. Bush’s administration advanced a very detailed policy statement in 2002, which fell flat; and Bush vetoed Congress’s final plan in 2008. That veto was overridden.

President Barack Obama’s administration played little role in drafting the 2014 law. Trump told the American Farm Bureau Federation earlier this months that he’d work with Congress “to pass the farm bill on time so that it delivers for all of you.”

The $1.5 trillion tax cut Congress passed last month may make approval of farm legislation more difficult by starving programs of funds, Schaffer said.

Cotton and dairy farmers likely will seek larger subsidies, and may argue there’s more money that could be made available to them as spending on food stamps has declined because of an improving economy, Schaffer said. In 2017, spending on food stamps fell 15 percent, to $68 billion, from its peak four years earlier.

Roberts and House Agriculture Committee Chairman Michael Conaway, a Texas Republican, have both said they’d like a bill in their chambers early this year. Neither has revealed a plan.

©2018 Bloomberg L.P.

Moneywise

Fri, 23 Sep 2022 21:31:57 GMT

Test Your Grain in the Field

Late planting combined with a number of other weather trials this summer resulted in some quality issues such as cob rot, agronomists report. If you think any of your crop may be affected by damage that will reduce the price you receive—and especially if you suspect molds or fungus—you would be wise to get samples checked before you bin the grain.

Crop insurance policies for corn, grain sorghum, barley, rye, wheat, oats, sunflowers, soybeans, canola, flax, and safflowers all may qualify for quality adjustments. “Your policy and its special provisions list will tell you the types and levels of quality deficiencies that are covered, describe how and under what circumstances various discounts will be applied and specify who must obtain the samples and can perform the determinations,” says Laurie Langstraat of National Crop Insurance Services. “Contact your agent or insurance company if you have any questions.”

Tax Treatment. If you receive crop insurance indemnity payments, they generally have to be declared as income in the year received, says Rob Holcomb, University of Minnesota Extension economist. “You can postpone reporting the proceeds for actual physical damage until the next year,” he adds, if you meet all the following conditions:
• You use cash accounting.
• You receive the insurance payment in the year the crop was damaged.
• You can show that under normal business practice, the crop income would have been in a year other than when the damage occurred.

Payments on policies that aren’t based on actual losses by the insured, such as county-based coverage, cannot be deferred under I.R.C. Sec. 451(d).

If you have revenue-based coverage, there’s a formula to compute the portion of the payment deemed to be tied to crop yield versus price changes. Your claim report may show the computation. For more information, see www.taxworkbook.com and www.irs.gov (Publication 225). —Linda H. Smith

Guidelines on Pay

Many farm operations don’t really treat management and labor as defined expenses—the owner “pays” himself whatever is left over. Roy Ferguson of the Ferguson Group, a financial consulting firm, suggests some guidelines to help you calculate where you stand:

1. Management Comp. This should be 4% to 6%, occasionally as high as 8%, of total sales. “If your farm generates $1 million or more, you should have no difficulty justifying $40,000 to $80,000 management compensation,” Ferguson says. “A $100,000 operation, on the other hand, needs to expand or get additional funds elsewhere.”

2. Total Labor Costs. These are about 8% to 9% of annual sales. “Payroll taxes, vacations, housing, bonuses and so on should be included. Operations with total sales of $500,000 should have no difficulty.” Labor includes any person who does not participate in ownership, planning or supervisory responsibilities, as well as custom hire payments.

3. Sales-to-Labor Ratios. Grain farms should have $12 to $14 in sales for each $1 of labor cost (7% to 8% of total sales) to ensure they are efficient in labor. Confinement livestock operations should have ratios in the $16 to $20 sales range (5% to 6.25% of total sales), Ferguson says. “Small operations might want to combine management and labor costs, in which case it should total 12% to 16% of total sales, providing a $6 to $8.50 ratio.” —Linda H. Smith

“For livestock producers, lower feed costs are like coming up for air, not a reason for a sigh of relief.” —John Lawrence, Iowa State University ag economist

Top Producer, October 2009

Tax Credit For Your Health

Fri, 23 Sep 2022 21:32:06 GMT

jbernick@farmjournal.com

The recent health care reform law has created a new tax credit for certain employers who pay for their employees’ health care premiums. The tax credit, which is effective immediately, can cover up to 35% of the premiums a small business pays to cover its workers, says Clinton Baker, CPA and manager with Kennedy and Coe, an accounting and business consulting firm based in Kansas.

