Taxes

Inside The Tax Return of Your Farm's Future

Thu, 09 Apr 2026 14:31:53 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 20:01:10 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

Tue, 21 Oct 2025 19:06:53 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

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

Fri, 17 Oct 2025 16:08:05 GMT

Taxes don’t destroy family farms – people do, says Polly Dobbs, an estate planning and wealth transfer specialist.

“It’s not Uncle Sam – it’s your third wife and your kids from your first two wives, it’s your kids in the city versus your kids on the farm, and it’s ultimately your failure to plan for all that because you don’t want to hurt somebody’s feelings,” she explains. “It’s very lazy to say that taxes ruin the farm. That’s rarely the case.”

All the details matter, says Dobbs with Dobbs Legal Group LLC. She doesn’t believe in sugarcoating the hard truth. That’s why she’s devoted her career to helping farm families navigate estate planning and wealth transfer.

A “Permanent” Estate Tax

On July 4, President Donald Trump signed into effect the One Big Beautiful Bill, which has a significant effect on federal taxes, credits and deductions.

When it comes to gift and estate taxes, Dobbs points out a big change under the Internal Revenue Services (IRS) section.

“The new exemption as of Jan. 1, 2026, will be $15 million per person, or $30 million for a married couple,” she said at the Keystone Cooperatives Co-op Classic in Valparaiso, Ind. “It is one exemption. You either use it during your lifetime to make gifts, or you have it available at death to shield inheritances. You don’t get two.”

This is an increase from $13,990,000 per person in 2025, and a welcome relief from the anticipated “drop off the cliff to around $7 million per person that was looming,” Dobbs adds.

Unlike the Tax Cuts and Jobs Act from 2017, she says the exemption is considered permanent in that it doesn’t have a “self-destruct, sunset date.” However, she warns farmers not to get too excited about the “permanent tax act” because any future Congress and President can change any law on the books.

The new exemption will be indexed to inflation, she adds, and with adjustments made Jan. 1 every year beginning in 2027. IRS recently announced the tax year 2026 annual inflation adjustments for more than 60 tax provisions, including the income tax rate schedules and other tax changes. The annual gift tax exclusion will remain $19,000 in 2026, unchanged from 2025, which is the amount each donor can give to each recipient, without tapping into his or her big exemption.

“During the fourth quarter of every year, we’ll get inflation numbers, and we will know what the new exemption is going to be the following January,” Dobbs says. “It is nice to know there’s no ticking clock on this tax act. We can stop worrying about this dreaded sunset that was to happen at the end of 2025. The fact they got ahead of this and did it in July of 2025 is a gift.”

Dobbs has been working in gift and estate tax laws for 25 years and says there has never once been a permanent tax act.

“This is important information,” she says. “But that’s the caboose. It is not the engine that should be driving the decision making about the farm’s succession and estate planning. Family goals come first.”

Big Beautiful Bill: What Farmers Need to Know

Mon, 07 Jul 2025 20:43:18 GMT

President Trump signed the One Big Beautiful Bill (BBB) on Friday July 4, 2025. Here’s an outline of some of the key details farmers need to know. Reference prices and the calculating of effective reference prices get across the board increases and will likely lead to an additional $10 billion of support in 2026.

Many farmers operate their farm as either an LLC or S corporation to save on self-employment taxes and to provide additional legal protection. However, a general partnership provides benefits for farm program payments purposes that an LLC or S corporation does not. The BBB now provides equality for LLCs and S corporation with general partnerships.

Let’s look at an example:

The ABC Farm LLC has three equal owners, all active participants in the farm operation.
The LLC qualifies for $500,000 of payments for the 2024 crop year.
Prior to the BBB, the LLC was limited to $125,000 of payments.
If ABC Farm had been a general partnership, then the payments would be limited to $375,000.
After the BBB, the LLC will qualify for $375,000.

Under pre-BBB rules, farm income typically did not include gains from selling farm equipment. FSA required your other farm adjusted gross income (AGI) to exceed 66.66% of total AGI. The BBB fixes this by simply stating gains from selling farm equipment is farm income along with agri-tourism and the direct-to-consumer marketing of agricultural products.

