Tax Planning

Your Trust and Retirement Accounts

By: Robert Moore

How Do Retirees Define A 'Comfortable Retirement' And Should That Matter To You?

Revocable trusts are an important estate planning tool that is utilized in many estate plans.  Most assets can be held in a revocable trust but there are exceptions.  One such exception is retirement accounts like an IRA, 401k or 403b.  These types of accounts should not be owned by a trust and a trust should only be the beneficiary in limited circumstances.

A qualified retirement account can only be owned by an individual.  There are many rules and restrictions related to changing the ownership of a retirement account.  If you transfer a retirement account to your trust, there will likely be penalties assessed and income tax due.  Do not transfer ownership of your retirement account without consulting your tax advisor and financial advisor.  Generally, transferring a retirement account to a trust is not advised.

A trust can be made the beneficiary of a retirement account but, again, caution should be used.  Trusts usually pay higher income tax rates than individuals.  Also, it is often easier for an individual to manage an inherited retirement account than it is for a trustee to manage a retirement account on behalf of a trust.  So, it is usually best to have retirement accounts inherited directly by the beneficiaries rather than be held in trust for beneficiaries.

There are times when naming your trust as the beneficiary of a retirement account is appropriate.  The potential for higher taxes and more cumbersome administration can be offset if the retirement accounts should be managed by the trustee due to concerns with the beneficiaries.  Some situations that might justify using a trust as a retirement account beneficiary include minors as beneficiaries, concerns with marriage of beneficiary, the beneficiary’s inability to manage assets and providing creditor protection.  Particularly when a retirement account may involve large amounts of money and concerns about the beneficiary, naming the trust as the beneficiary may be warranted.

In all situations, the retirement account should have at least one beneficiary named.  If no beneficiaries are named, the account will go through probate and the administration burden on the executor and trustee will be significant.  Be sure to double-check all retirement accounts to be sure a beneficiary is named.

The integration of retirement accounts in estate planning is an important component of most people’s attempt to transfer assets to the next generation.  Be sure to discuss your retirement accounts with your attorney, tax advisor and financial advisor.  Making changes to the beneficiary designations of retirement accounts is a relatively easy process but knowing whom to name as the beneficiary should include careful analysis and consultation with your advisor team.

Ohio Budget bill includes many non-budget changes for ag

By: Peggy Kirk Hall, Attorney and Director, Agricultural & Resource Law Program

While Ohio’s “budget bill” is important for funding our agencies and programs, it always contain many provisions that aren’t at all related to the state’s budget. The budget bill provides an opportunity for legislators to throw in interests of all sorts, which tends to add challenges to reaching consensus. Though many worried about having the current budget approved in time, Ohio lawmakers did pass the two-year budget bill, H.B. 33, just ahead of its deadline on June 30.

We’ve been digging through the bill’s 6,000+ pages of budget and non-budget provisions and the Governor’s 44-item veto. Some of the provisions are proposals we’ve seen in other legislation that made their way into the budget bill. Not included in the final package were Senate-approved changes to the Current Agricultural Use Valuation law that would have adjusted reappraisals in 2023, 2024, and 2025. Here’s a summary of items we found of relevance to Ohio agriculture, not including the agency funding allocations. We also summarize three vetoes by the Governor that pulled items from the budget bill.

Township zoning referenda – ORC 519.12 and 519.25

There is now a higher requirement for the number of signatures needed on a petition to subject a township zoning amendment to referendum by placing it on the ballot for a public vote. The bill increased the number of signatures from 8% to 15% of the total vote cast in the township for all candidates for governor in the most recent general election for governor.

Legume inoculators – ORC 907.27 and 907.32

The bill eliminated Ohio’s annual Legume Inoculator’s License requirement for businesses and individuals that apply inoculants to seed. All other requirements for legume inoculants remain unchanged.

Agricultural commodity handlers–Grain Indemnity Fund – ORC 926.18

Ohio’s agricultural commodity handlers law provides reimbursement to a grain depositor if there is a bankruptcy or failure of the grain elevator. The bill revises several parts of the law that provide a depositor with 100% coverage of a grain deposit when there’s a failure:

If a commodity handler’s license is suspended and the handler failed to pay for the commodities by the date suspension occurred, the new law increases the number of days by which the commodities had to be priced prior to the suspension– from 30 to 45 days.
If a commodity handler’s license is suspended and there is a deferred payment agreement between the depositor and the handler, the new law:
Requires that the deferred payment agreement must be signed by both parties.
Increases the number of days by which the commodities had to be priced prior to the suspension — from 90 to 365 days; and
Increases the number of days by which payment for the commodity must be made pursuant to the deferred payment agreement — from 90 days to 365 days following the date of delivery.
Requiring 100% coverage when commodities were delivered and marketed under a delayed price agreement up to two years prior to a handler’s license suspension. The delivery date marked on the receipt tickets determine the two-year period. The bill also states that the Grain Indemnity Fund has no liability if the delayed price agreement was entered into more than two years prior to the commodity handler’s license suspension.
Two circumstances for 100% of loss coverage from the Grain Indemnity Fund remain unchanged by the bill: when the commodities were stored under a bailment agreement and when payment was tendered but subsequently denied. For all other losses, the new law will reduce the fund payment to 75% of the loss. Current law covers 100% of the first $10,000 of the loss and 80% of the remaining dollar value of that loss. Continue reading Ohio Budget bill includes many non-budget changes for ag →

