Taxes

Inside The Tax Return of Your Farm's Future

Thu, 09 Apr 2026 13:41:28 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 20:01:11 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 !

What Are Some Tax Management Tools Producers Should Consider?

Fri, 19 Dec 2025 14:14:02 GMT

As 2025 draws to a close, agricultural producers are being urged to take a proactive approach to tax planning rather than waiting until filing deadlines approach. Adam Kantrovich of Clemson University and J.C. Hobbs of Oklahoma State University emphasize early, informed tax management can help producers reduce stress, avoid costly mistakes and improve long-term financial outcomes.

Taxes remain one of the most challenging aspects of operating a farm or ranch. Agricultural income often comes from a variety of sources, including commodity and livestock sales, USDA program payments, conservation incentives and disaster assistance. Each income stream carries its own tax reporting rules, increasing the likelihood of confusion or errors. Producers also frequently struggle to separate personal and business expenses, which can lead to missed deductions or compliance issues.

Kantrovich and Hobbs address these challenges by outlining practical steps producers can take before and after year-end. A recent webinar hosted by USDA in partnership with Farmers.gov covered a broad range of topics, five key tax tips stood out as especially important for producers heading into tax season.

1. Plan Early

Kantrovich and Hobbs stress taxes should not be treated as a last-minute responsibility focused on only in March or April. Kantrovich encourages producers to begin estimating their tax liability as early as November, or even sooner when possible. Early planning allows producers to evaluate income, expenses and deductions while there is still time to make adjustments before the end of the year.

Planning ahead also creates opportunities to defer income, accelerate expenses or make strategic purchases that could reduce taxable income. In addition, early preparation helps minimize stress and reduces the likelihood of errors that often occur when tax preparation is rushed. Producers who plan early are better positioned to manage cash flow and avoid surprises once the tax year has closed.

2. Don’t Be Afraid to Ask for Help

Agricultural tax law is complex, and producers should not feel obligated to navigate it alone. Working with qualified tax professionals, such as certified public accountants, enrolled agents or Extension specialists, can help ensure accuracy and uncover opportunities producers might overlook on their own.

Professional guidance is especially valuable when producers experience major changes, such as purchasing or selling land or equipment, restructuring their business or receiving disaster assistance or large USDA payments. These events can significantly affect tax liability, and missteps could have long-term consequences. Extension services and USDA-supported resources also offer educational tools tailored specifically to agricultural operations.

3. Minimize Income Tax Owed

Effective tax management is not about avoiding taxes but about making informed decisions that legally reduce the amount owed. This includes understanding how different types of income are taxed and using available deductions and credits appropriately.

For example, prepaying expenses such as feed, seed or fertilizer before year-end could reduce taxable income for the current year. Producers were also encouraged to understand the differences between ordinary income, capital gains and self-employment taxes as these distinctions can influence decision-making throughout the year.

4. Optimize After-Tax Income

Beyond reducing tax liability, Kantrovich and Hobbs urge producers to focus on optimizing after-tax income. They emphasize tax decisions should be evaluated based on their overall financial impact, not just their ability to generate deductions. A purchase that lowers taxable income might still be a poor choice if it strains cash flow or does not improve operational efficiency.

Integrating tax planning with broader business planning was presented as a key strategy for long-term success. Producers were encouraged to align tax decisions with operational goals, ensuring short-term tax savings do not undermine financial stability in future years.

5. Understand and Properly Use Tax Depreciation

Depreciation allows producers to spread the cost of equipment, machinery and certain improvements over multiple years, reducing taxable income over time. While depreciation can be a powerful tool, it is also commonly misunderstood.

Special provisions such as Section 179 and bonus depreciation can allow for accelerated deductions, but Kantrovich and Hobbs caution these options should be used strategically. Improper use of depreciation can create challenges in future years, particularly when assets are sold.

Working closely with tax professionals can help ensure depreciation strategies support both current needs and long-term financial stability.

By planning early, seeking professional guidance and making strategic financial decisions, producers can approach tax season with greater confidence and clarity amid ongoing economic uncertainty.

Your Next Read: 4 Tax Tips That Ranchers Should Know

4 Tax Tips That Ranchers Should Know

Thu, 11 Dec 2025 17:05:03 GMT

The end of the year is here, but so is all the end-of-year bookwork and tax prep that comes with it.