Crop insurance premium support will get an extra 3-5% increases on subsidies and beginning farmers will now get enhanced premium support for 10 years instead of five.

A farm couple starting in 2026 can now be worth $30 million ($15 million each) and owe no federal estate tax. This will be indexed to inflation and with very simply planning you can easily be worth $40 million and owe no federal estate tax.

Farmers can now take advantage of 100% bonus depreciation for assets placed in service after January 19, 2025, and Section 179 has been bumped to $2.5 million for 2025.

The state and local tax (SALT) limit has been temporarily increased to $40,000 through 2029. However, if your AGI exceeds $600,000, it drops back to the current $10,000 limit. Farmers can continue to fully deduct state income taxes that are paid by a pass-through entity (at least in most states).

The extra 20% Section 199A deduction for next farm income is made permanent with some small enhancements.

Farmers and their spouses aged 65 or older will get an extra $6,000 deduction (each) but only for four years and this will phase out as your income goes over certain levels.

This has been a review of some of the key changes from the BBB and I would grade this Bill as a B+ for most farmers.

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 19:59:08 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 20:06:13 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.”

The Tax Man Cometh To The Farm

Wed, 19 Feb 2025 20:55:34 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

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

Mon, 06 Jan 2025 18:47:03 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.

Your Next Read:
Senate Agenda to Start 2025 Includes New Farm Bill
China 2025: 5 Predictions to Watch in the New Year
Breaking Down the 2025 American Relief Act: What It Means for You

Tax Turbulence: How Sunsetting Provisions Could Change Your Bottom Line

Thu, 19 Dec 2024 15:04:43 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?

4 Quick Succession Planning Tips With Attorney Jim Angell

Fri, 23 Aug 2024 20:46:39 GMT

A farm’s succession plan is complex. And with ever-changing laws and family dynamics, it can be hard to make sure everything gets taken care of in the process. Kansas attorney Jim Angell recently joined the Top Producer podcast to share four things you should consider for your operation’s transition.

1. Trusts For Gifting
The IRS Lifetime Gift Tax Exemption is currently $13.6 million, but there’s speculation that limit could be cut in half in 2026. If you’re going to be gifting a considerable amount before the end of next year, there are two types of trusts he recommends putting in place.

“We might use an entity, an LLC or Limited Partnership, and do some transfer gifting on that,” Angell says. “Or, we could use what’s called an Intentially Defective Trust. That allows you to maintain the income at the first level, freeze the assets and pass those on to the next generation. We use that quite a bit.”

2. Include Your CPA
Angell says your CPA is a more valuable asset in this process than you may think.

“One of the first things I do is if I don’t have the CPA in the first meeting, I make darn sure the CPA is in the second meeting,” he says. “The clients are out there grinding, surviving, and doing what they do best on the farm. The CPA professionals have a much better understanding [of the overall finances] generally, and so we rely on them very heavily in doing the advanced tax planning.”

3. There’s No Such Thing As One Size Fits All Succession Planning
It’s important to remember fair isn’t always equal, especially in situations with on-farm and off-farm children.

“We’ve got to find a way to keep the farm intact and transition it potentially to to the farming child, but at the same time be fair to the remaining heirs,” Angell says. “That farming child may end up with more equity, but they’re going to end up with a bigger challenge of the debt, worrying about drought, making the operation work, taking the risk and taking the lower return. So, when you really step back and look at it, if you’re looking at it economically, some of these children that are getting less value after the estate is fully settled are really better off in the short run.”

4. Set Up Protection From Unintended Beneficiaries
In some situations, a parent will remarry after the other passes away. Angell says it’s important to make sure this doesn’t have an unfortunate outcome for the farm children.

“Most estate plans, especially the larger ones, are going to need some protections built in there for at least a certain portion of those assets being held in an irrevocable trust upon the first death,” he says. “We try to push a pre-nuptual agreement and get the kids involved in for when dad does decide to remarry. Those situations can potentially tear families apart and the farm apart.”