The tax credit is available to farm employers who provide health care and have fewer than 25 employees earning an average compensation of less than $50,000. The maximum credit for 2010 through 2013 is 35%; the credit increases to 50% for 2014 and 2015.

“The law allows for exclusion of owners and family members of owners from these calculations, and that helps bring the average compensation number down to something more realistic, making farmers more eligible for this tax credit,” Baker says.

The Congressional Budget Office estimates that the health care tax credit will save small businesses $40 billion by 2019.

“These tax credits provide some immediate relief in making health insurance affordable for small businesses that provide coverage to their employees,” says Jon Bailey, rural research and analysis director at the Center for Rural Affairs. Over time, he believes, as the features of health care reform legislation are implemented and take effect, rural small businesses and the rural self-employed will reap the benefit of pooling and larger group coverage that provides comprehensive, affordable and continuous health care coverage.

Eligibility. To be eligible for the tax credit, you must meet the following conditions, says Paul Neiffer, a CPA with Hansen NvO, based in Washington:

• You employ on average fewer than 25 full-time equivalent employees during the year. The way to calculate this is to take your total paid employee hours (excluding the excess of any hours for employees who work more than 2,080 hours in the year) and divide by 2,080 (the number of hours in a 52-week, 40-hours-per-week work year). If the number is less than 25, you qualify; if more than 25, you do not qualify, Neiffer says.

• The average wage paid to your employees is less than $50,000 per year.

• You pay health insurance premiums under a “qualifying arrangement,” which means that you pay at least 50% of your employees’ health insurance premiums.

One last point to note, Neiffer adds, is that the amount of the premium that is eligible for the health care tax credit is derived from the actual premium paid by the employer. This amount is also subject to a cap based on what the employer’s premiums would have been for the small group market for his or her state (or states). In addition, if the employer pays 80% of the insurance premium, the cap is based on 80%.

Top Producer, Summer 2010

Worried About Biden’s Tax Plan? Paul Neiffer Has Recommendations

Wed, 26 Jul 2023 19:51:05 GMT

It’s time to talk taxes again. President Joe Biden’s tax plan, which includes the American Families Plan and American Jobs Plan, has both good and bad news for farmers, says Paul Neiffer, a CPA and principal with CLA and author of the “Farm CPA” blog .

The proposed changes represent the most dramatic shifts in tax policy since 1986, Neiffer says. He shares an overview of the key changes in his online Farm Journal Field Days presentation.

In light of the proposed changes, Neiffer has the following recommendations for farmers.

Don’t panic. The changes are still proposals. “The final rules will likely happen in December, if they happen at all,” he says.
Be ready to make gifts. “You definitely want to be ready to make some large gifts this year because your ability to do those gifts after this year may be curtailed or eliminated,” he says. “But do not make gifts if it’s going to curtail your retirement funding.”
Discuss your options with your income and estate tax advisers.
Keep posted on the changes. With each new proposal that affects farmers, Neiffer will share his thoughts on his blog and in Top Producer magazine.

The bottom line, Neiffer says, is these changes could just be temporary.

“If there’s a complete change in the House, Senate or President in four years or so, a lot of these proposals that become law may get taken out,” he says. “Be aware of the proposals but realize not all of them are going to go through.”

To hear Neiffer’s thoughts on the estate tax proposals, transfer tax, 1031 exchanges, discounts, charitable remainder trusts and more, register or log in to Farm Journal Field Days.

Read More
The Farm CPA Blog

The Proposed Transfer Tax Can be Much Worse for Most Farmers Than the Estate Tax

How the American Families Plan Might Impact Your Operation

Paul Neiffer: What the “Green Book” Might Mean for You

$1B to Biofuels in Build Back Better

Mon, 27 Dec 2021 18:52:54 GMT

USDA Secretary Tom Vilsack and Rep. Cindy Axne joined AgriTalk with host Chip Flory and Pro Farmer policy analyst Jim Wiesemeyer recently to comb through President Biden’s reframe of the Build Back Better (BBB) plan.