Hannah Mann, founder of Pioneer Accounting LLC, shares several tips and strategies to help ranchers simplify tax season.

1. Bookkeeping Strategies That Work

Reducing indecision and the feeling of being overwhelmed starts with creating a benchmark.

“Having clean, real-time books lets us see multiyear trends, determine what’s making money and create better strategies,” Mann says.

Yet, she knows how challenging it is to keep books updated for the majority of ag operations.

“Most operators don’t have time for bookkeeping. That’s why having a system that’s easy and in real time is huge,” Mann says. “When you’re three or four months behind on reconciling and tax strategy time comes, it’s overwhelming.”

Mann encourages producers to find systems that work for them and not just for their CPA.

“One day I asked my clients to shoot me straight about the current program we used. They only used it because they thought it was the only way to work with me,” she says.

This personal experience shifted Mann’s approach to how she works with her exclusively ag clientele. One of her first choices for bookkeeping software is Ambrook.

“Ambrook automations can allocate expenses across enterprises for you; it’s doing the bookkeeping instead of doubling your work,” explains Mann. “In Ambrook you can see profit and loss by enterprise at your fingertips. It’s profound for understanding what’s actually making money.”

Additionally, Ambrook offers flexibility to catch up on bookwork while you wait in the school pickup line or in the other gaps of time within your day via its app. You can send an invoice from the cab of the tractor for the custom hire job as you leave the field.

No more adding things to the to-do list. That is that much sooner you get paid and have the working capital back into your operation.

2. Updating Equipment Purchases, Loans and Raised Livestock

Whether you do all of your bookwork or hire it out, having updated equipment purchases is a crucial component of tax preparation.

“A huge part of prepping for tax season is making sure every purchase order gets saved, uploaded or sent to your accountant,” Mann says. “If you buy a tractor and no one enters the asset or liability, the books don’t know it ever existed.”

Tracking interest deductions is also commonly forgotten during the end of year rush.

“Oftentimes people make loan payments but miss the interest deduction; sometimes tens of thousands of dollars left off their books,” she says.

Finally, knowing how to categorize raised versus purchased livestock can save you big time.

“Raised versus purchased livestock has to be tracked correctly. It can cost you 15 cents on the dollar if it’s thrown on the wrong line,” Mann explains .

She encourages producers to ensure their CPA and CPA’s team understand agriculture.

“You have to be sure the person doing your tax return truly understands ag so they’re not throwing steers on depreciation,” she explains.

3. Know Your Options

Every operation and business is different, which means asking your CPA about different opportunities and being flexible year to year is important.

“Keeping a good pulse on multiyear strategy matters. Ag is volatile and these tools exist because of that volatility,” Mann says.

One such tool is a Schedule J, which allows farmers and ranchers to average their income over several years.

“The IRS has said Schedule J is underutilized, but they’re not going to send you a letter saying, ‘You could have income averaged — try again,’” Mann explains. “Farmers and ranchers have so many crazy good tax benefits the rest of us can’t take. There’s just so much opportunity to keep working capital in the operation.”

Understanding effective versus marginal tax rate is also important.

“Your effective tax rate is essentially the average tax you’re paying on every dollar, where marginal tax rate is for every extra dollar you take in, what will that be taxed at,” Mann says.

“People could have a 22% marginal tax rate, but their effective rate is only 14%,” she says. “That’s the biggest thing people don’t understand.”

4. Shift Your Mindset

While taxes might not be fun to pay, they may be the better financial decision in the long run.

“I really hate to see when people try to buy their way out of tax because it hurts them on working capital and on equity,” Mann says. “Those with cash and working capital are the ones who get opportunities when land unexpectedly comes up for sale, not those buying their way out of taxes.”

Decisions about write-offs should be made clearly and with a plan.

“Before you buy that thing this year versus next year or prepay all that feed, make sure the decision comes from a place of confidence,” she says.

Depending on the scenario, Roth IRAs are worth looking into.

“If someone is effectively paying 7% tax, they’re often better off putting money into a Roth and letting it grow tax-free,” she explains.

Mann also warns people to be cognizant of other retirement funds.

“With solo 401Ks and IRAs, people don’t realize they still owe self-employment tax on that Schedule F income even if they’re contributing to retirement,” she says.