Hear more from Angell on the Top Producer podcast

Expiring Estate Tax Exemption: What Farmers Need to Know

Tue, 14 May 2024 13:52:15 GMT

The sunset of the Trump Tax Cuts is around the corner and might be here before farmers are ready for it. The current lifetime estate and gift tax exemption is $13.61 million but will be cut in half beginning in 2026. This means most farmers have about 18 months to make some major estate decisions.

Also, many don’t understand we have a base exemption ($6.8 million) and a bonus exemption. This means if a farm couple has a taxable estate about $13.6 million, it is much better to have one spouse give away wealth before you have the other spouse give anything (besides the current annual exclusion of $18,000 per donee).

Gifts are taken out of the base exclusion, which is what is left in 2026. The bonus exclusion disappears. As an example, assume Bill and Joan are worth $20 million. They are comfortable giving away $13 million and retaining the rest. If Bill and Joan each give $6.5 million, they will only be left with a lifetime exemption in 2026 of $300,000 plus inflation. However, if Bill gives away $13 million, he will have little exemption left in 2026, but Joan will have $6.8 million plus inflation.

How A Grat Works

One option farmers should consider is using a Grantor Retained Annuity Trust (GRAT) to transfer appreciating land to the next generation. A farmer places land (perhaps owned by an LLC, etc.) into the GRAT. In return, the farmer will be provided with an annual annuity payment (can be cash or a return of land based on the current fair market value).

We can structure the required annuity to create little or no taxable gift to the farmer. We can also set up the GRAT as a series of rolling two-year GRATs. The only downside to a GRAT is if the appreciation and income from the land is less than the required interest rate (currently 5.4%), then the farmer will not transfer any wealth to the next generation and will be out some administration fees.

A Brief Example

Assume Joan bought land for $6,000 an acre in 2020. She places the land into a two-year GRAT with an annual annuity payment of $3,190.29. She gets a cash distribution of $310 the first year, plus the land now has a fair market value of $12,000 per acre and transfers 0.24 acres back to herself worth $2,880. In year two, she receives $390 of cash plus
0.2 acres when the land fair market value is $14,000 per acre.

The net result is her heirs end up with 0.56 acres worth $7,840 per acre with no gift tax cost.

The example shown was easy to achieve from 2020 to 2022. It might take a few years to achieve the same result, but it will likely happen and could allow you to transfer land to the next generation with minimal gift tax consequences.
Discuss options with your tax adviser. TP

How Many Interest Rate Cuts Will We See in 2024?

Thu, 25 Apr 2024 21:53:48 GMT

Ask Dr. Vince Malanga of LaSalle Economics how many interest rate cuts we’ll see the Federal Reserve announce in 2024, and he says one or two at the minimum.

This is one of his insights recently shared on AgriTalk Radio as he gave his thoughts on the U.S. economy and the Federal Reserve’s maneuvers.

On interest rates, his opinion is we should have already seen a cut.

“They should have taken a victory lap. We got a sharp decline in inflation. They should have seized on that,” Malanga says. “They would have assuaged the bond market and made it a little bit easier to sell this debt. We know the government has a prolific amount of debt they have to sell. They would have stabilized the commercial real estate sector without any change in the overall economy.”

Malanga reflects on the current short-term perspective of interest rates being restricted.

“They’re running somewhere between two and three percentage points over the inflation rate and so they’re moderately restricted,” he adds.

As such, there’s still economic improvements that demand attention. He points to the residential and commercial real estate markets as being pointedly troubled right now.

“The housing market is a mess. Housing is unaffordable, not only because of mortgage rates but also because of the cost of utilities and the cost of insurance–the cost of all that overhead,” he says. “The commercial real estate sector is a mess. There’s about a trillion dollars of commercial real estate debt that has to be rolled over and the values of commercial real estate have gone down.”

The weight of government debt on the economy is another focus for Malanga.

“There is not a day that goes by that the government doesn’t have to issue more debt. The government is the strongest sector of the economy, but the government is growing at the expense of the private sector,” he says. “Government spending, which has historically been running between 18% and 20% of GDP, is now running between 23% and 25% of GDP.”

He adds, “when you’re shoveling that much money into the economy, it’s like throwing a bunch of spaghetti at the wall. Some of it will stick.”
In addition to the economic concerns, Malanga says there’s possibility to have three wars simultaneously occurring.
“There’s no room for catastrophe,” he says.