The proposal is now $1.75-trillion dollars and is almost 25-hundred pages long. It includes the following for biofuels:

$1 billion in funding for the biofuels industry
A four-year extension of the $1dollar biodiesel tax credit
Plans to develop “sustainable aviation fuels
$320 billion in clean energy tax credits
$110 billion for investments in clean energy technology
$105 billion to address extreme weather

Ethanol

“There is a specific appropriation of $1 billion for the industry,” says Vilsack. “Secondly, there are a series of tax credits the industry could potentially take advantage of as it formulates low carbon fuel, and the combination of those two is a very positive aspect.”

Projections for sustainable aviation fuel (SAF) have been top-of-mind for Vilsack. He says the industry can expect a 35-billion-gallon demand.

Opportunities for production facilities to “be able to store carbon, to sequester carbon and there is a potential tax credit that they can benefit in the bill for that kind of storage capacity,” says Vilsack.

Representative Cindy Axne (D-IA) shared ADM’s intentions to produce SAFs at multiple locations, saying, “they expect to get to 500 million gallons a year and then scale up.”

Conservation

The decreased BBB budget reduces conservation funding from $28 billion to $27 billion for programs like Environmental Quality Incentives Program (EQIP) and Conservation Stewardship Program (CSP), as well as the conservation easement efforts.

“When was the last time we invested $27 billion over a couple years in conservation programs? Never… There’s $27 billion in additional assistance for forests to help avoid these catastrophic forest fires,” Vilsack says.

Rural Economy

“There’s a significant amount for rural housing, rural economic development, and billions of dollars for the Rural Energy for America Program (REAP),” says Vilsack.

USDA renewable energy grants will also be made available through BBB in the range of $3 billion. Vilsack says universal preschool, college expense assistance and lower healthcare and housing costs are also included “to strengthen American families.”

Axne elaborated on these efforts saying the childcare provision will provide relief for those looking to reenter the workforce as it is “the number one thing that’s holding people back from getting into the workforce.” She says this legislation will help roughly 20 million children.

In conjunction with the BBB, Vilsack emphasized the bipartisan infrastructure (BIF) package will improve broadband access in rural America, along with improved roads, bridges, ports, and inland waterways. He also shared he recently rode a barge down the Mississippi River that resulted in over an hour and a half wait for a barge to move through a single lock and dam. “You’re going to cut that time in half” with the BIF improvements, he notes.

Vilsack also noted opportunities to increase debt-relief for farmers “who are in a distressed circumstance that have loans from USDA” can be found in the reframed BBB.

Climate Change

Commodity Credit Corporation’s (CCC) authority for carbon goes untouched in the new BBB, according to Vilsack.

“We are confident that the program we announced last month, which will utilize the Commodity Credit Corporation, is a legitimate use of those resources as it is helping to create a climate-smart commodity and the standards for climate-smart commodities so that there will be some clarity and some direction in the future as to folks who want to go to consumers and say, ‘Buy our stuff because it is produced sustainably,’” says Vilsack.

The climate-smart commodity efforts development, according to Vilsack, will open the door for documentation of how commodities are produced. “For that, farmers should be compensated, and they should also be able to legitimately participate in carbon markets that are privately operated,” he says.

Stepped-Up Basis

In the BBB reframe, Vilsack claims there isn’t any literature outlining the end of the stepped-up basis. Additionally, there is “nothing” suggesting the current estate tax will be altered.

“The people that are paying for this are corporations that made more than $1 billion and didn’t pay any tax, and individuals that make more than $10 million per year or $25 million--they might pay a little extra tax,” Vilsack says. “I think they can afford to do that. And tens of millions of American families are going to see their taxes reduced because the child credit continues and because the Earned Income Tax Credit is extended and increased.”

House Agriculture’s Glenn Thompson (R-Pa.) shared he’s fearful the tax policies “shrouded in secrecy”, will wreak havoc on farm families, saying, “a recent study has shown these policies could add $1.4 million to the average tax liability for a farm family.”

Biofuel Aid

Vilsack provided an update timeline on the COVID-19 aid package for biofuel producers, saying “It’s ready to go, we just need to get the clearance from OMB and the White House, and I’m sure we will get that very soon.”

“It may physically still be here [at USDA], but because we have been working with OMB, once it goes over there it’s not going to take very long for them to sign off on that,” Vilsack says.

According to Vilsack, the USDA will detail how the funds will be split up to help the industry. He says the combined tax credits and support through the BBB demonstrate industry support and interest in aviation biofuel.