Now What?

Take these questions to your accountant and make sure there aren’t better options for you. Know your operation is unique and be open to new concepts that help build generational wealth.

Listen to the full conversation on the “Casual Cattle Conversations” podcast .

Learn more about Ambrook: ambrook.com/casualcattle

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

Wed, 22 Oct 2025 13:55:52 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 16:46:28 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.”

3 Tax-Conscious Ways for Ranchers to Spend Profits

Thu, 21 Aug 2025 10:17:03 GMT

“For most cow-calf producers, two out of 10 years are good years, four to five years are okay and the rest are pretty tough financially,” says Aaron Berger, beef systems Extension educator for the University of Nebraska-Lincoln. “We are in a season now where many cow-calf producers are going to experience profitability.”

Those dollars can be invested in a variety of areas that are beneficial in the long run — but they can also easily be misused in an effort to avoid paying taxes.

“One temptation with profit is to avoid taxes, which results in purchasing equipment or cattle,” Berger says. “I encourage ranchers to take a step back and look at the bigger picture to see if that’s truly the best option.”

Knowing where to best spend ranch profits starts by looking at the books.

“Visit with your accountant early to see where you stand financially,” he says. “That gives you time to think through the best ways to invest profits and still be tax cognizant.”

Berger suggests three areas to consider spending your profits: people, retirement and hard investments.

People

Investing in people can mean putting resources into yourself, your family or your employees.

“Take a trip, tour other operations, attend a class or even start working on your estate plan,” Berger says. “Investing in people is rewarding and pays off in the long run.”

Hiring someone can also be a smart use of profits.

“Are you in a situation to truly understand what’s happening with each enterprise?” Berger asks. “Maybe this is a year you can afford to start hiring someone to do bookkeeping or other administrative tasks for you.”

A consultant might be another wise choice.

“Who can I hire to give me an unbiased view of the strengths and weaknesses of my operation?” Berger says. “It’s easy for us to look at the neighbor’s place and wonder how they can’t see certain things, but we can also become blind to what’s happening on our own operations.”

Accounts

“So many times, ranchers are just trying to be profitable and don’t know what to do when they are,” Berger says. “Think about ways you can use profits for both retirement and to give you access to more capital.”

Find a financial expert you trust to help you understand which types of accounts will help you reach your long-term goals, including transition planning.

“Often we have all of our capital tied up in hard assets instead of cash,” Berger says. “Having money in an individual 401(k) or similar accounts can make the transition out of production agriculture smoother because you aren’t relying on the next generation to completely buy you out right away.”

Hard Investments

Hard investments in equipment and technology can move ranches forward when done strategically.

“Water development is a great place to invest your dollars,” Berger says. “Water is the first limiting factor in improving grazing development, which has a long-term impact on feed cost and profit.”

Other technologies to consider include water monitoring systems, virtual fencing, livestock scales, buying commodities in bulk, handling and load-out facilities, generators for power outages or even forage seeding.

Hard investments can also include experimenting with new enterprises.

“What other enterprises could complement current ones, and how could you use ranch profits to explore those?” Berger says. “Think creatively and look at other out-of-the-box business models that are working for other producers.”

There are plenty of options for ranchers to consider.

“Make investments now that have longer-term benefits,” Berger says. “Honestly, sometimes the best thing you can do is pay more in taxes so you can keep some cash in hand. However, this needs to be done strategically.”

He wraps it up best: “If there is one thing folks remember, it should be not to wait until December to explore different areas to invest their profits.”

Listen to the full conversation on the Casual Cattle Conversations podcast.

Big Beautiful Bill: What Farmers Need to Know

Mon, 07 Jul 2025 20:46:05 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.

The One Big Beautiful Bill Will Boost 2025 PLC Payments: Here's a Per-Acre Breakdown

Thu, 03 Jul 2025 20:11:17 GMT

Both the Senate and House GOP worked around the clock to get President Donald Trump’s massive tax bill passed this week. The One Big Beautiful Bill, which was more than 800 pages long, barely passed in both the Senate and the House, but is receiving high praise from many agricultural groups who argue the bill is a win for agriculture.

On Thursday, House GOP leaders overcame objections from even Republican lawmakers on provisions for SNAP, Medicaid and rural hospitals. All but two Republicans, Reps. Thomas Massie, R-Ky., and Brian Fitzpatrick, R-Pa., voted for the bill, which passed 218 to 214.