As for what’s next, Malanga hopes the first steps are reducing government spending, and not increasing taxes, while being paired with economic stimulation.

“Government spending has to be brought under control. The most direct route by which the deficit has gotten to gain some control over is by stimulating the economy, stimulating the private sector of the economy. Deregulate the economy rather than over regulate the economy,” he says.

Malanga also shares insights on the Chinese economy, which you can hear in this full clip from AgriTalk.

What You Need To Know About Charitable Remainder Trusts

Mon, 25 Mar 2024 14:45:25 GMT

Charitable remainder trusts can be a great option for farmers preparing for retirement, but they don’t make sense for every operation.

Farm attorney Matt Folz recently joined the Top Producer podcast with Paul Neiffer to share four factors to consider before deciding to set one up.

Do you need to decrease your tax bill from selling assets?
Folz says the main purpose of a charitable remainder trust (CRT) is to avoid jumping to the top tax bracket the year you retire and sell the farm’s assets.

“When you’re done farming, you deal with a very large amount of assets that have a zero-tax basis. If you sell them, you are basically paying taxes on the whole amount,” he says. “The charitable remainder trust is designed to solve that issue. You transfer the assets into the trust, and it sells those assets.”

The CRT does not pay income tax at those initial sales and the money made is then paid out in annuities over time.

“It keeps you in a lower income tax bracket for a considerable amount of time,” Folz says. “I tell people they’re going to save taxes, and they’re going to benefit a charity. Even if you’re not charitably inclined, I bet you like charity more than the IRS.”

Are you contributing everything this year, or over time?
If you’re interested in setting up a CRT, it’s important to know there are two types to consider: a charitable remainder annuity trust (CRAT) and a charitable remainder unit trust (CRUT).

Folz says the right one for your operation depends on when you are planning to sell your assets.

“For farmers who are potentially slowing down but not retiring, a charitable remainder unit trust allows you to make multiple contributions into that trust over different periods of time,” he says. “The charitable remainder annuity trust is on a one-time contribution. You can put everything in there but you can’t contribute to it in the future.”

He adds many of his clients prefer the CRAT because it offers fixed payments over a period of time – something farmers aren’t typically used to having.

Is managing the trust something you want to take on?
While the CRT offers significant tax savings, Folz says some farmers decide paying bigger bill makes more sense for them.

“The CRT is the more complicated route – it doesn’t get easier than sell everything, pay one giant check and whatever is leftover is yours to deal with,” he says. “Not everybody wants to deal with an attorney and an accountant every year to look at their charitable remainder trust and stay on top of actually taking the annuity payments and making sure the investments are where they need to be.”

What are your retirement plans?
Another reason some farmers decide against creating the trust is due to their plans post-retirement.

“People have big goals – they want to travel and do a bunch of stuff,” Folz says. “If you convert it into an annuity, that’s your income. If you sold everything, you get more money initially and maybe that better suits your retirement goals.”

To hear more from Folz on CRTs and succession planning, listen to this episode of the Top Producer podcast.

How To Increase Your Potential SAF Tax Credits Now

Tue, 05 Mar 2024 22:54:02 GMT

With sustainable aviation fuel (SAF) tax credits beginning in 2025, the practices farmers use during the 2024 growing season will have a direct impact on their ability to take advantage of these incentives.

Mitchell Hora of Continuum Ag recently joined the Top Producer podcast to share the best ways to begin preparing now.

“If you’re selling to a biofuel plant, the company will be asking you for management information, and they might be just directly asking you for your carbon intensity score,” Hora says.

A grower’s carbon intensity (CI) score is calculated based on a tool from the U.S. Department of Energy called the Greenhouse Gases, Regulated Emissions and Energy Use in Transportation (GREET) model. The score can vary from field to field and year to year.

According to Hora, the GREET model tells growers what their crop’s carbon footprint is. And for the corn and soybeans that will be planted this spring, the footprint is already being made.

“To maximize this opportunity in the calendar year 2025, we need to optimize the carbon intensity of the corn that we’re going to grow, and the soybeans we’re going to grow in 2024,” he says. “The practices that we did this fall, like tillage, manure, fertilizer and cover crops directly impact the carbon intensity of this 2024 crop.”