The reframed BBB legislation will continue the $1-a-gallon tax credit for biodiesel that was previously noted in the original, $3.5 trillion plan. However, under the new, $1.75 trillion plan, that credit will now only through 2026 and would then be replaced by a clean fuel credit that could extend to other products, including sustainable aviation fuel and lower carbon versions of ethanol.

Newest Tax Proposal in Washington Won’t Impact Most Farmers Today, But Tax Expert Warns it Could Be a Trojan Horse for Higher Taxes

Tue, 26 Oct 2021 18:08:47 GMT

Senate Democrats are pushing for a new tax proposal this week in order to help fund two impending spending bills in Washington D.C. What’s being proposed is called The Billionaires Income Tax, and it will do just that: impose a tax on billionaires. One farm tax expert thinks the proposed tax changes tied to the plans could turn into a trojan horse for farmers.

As Democratic leaders in the House work to secure a vote on the $1 trillion bipartisan infrastructure plan yet this week, legislators are also hoping to reach an agreement on Biden’s Build Back Better Act. In total, the spending package comes with a price tag of $2 trillion and includes everything from climate initiatives to social safety nets the Biden administration is trying to pass.

“In a package that’s supposed to be about giving everybody a shot to get ahead, it would be a big mistake, from both a policy and political perspective, not to ask billionaires to pay a fair share,” said Senate Finance Committee Chairman Ron Wyden, D-Ore.

Newest Tax Proposal Wouldn’t Impact Most Farmers

Since spring, the issue with the massive spending plan is how to pay for it. The new proposal would impose a tax on unrealized capital gains and also hit the step up in basis.

“I wouldn’t call that a wealth tax, but it would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals, and right now escape taxation until they’re realized, and often they’re unrealized in the death benefit from so-called step Up of basis. So, it’s not a wealth tax but a tax on unrealized capital gains of exceptionally wealthy individuals,” says Treasury Secretary Janet Yellen

Eliminating the step up in basis is an idea many farmers have worried about since the Biden administration started floating around possible tax changes.

Farm CPA Paul Neiffer says as the tax proposal sits today, the majority of farmers won’t be hit with the tax change since they have to bring in at least $100 million dollars of net farm income, for at least three consecutive years.

“I’m not saying I think there’s lots of things that will probably be in there would affect farmers, but strictly based on this proposal that Janet Yellen outlined, this proposal won’t impact the majority of farmers,” says Neiffer.

The Farm CPA says at this point, only farmers who are already billionaires would be included in the newest tax proposal.

“There might be a couple billionaires out there that are doing a lot of farming,” says Neiffer with CLA. “We know that there are some billionaires that have farm operations. So yes, it would impact those farmers. But for the rank and file farmers, as it’s currently proposed, it would really not affect them, because they have to have at least $100 million in net income for at least three consecutive years, or they have to be worth at least a billion dollars.”

A Trojan Horse for Higher Taxes?

Neiffer says even though the proposal would impose capital gains tax on liquid assets, it’s only triggered when they sell those assets. However, he thinks it’s a proposal that opens the door for changes down the road that could end up impacting farm families.

“The issue is if they get this in place, it starts at $1 billion, and then suddenly, it’s going to drop to $500 million. Then it’s going to drop to $100 million, then it’s going to drop to $50 million, and eventually, it’s going to drop to $10 million. And then that’s when it’s really going to affect our farmers, especially if the income is going to drop down to $1 million or less. So, this is just sort of like the Trojan Horse. Let’s get that Trojan horse into the gates, so to speak, and then we’ll let the lower amounts drop, not in the next year or two, but within 10 years, and that’s when it will definitely affect farmers.”

AgDay reported Tuesday that The Wall Street Journal’s estimates show the proposal would likely only affect less than 1,000 of the nation’s wealthiest citizens. Democrats are also eyeing a 15 percent corporate minimum tax. If progress is made this week, it puts the plan on track to be passed before surface transportation funding runs out on Oct. 31.

The Biden administration’s tax changes originally proposed earlier this year showed those tax changes could be costly for family farms. The report from Texas A&M University’s Agricultural & Food Policy Center (AFPC) showed the original proposal from the White House would have produced a significant tax liability across all the U.S. farms. In fact, the only farms that wouldn’t have seen impacts would have been ones that rent 100% of their ground.