.@SpeakerJohnson officially signs the One Big Beautiful Bill— sending it to @POTUS' desk to be signed into law.

Tax cuts, border security, energy dominance, and so much more are coming your way. 🇺🇸 pic.twitter.com/elzAg7s4LP
— Rapid Response 47 (@RapidResponse47) July 3, 2025

But for agriculture, tax provisions received high praise, including avoiding a year-end tax hike and eliminating the so-called death tax.

“America’s cattle farmers and ranchers are pleased by the final passage of the One Big Beautiful Bill. This legislation will protect family farmers and ranchers from the devastation of the Death Tax, it will avoid a massive year-end tax hike that could have put cattle operations out of business, it expands and protects many of the small business tax deductions that family producers rely on to save more of the hard-earned money, and it funds critical foreign animal disease prevention measures that protect cattle health,” says Ethan Lane, senior vice president of government affairs, National Cattlemen’s Beef Association (NCBA).

The bill also provides $66 billion in new spending for farm programs. According to Agri-Pulse , that’s the largest infusion of new money into farm programs since 2002.

These are changes and enhancements many ag groups were pushing for in the next farm bill.

According to Farm CPA Paul Neiffer , a provision in the bill will pay the greater of ARC or PLC for the 2025 crop.

“Therefore, any anticipate increase in PLC payments would likely be the minimum amount paid to farmers for 2025 but remember none of these payments will begin until October 2026,” Neiffer explained in this in-depth analysis . “There will be a payment limit of $155,000 on ARC and PLC, but LLCs and S corporations will be treated the same as a general partnership.”

Based on Neiffer’s calculations, here’s how it will impact PLC. On average, it will add:

Corn: $22.52 per acre
Soybeans: $42.46 per acre
Wheat: $32.77 per acre
Sorghum: $9.90 per acre
Cotton: $93.05 per acre

Neiffer says while everyone’s PLC yield is different, he simply used an average yield to calculate these figures.

Potential extra PLC per acre payments. Click to enlarge.

(Paul Neiffer )

“You will note that based on June MYA prices, projected PLC payments are estimated at about $2.6 billion. Now, under the old law, all of the ARC acres elected would be removed from this table, however, remember that the new law pays the farmer of the higher of ARC or PLC so the first projected column shows what the minimum payment essentially would be,” Neiffer explains.

You can read Neiffer’s full and in-depth analysis here .

President and CEO of National Cotton Council (NCC) Gary Adams says this bill provides additional support desperately needed this year.

“The 2025 crop is going to be or shaping up to be the third year in a row that farmers will see both the market prices and the support levels below cost of production,” Adams says. “One of the reasons why this bill is so important is that for the reference price that applies to the PLC and ARC programs, those higher reference prices that are in this legislation apply to this year’s crop, and that is important because it will help if prices stay low, and stay where they are. This will put some additional support, in the grower’s pocket for the crop that they’re going to harvest this fall.”

American Farm Bureau applauded the work by Congress this week, saying, “More than half of farmers are losing money, so an increase in reference prices is desperately needed, and tax tools will help farmers and ranchers plan for the next season and the next generation.”

The bill now heads to Trump’s desk, which he plans to sign Friday at the White House.

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 17:04:34 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 17:25:09 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.”

How Your Income Taxes Will Change This Year

Tue, 25 Mar 2025 15:01:31 GMT

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

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

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

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

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

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

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

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

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

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

One Company's Unique Way To Defer Capital Gains Tax

Mon, 13 Jan 2025 15:22:22 GMT

As many farmers know, there isn’t always a next generation to pass the farm down to.

Your kids may live out of state, happily pursuing careers as doctors, lawyers and professors. They have fond memories from their childhood on the farm fondly but won’t be taking over ownership, and you’re ready to slow down and retire. So, you collectively decide selling the farm is the best option for everyone.

The problem here is that in most cases, the sale will generate a significant amount of capital gains tax, which is where Farmers First Trust can help. The company’s principal, Mike Gustafson, recently joined the Top Producer podcast with Farm CPA Paul Neiffer to explain the process.