The upcoming tax credits are dependent on the crop’s CI score, and the maximum credit would be $1 per gallon for ethanol and biodiesel and $1.75 per gallon for SAF. However, Hora doesn’t advise expecting to receive that value.

“I think it’s going to be tough to get there,” he says. “If my corn has a CI score of zero, it doesn’t necessarily mean the ethanol has a score of zero because there are a lot of other factors that go into it.”

He shares on average, U.S. ethanol has a CI score of 55.5 while U.S. corn has a CI score of 29 – though he has seen scores range from 44 to -13.

How to Find and Improve Your Score
As far as how to figure a CI score, producers can download the GREET model and input their data, but Hora warns it can get complicated. He shares Continuum Ag has developed a program that simplifies the model, though there is a fee to access it.

“It plugs in your typical fertilizer, typical yield, what you do for tillage, if you use cover crops, fuel usage, etc.,” he says. “Then we run the actual GREET model and as they create updates, we’re ready for it and just plug in the new model. All of our farmers will get their updated CI score.”

Once growers receive their CI scores, they may be curious how certain practices change it. Hora lists a few of the ways producers can lower their scores, such as:
• Using a cover crop ahead of corn
• Supplementing or replacing synthetic fertilizer with manure
• Reducing tillage by implementing strip till or no till practices
• Decreasing diesel fuel usage and energy inputs
• Improving yield to spread carbon input across more bushels

He also encourages consulting with your agronomist to find the steps you need to take next.

“We cannot just sit back and wait,” Hora says. “There 6 billion bushels of corn that goes into ethanol every year in this country, and right now all 6 billion bushels have a default CI score. We need to keep having the conversation of getting more farmers aware and getting more farmers to get their CI score.”

To hear more about SAF tax credits, listen to this episode of the Top Producer podcast.

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Carbon’s Next Chapter On The Farm

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The Corporate Transparency Act: What You Need to Know

Wed, 25 Oct 2023 16:11:58 GMT

Beginning Jan. 1, 2024, you will be required to report online to the Financial Crimes Enforcement Network (FINCen) any entity that is required to be filed with your state. That includes corporations, Limited Liability Companies (LLC), Limited Partnerships (LP), etc.

If the entity was in existence before Jan. 1, 2024, the due date for this filing is Dec. 31, 2024. If you create a new entity in 2024, however, the filing must be done within 30 days.

You cannot do this manually and must use the FINCen website (fincen.gov/boi). The filing will go live Jan. 1, 2024.

A large farm operation with more than 20 employees and at least $5 million in gross receipts will be exempt from filing this information but will be required to make a filing for all its other entities under that level.

The company will be required to provide its legal name, current street address, the state in charge of its filing requirements and taxpayer identification number.

All beneficial owners of the company will need to be listed. A beneficial owner is either of the following:
• Someone who exercises substantial control over the business entity (manager, officer, etc.).
• Anyone with at least 25% ownership in the entity.

For most farm operations, anyone owning at least 25% in the entity will automatically meet the first test, so you will likely list each of those owners. As far as we can tell, there are no related party rules on ownership.

The following information must be listed for each beneficial owner:
• Individual’s name, date of birth and street address.
• A unique identification number from an acceptable identification document (driver’s license, passport, etc. — not a social security number).
• The name of the state or jurisdiction that issued the identification document.

A copy of the identification document must also be uploaded. If you are opposed to uploading a copy of this document, remember, if you have flown on a plane in recent years and gone through security, the government already has a copy of your driver’s license. It is scanned when you check in at security.

Some farmers might be inclined to not provide this information. Be warned, the penalty for not providing it can be up to $500 per day and time in jail. This is something not to be taken lightly, and the time for filing is only a few months away.

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

Are you Doing Deferring Payment Contracts? Take This Step

Wed, 26 Jul 2023 17:09:06 GMT

Deferred grain contracts are helpful tax planning tools. Simply, grain is sold at the local elevator, but payment is deferred to a future date.

Most times, that payment date would be the first of the ensuing calendar year, says Paul Neiffer, principal with CLA and author of “The Farm CPA” blog .

“Under current tax rules this is a favorable treatment because even though we’ve sold it and locked in the price, we’re not going to collect the income until 2022, and that is when we’re going to pick up the income on the tax return,” he says.

Unfortunately, Neiffer says, farmers often skip a vital step: detailing the sale in writing.

“You need to make sure the deferred payment contract is set up — in writing — before you sell any grain,” he says. “Because most farmers have never been audited, they can be a little bit lackadaisical about it.”

Listen in as Neiffer discusses the issue with AgriTalk’s Chip Flory:

Why does skipping the written contract leave you vulnerable?

“The tax code includes an issue called constructive receipt,” Neiffer says. “If you don’t do the deferred grain contract properly and you get audited by the IRS, they can determine you have to pay taxes on all that money you got in January 2022 in 2021. We’ve seen some audits in this area of $30 million to $60 million of contracts. It can get very costly for some of those farmers.”

With expensive farm equipment and suppliers being hesitant to lock in prices for inputs, deferred payment contracts might be the best tax planning tool to round out 2021, Neiffer says.

“Farmers still have this week to get it done, but they need to make sure it’s done correctly,” he says. “The other nice thing about this tool is if you determine you actually could have used that income in 2021 instead of 2022, you can move that income back to 2021.”

Read more: How Not To Do a Deferred Payment Contract

Want to learn more tax tips? Read all of Neiffer’s blogs and magazine columns.

Free Webinar: Have Your Tax Questions Answered by The Farm CPA

Tue, 25 Jul 2023 18:25:42 GMT

Due to uncertainty in tax policy, you likely pushed the pause button on tax and succession planning for your farm. As you enter 2022, it’s time to start being proactive again.

There’s no one better to provide a realistic and informative take on tax planning than Paul Neiffer, principal with CLA and author of “The Farm CPA” blog.

Join Neiffer on Jan. 4 at 10 a.m. CDT for a free webinar, where he will look into his crystal ball on proposed tax changes and how it will affect your farm operation, as well as answer questions. The webinar is a pre-event session for the 2022 Top Producer Summit.

Register now: What Should Be My Tax Planning Strategy in 2022?

For 2022, the Top Producer Summit will feature both in-person event set for Feb. 14-16 in Nashville, Tenn., and an online program launching the following week, Feb. 22-23. With the theme, “Business on Broadway,” producers will hone their money, marketing and management skills.

Attendees of the webinars will receive a 30% discount on their Top Producer Summit registration fees (for either in-person or online formats).

Learn more about the webinar speaker:

Paul Neiffer is an agribusiness certified public accountant and business adviser for CliftonLarsonAllen. He specializes in income taxation and accounting services related to farmers and processors. Paul works with farmers and processors providing income tax advice and compliance services, and he consults with farm families on succession planning issues and opportunities. He also helps farmers understand the proper use of accounting systems to more profitably run their business. He authors a monthly column for Top Producer magazine called “The Farm CPA” and has written several articles for various farm magazines and media outlets.

Learn more about the 2022 Top Producer Summit.

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.

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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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.

Stepped-Up Basis Leaning in Favor of Rural America on House Ways and Means Panel

Thu, 02 Feb 2023 23:21:15 GMT

Tax policy geared toward farmers and others that transfer land and other assets to heirs will get a renewed focus at the Ways and Means Committee this year, a marker of the panel’s more rural tilt while still promoting measures that favor business.

Chairman Jason Smith (R-Mo.) has cast himself as a champion for working families, small businesses, and farmers, “not the people on K Street.”

With the retirement of former Rep. Kevin Brady (R-Texas), whose district included Houston suburbs, and the exit of former Rep. Tom Rice (R-S.C.), whose district included Myrtle Beach, and the addition of members like Reps. Randy Feenstra (R-Iowa) and Claudia Tenney (R-N.Y.), the panel now has greater rural representation.

Stepped-Up Basis Breakdown

The step-up in basis tax rule reduces the capital gains tax on inherited property. The Joint Committee on Taxation has noted that the failure to collect these taxes costs $40 billion per year, citing a 2021 Congressional Research Service report.