“What we tell the farm family is to go ahead and get a farm sale in place, but what you need to have in the purchase contract is an approval that a Section 453 transaction can be done at the request of the buyer and seller,” Gustafson says.

Here’s how Farmers First Trust uses the Section 453 tax code to defer capital gains tax on a farm sale:

The title of the sale goes directly from the seller to the buyer.
The funds of the sale go to Farmers First Trust.
The family takes out a loan with an investment bank, and a loan is initiated to them four to six days after closing for up to 99% of the net sale.
After a period of time chosen by the seller with the advice of their CPA (most commonly 30 years), the final 1% of the sale is released and then the capital gains tax will be due.

“In 30 years, $1 today at 3% inflation, is going to be worth about 44 cents,” Gustafson says. “They’ve had the opportunity to maybe double or triple that money over the course of those 30 years.”

Why Use This Method
If this seems complicated, you’d be right. Neiffer cautions this method isn’t right for every family, but it does have its advantages.

“This is something that you have to be in the right situation in order to take advantage of it,” Neiffer says. “It can be a little bit more difficult than a 1031 but again, a 1031 also has its drawbacks. You only have up to 45 days to identify, typically up to only three properties, and then you only have 135 days after that, or 180 days total, to actually close on that property. This allows you to defer that maybe three years down the road, and when you’ve identified property you can just go buy it with the cash that you got from this 453 transaction.”

Gustafson adds, “They can make their own decisions on what they do with the cash before they would make that purchase. That gives them a lot of flexibility, but also a lot of responsibility. So, it’s not for everybody, but in those cases where it does work for them, it’s extremely powerful.”

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

Mon, 06 Jan 2025 18:47:04 GMT

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

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

Key Elements of the Bill and Funding

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

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

Some GOP Opposition

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

Urgent Timeline

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

Of Note:

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

Other Proposals to Reduce Spending

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

Welfare Programs

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

Environmental Regulations

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

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

Green Energy Subsidies

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

Federal Spending Cuts

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

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

Tariffs

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

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

Other Potential Areas

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

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

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 15:04:41 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?

Disaster Tax Relief Bill Passes Senate

Mon, 09 Dec 2024 11:19:00 GMT

On Dec. 6, the U.S. Senate passed the Federal Disaster Tax Relief Act (H.R. 5863). In addition to providing much needed relief to victims of hurricanes, the legislation would provide tax relief for cattle producers who received payments due to wildfires according to a NCBA news release. Previously, payments counted as taxable income.

“It is heartbreaking to see your farm or ranch destroyed by a disaster and it only adds to the pain when the payments meant to help you recover come with a tax bill,” says NCBA President and Wyoming rancher Mark Eisele. “With the devastating hurricanes and wildfires the cattle industry has suffered over the past several years, helping producers recover and stay in business is a top priority for NCBA. The Federal Disaster Tax Relief Act will prevent recovery payments from being taxed and be another tool for producers rebuilding their livelihood.”

According to the NCBA release, the Federal Disaster Tax Relief Act addresses limitations in casualty losses and allows producers to take greater deductions for disaster related losses. Additionally, the bill excludes any payments received due to a “qualified wildfire disaster” from being counted as income for federal tax purposes. The bill also retroactively applies to any wildfire payments received in tax years 2020 through 2025. Producers will have the opportunity to file with the Internal Revenue Service (IRS) for relief payments received in these previous years.

“NCBA has fought to exempt disaster relief payments from being taxed and we are thankful that the House of Representatives and Senate both passed the Federal Disaster Tax Relief Act to protect these payments from taxation,” says NCBA Executive Director of Government Affairs Kent Bacus. “We also thank Congressman Greg Steube (R-FL) for leading the effort to get this bill passed. Now, NCBA urges President Biden to swiftly sign this bill into law.”

Your next read: October Red Meat Exports Above Year-Ago Levels; Pork on Record Pace

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

Fri, 08 Nov 2024 19:59:55 GMT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NCBA Releases Findings from Cattle Producer Tax Survey

Tue, 08 Oct 2024 23:53:38 GMT

The National Cattlemen’s Beef Association (NCBA) released a report on Oct. 8 analyzing data collected in a nationwide tax survey of America’s cattle producers. With the 2017 Tax Cuts and Jobs Act set to expire at the end of 2025, NCBA collected this survey data to better understand how key tax provisions, such as Death Tax relief and business deductions, impact family-owned cattle operations.