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

In Democratic proposals to eliminate the provision, lawmakers have included exemptions of up to $1 million and for farmers.

Rep. Bill Pascrell (D-N.J.), who has introduced legislation on the issue, told Bloomberg Tax that “people are getting away with murder” on the issue. There’s room for compromise, though, Pascrell said.

“We’ve made some considerations for farmers, small farmers, but there’s no question in my mind that inheritance has never been taxed many times,” Pascrell said. “Anybody who believes that your inheritance should not be taxed, I’ll listen to, but that, to me, is probably in the top five of what needs to be reformed.”

Favor in the House

With Republicans now in control of the House, Feenstra said he wants to introduce legislation shielding the stepped-up basis and like-kind exchanges.

Read more: Top 10 Stories of 2022: Tax Court Rules Farmer Can Use Old Tractors

The upcoming farm bill will be the first opportunity to add in those types of policies, as well as extending or renewing tax measures from the 2017 tax law that expired at the end of 2022, Feenstra said.

“There’s great opportunity for that Ways and Means can work with the Agriculture Committee,” Feenstra said, “and make sure whether it be in conservation, an energy title, or even a research and development title.”

Tenney said she hopes to make other tax measures benefiting farmers permanent, pointing to the 2017 tax law’s 20% pass-through deduction for certain businesses, which she said benefits farms in her district.

Feenstra also wants to see full bonus depreciation, which allowed companies to immediately expense capital expenditures, and which starts to phase out this year, make a return.

A research and development tax deduction that expired last year could also be included in the farm bill, Feenstra said.

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

The Farm CPA: These States May Keep an Estate Tax

Wed, 21 Sep 2022 06:23:32 GMT

Even if upcoming tax reform eliminates the federal estate tax, many states will continue to keep an estate tax as part of their tax regime. I happen to live in Washington state which has the highest tax rate in the country at 20% and if you are worth slightly more than $2 million, you will be hit with the estate tax. Now, there is good news for farmers in Washington state since actively farmed property is usually exempt from the Washington State estate tax.

The following states currently have an estate tax:

•Maine, Vermont, Massachusetts, Rhode Island, Connecticut, New Jersey, Maryland, Delaware, Washington DC
•Tennessee, Illinois, Minnesota, Washington, Oregon, Hawaii

Additionally, some states have an inheritance tax for heirs receiving property. These states are:

•New Jersey, Maryland, Pennsylvania, Kentucky, Iowa and Nebraska

Generally, if you are a resident of one of these states you are usually only taxed on real property held in that state and all of your personal property. Real estate held in other states will be subject to their estate tax, if any. If you move to a state without an estate tax (such as Florida, Texas or Arizona), you will still be subject to estate tax in any state where you continue to hold real property.

Some states allow you to convert real property to personal property (LLC, etc.) and this will now be exempt from estate tax in that state. However, these rules are complex and each state varies on what is and is not allowed.

Let’s look at some examples:

Farmer Jane lives in Oregon. She is worth $4 million when she passes away. There is no federal estate tax due since her estate is less than $5.6 million (2018 amounts) federal lifetime exemption amount. The Oregon exemption is $1 million, therefore her heirs will owe Oregon estate tax on $3 million or about $350,000.

Same example, except during her lifetime she gives away $3 million. There is no gift tax in Oregon, therefore, her heirs will owe no Oregon estate tax when she passes.

Same example, except she moves to Arizona and then passes away. In this case, she will owe no Oregon estate tax unless she owned real property in Oregon. For example, let’s assume she owned $2 million of real property in Oregon. In this case, Oregon would require her heirs to calculate the Oregon estate tax based on a $4 million value and then pay 50% of that to Oregon. Most state’s estate tax is based on the gross estate tax times the percentage held in that state.

Finally, let’s assume that when she moved to Arizona that she put her farmland into an LLC. In some cases, this will remove the value of the Oregon land from being subject to Oregon estate tax (this is an example, Oregon may not allow this).

As you can see, if you live in an state with an estate tax, it can get very complicated very quickly. Much of the estate tax planning I deal with is for state estate taxes not federal estate taxes. This is primarily due to the very low exemption amounts for states versus federal.