“When I was starting out in the ranching business, I saw the devastating impact of the Death Tax firsthand and this tax nearly killed my dream of ranching with my family,” says NCBA President and Wyoming rancher Mark Eisele. “This experience pushed me to fight for lower taxes on farms and ranches, and the data collected by NCBA shows that many other producers around the country have faced similar pressure from devastating tax bills too. I urge our policymakers to see the story this data is telling—that farmers and ranchers need lower taxes to stay in business and continue feeding the world.”

The respondents to the tax survey indicated that 99% operated family-owned farms or ranches and 64% were third-generation cattle producers or greater. Additionally, the survey showed strong support for provisions such the 1031 Like-Kind Exchange, Section 179 Expensing, Bonus Depreciation, and Section 199A Small Business Deduction. The data also showed that a quarter of respondents spend more than $10,000 annually for tax preparation, filing, and potential audits, all expenses that only add further pressure to agricultural operations.

“Farms and ranches are unique small businesses, and they face a variety of challenges that our tax code must address,” says NCBA Executive Director of Government Affairs Kent Bacus. “The survey data shows strong support for tax provisions that help cattle producers reduce their taxes and invest in essential assets for running a successful cattle operation. To protect our farming and ranching heritage, we need Congress to step up and back tax provisions that help cattle producers save more of their hard earned money and set up the next generation of cattle producers for success.”

View the full report here .

Is It Too Early To Think about Tax Planning?

Tue, 27 Aug 2024 14:17:44 GMT

Does it seem too early to start planning for taxes?

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

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

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

What should you do when planning a pre-tax meeting with your tax accountant?

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

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

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

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

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

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

Ask your accountant how hard it has become, or if it’s still a good plan, to try and meet the March 1 deadline to submit taxes for agricultural producers. An alternative is to make an estimate by Jan. 15, pay the estimate, then producers have until April 15 to file and pay the difference. This can be beneficial with late information, or if income is higher this year than the previous year.

As we begin Q4, it’s not too early to consider tax planning with your accountant.

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

4 Quick Succession Planning Tips With Attorney Jim Angell

Mon, 26 Aug 2024 15:53:26 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

Here Are The Notable Changes In The House Farm Bill

Tue, 04 Jun 2024 19:04:11 GMT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

‘Green Book’ Proposals Could Mean Substantial Tax Increases

Mon, 18 Mar 2024 15:42:15 GMT

Every year the president sends a budget proposal to Congress for consideration. The section dealing with how to pay for the budget is called the Green Book, explains Paul Neiffer, The Farm CPA.

Neiffer told AgriTalk Host Chip Flory on Wednesday that the Biden administration is proposing substantial tax increases that, if passed, would impact many U.S. farmers. You can listen to their discussion here.

Six of the key points Neiffer highlights in the AgriTalk discussion and also covers online at farmcpareport.com are proposals that would include:

1. Imposing a capital gains tax on transfers, either during life or at death. Neiffer explains there would be a $5 million exemption ($10 million for couples with portability). Also, farmers could elect to defer the tax until it is no longer farmed in the family, but interest would be due and payable over 15 years.

2. The Excess Business Loss (EBL) would become permanent, and the carryover would no longer be part of the net operating loss (NOL) but would be subject to the EBL rules. Essentially the maximum NOL deduction in any year would be $500,000 (indexed), Neiffer told Flory.

3. Section 1031 gain deferral would be limited to $500,000 ($1 million for married couples) in any year.

4. Capital gains on amounts over $1 million would be taxed at 37%/39.6%.

5. The maximum Net Investment Income Tax (NIIT) rate would bump to 5%.

One Silver Lining
Neiffer told Flory there is one major provision that might help farmers:

6. Section 2032A would be bumped up to $14 million and indexed to inflation. This would allow farmers to value their land at its rental value instead of current fair market value. Current law allows for about a maximum $1.3 million deduction. This would increase it to $14 million, Neiffer says.

Subscribe to the podcast, “ The Top Producer Podcast” with Paul Neiffer . Paul visits with business-minded farmers and ag experts for lively and in-depth conversations on strategy, management, transition planning and more.

One-Participant 401(k): A Tool for Farmers and Ranchers

Thu, 28 Dec 2023 13:33:21 GMT

By Aaron Berger, Jessica Groskopf, Cory Walters and Doug Nelson, a CFP professional

According to USDA, only 40% of farm households participate in some type of retirement account. For self-employed farmers and ranchers without full-time employees, the opportunity to invest in a One-Participant 401(k) plan is a way to (1) save money for retirement, (2) reduce taxable income, and (3) provide the potential option to borrow from the plan.

What is a One-Participant 401(k)?

The One-Participant 401(k)is a qualified retirement plan designed specifically for business owners with no full-time employees other than the business owners and their spouses. Visit with your financial planner and tax advisor if you have part-time employees and are considering establishing a 401(k) for your business to make sure you comply with 401(k) funding rules.

One-Participant 401(k)s are also called Solo 401(k)s, Self Employed 401(k), Individual 401(k), One-Participant 401(k), Solo (k), Uni-k, or One-participant k.

The plan gives self-employed individuals and their spouse an incentive to save for retirement by allowing them to contribute to a 401(k) plan and not pay federal or state income taxes on the contributions until the funds are withdrawn. Or should circumstances or accounting keep their taxable incomes low, they have an opportunity to shelter substantially more money into a Roth One-Participant 401(k) than a Roth IRA. Speak to your advisors about rolling other retirement accounts into a Roth One-Participant 401(k).

With a One-Participant 401(k), contributions are made by the owner both as the employee and as the employer. For 2023, the maximum “elective deferrals” a person can contribute as an employee is $22,500. People aged 50 and older can make an additional “catch-up” contribution of $7,500 (2023). “Elective deferrals” are limited by person, not by plan. If you have another job with a 401(k) option, make sure you are not exceeding this elective deferral limit.

As the employer, you can also contribute up to an additional 20% of self-employment income on Schedule C (Form 1040) or Schedule F. The total contributions are limited to $66,000 for 2023, not counting the “catch-up” contributions for those over age 50. Visit with a financial planner and your tax advisor to evaluate your options based on your level of income for you and your spouse. The IRS Small Business and Self-Employed Tax Center may also provide some additional insight here .

One of the biggest advantages of a One-Participant 401(k) is that annual funding is not required, giving self-employed people with highly variable income the option to contribute only when times are good.

For a person to qualify for a One-Participant 401(k), owners must have at least 5% ownership share and have some self-employed income. However, it is not required that a person be self-employed full-time. A One-Participant 401(k) can be utilized by any self-employed business, including a sole proprietorship, a limited liability company, a partnership, C-Corporation, and an S-Corporation.

Contributions to a One-Participant 401(k) withdrawn from the account before age 59 ½ are subject to federal and state income tax in addition to a 10% penalty for early withdrawal. Distributions after age 59 ½ are only subject to income tax. There is no maximum age for contributing to a One-Participant 401(k). Persons who have retired must take the required minimum distributions from a One-Participant 401(k) at age 72 or 73. Consult your financial advisor for details. The deadlines for establishing and contributing to a One Participant 401(k) are dependent on the type of entity the business is structured as. Consult your financial advisor for details.

Traditional IRAs, SIMPLE IRAs, SEP-IRA, and other types of retirement plans may be eligible to be “rolled over” into a One-Participant 401(k). There are no limits to the amount of funds that can be rolled over. A rollover will not impact your One-Participant 401(k) contribution limits. For those high-income earners who have multiple IRAs and wish to do a “Backdoor Roth” contribution, they should certainly roll their extra IRAs into their One-Participant 401(k) to avoid the “pro-rata” rule for Backdoor Roth contributions.

Farmer Beware: When a Tractor Repair Triggers an IRS Audit

Thu, 12 Oct 2023 13:40:37 GMT

An Internal Revenue Service agent red-flagged a $7,800 tractor repair, entered the home of a Texas farming couple, sat in their kitchen for two full days, and combed through three years of financial paperwork.

Producers David and Deborah Hajda underwent an on-site IRS audit triggered by equipment repair expenses. An IRS agent arrived on the Hajda property, brought a packed lunch, sat inside the farmhouse kitchen, and pored over their financial past.

“It really happened—right in our little house,” Deborah says. “Everyone knows the IRS does this to private business owners, but you rarely hear the stories because people are afraid. We’re not.”

What rights do farmers and property owners have related to IRS audits?

Tractor Repair

Along the San Gabriel River at Raising Five Cattle Company , an hour northeast of Austin, Texas, the fourth-generation Hajda family grows corn and cotton on roughly 1,500 acres, along with another 1,500 acres for pasture and Angus cattle.

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In the summer of 2010, the Hajda mailbox in rural Williamson County clinked with the arrival of an IRS letter noting a problem in the Hajda’s 2009 tax returns. An agency phone call ensued: “An IRS guy from Dallas called and said they wanted to review our taxes,” Deborah describes. “I had really good records, and I offered to fax or mail him whatever he needed, but he wanted to come to the farm. It was weird because it’s a three-and-a-half-hour drive to us from Dallas, but he was intent on coming to the house.”

Several days later, the IRS agent knocked on the farmhouse door and announced the initial reason for IRS interest in the Hajda’s tax return: “Unusually high repair costs.”

Assuming the agent was referring to a $7,800 tractor repair, Deborah found the bill in a box of receipts and handed the paperwork to the agent. However, the agent then requested all bank records within a three-year window.

Deborah watched as the agent took a seat at her kitchen table, pulled out a calculator, and began picking apart the numbers of the Hajda farming operation, i.e., an audit.

“We had five kids and a 1,500-square-foot house,” she recalls. “We weren’t scammers or liars. We weren’t living high on the hog. None of that mattered to the IRS.”

$750?

The vehicle in IRS crosshairs was an early 1990s John Deere 4960. “It’s a tractor. It’s old. It’s used on a farm. It needed to be fixed. End of story,” Deborah says.

(Farm Journal)

“The whole thing was so uncomfortable and unnecessary. I’m trying to watch my baby and kids, and my husband is in the field, and there is a government representative parked in my kitchen trying to catch us cheating, stealing, or whatever other violation he thought he could find.”

After roughly five hours, the agent departed, but returned the following day, once more crunching numbers in the kitchen. “He actually brought a lunch with him to eat,” Deborah describes. “He’s sitting there asking more questions and asking for more documents.”

After two days, the IRS agent returned to Dallas, leaving the Hajdas with a penalty based on incorrect work vehicle claims—$750.

Due Diligence

If contacted by the IRS, what should a farmer do, and what legal rights do small business owners possess?

(Farm Journal)

Kelly Jackson Hardy, agribusiness principal at CliftonLarsonAllen and owner of a small feeder calf operation, advises producers to utilize a CPA as a go-between when contacted by IRS: “If a farmer or landowner is contacted or gets a letter from the IRS, we recommend they don’t ignore the notice, but they don’t need to do anything except be calm. First, send the letter to your CPA and let the CPA make initial contact with the IRS. We don’t recommend the farmer reach out on their own.”

Does the IRS typically make farm visits or go into farmer homes, as was the case with the Hajda operation? “The IRS doesn’t typically go into someone’s home to work on an audit. In fact, in July 2023 the IRS announced it would end most unannounced revenue officer visits because of safety concerns and because of growth of scams. However, farmers are sometimes different in that their office may be in their home or their machine shed,” Hardy explains. “A site visit to a farm or property isn’t abnormal for the IRS, but to have them sit at the kitchen table is not something we recommend. Most of the time, the CPA can have the IRS come to their office to review the farmer’s records.”

Legally, what avenue can a farmer pursue regarding IRS actions? “Again, use your CPA as a middle person,” Hardy urges. “If needed, you can also consult an attorney. If you can’t come to an agreement with the IRS, you can appeal to the Taxpayer Advocate Service. It is an agency within the IRS, but they are helpful.”

IRS has a three-year statute of limitations on assessments from a filing date. Hardy recommends producers maintain thorough records. “I’ve had cases where farmers didn’t keep good records and it hurt them. Keep your receipts and records on something like QuickBooks. Overall, follow the law and don’t be unreasonable. Your best defense is a good accountant that knows agriculture. Do not go into an audit alone,” Hardy adds.

Deborah Hajda urges farmers and small business owners to conduct due diligence. “We should have called our tax preparer and an attorney, but in that moment, we had nothing to hide. Now I tell people to research things for yourself and to not let the IRS in your home.”

For more from Chris Bennett (cbennett@farmjournal.com 662-592-1106) see:

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