Financial Risk Management & Contingency Planning

Source: Purdue University

Farming is never the same from year to year – sometimes prices are good, net farm income is high, and other times margins are tight. Planning ahead, or contingency planning for financial hardship is important for any farm operation. In this final episode in the Farm Risk Management podcast series, Purdue’s Michael Langemeier and Ed Farris join Brady Brewer to discuss financial risk management. How to evaluate farm financials, update financial statements, analyze performance, and when borrowing makes sense.

A Financial Risk Checklist pdf and the audio transcript can be found below.

Markers:
00:51  Evaluate Your Farm Financials
04:17  Update Financial Statements
09:32  Analyze Performance
14:07  When Borrowing Makes Sense

Farm On financial management course offers farmers, ranchers training to meet new program requirements

A new online farm management course offered by The Ohio State University College of Food, Agricultural, and Environmental Sciences (CFAES) will help Ohio’s beginning farmers qualify for the requirements of the Ohio Department of Agriculture’s Beginning Farmer Tax Credit program.

Called Farm On, the self-paced, on-demand farm financial management course was created by Ohio State University Extension professionals and is offered through OSU Extension’s new Farm Financial Management and Policy Institute (FFMPI), said Eric Richer, assistant professor and OSU Extension field specialist in farm management.

OSU Extension is the outreach arm of CFAES.

“The Farm On financial management course was created to address the needs of Ohio’s new and beginning farmers who want to better prepare themselves to operate a commercial farm in Ohio and do that with a high level of economic stability while remaining profitable and responsible at every step along the way,” said Richer, who is the lead instructor for the Farm On course. “We believe Farm On will be a great deliverable to Ohio’s agriculture industry because it is on-demand, self-paced, and taught by Ohio State’s expert farm management instructor.”

What’s unique about the Farm On course is that, not only does it comply with the regulations of the new Ohio House Bill 95 Beginning Farmer Tax Credit program, it also meets the borrower training requirements for the U.S. Department of Agriculture Farm Service Agency’s Beginning Farmer and Rancher Loan Program, Richer said.

The Farm On course includes multiple video lessons, 10 quizzes, 10 exercises, individual and group consultations, and a 10-module course that covers the following topics: Continue reading Farm On financial management course offers farmers, ranchers training to meet new program requirements →

An Agricultural Employer’s 2021 Tax Obligations: A Series

By: Jeffrey K. Lewis, Attorney and Research Specialist, Agricultural & Resource Law

As we settle into 2022 and regroup after a busy holiday season, one of things an agricultural employer should be thinking about is taxes, more specifically, have they met their obligations when it comes to federal and state employment taxes.  In this two-part series, we discuss the federal and state taxes that an employer is required to withhold from employees’ wages and the tax obligations that an agricultural employer is solely responsible for.  This series covers the taxes and obligations an employer has because of the wages paid to employees.  This series does not cover the business income or personal income tax reporting obligations of agricultural employers.

The first part of this series focuses on federal taxes and an employer’s obligations when it comes to social security, Medicare, federal income, and federal unemployment taxes. We also discuss when to pay the taxes and how to pay them.  The information contained within this series is not meant to be legal and/or tax advice.  Agricultural employers should seek out the counsel and guidance of an attorney or other tax professional to help them ensure they are compliant with their obligations under federal tax law.

Social Security and Medicare Taxes.  Generally speaking, an employer must withhold social security and Medicare taxes from the wages it pays its employees.  However, there are special rules for agricultural employers.  The $150 Test or the $2,500 Test will help determine if an agricultural employees’ wages are subject to social security and Medicare taxes along with federal income tax withholding requirements.

All cash wages that an employer pays to an employee during the year for farmwork is subject to social security, Medicare, and federal income tax withholding requirements if either of the following tests are met:

  • The $150 Test.  An employer pays cash wages to an employee of $150 or more in a year for farmwork.
    • This includes all cash wages paid on a time, piecework, or other basis.
  • The $2,500 Test.  The total that an employer paid for farmwork (cash and non-cash wages) to all employees is $2,500 or more during the year.

Continue reading An Agricultural Employer’s 2021 Tax Obligations: A Series →

A flurry of tax proposals in Congress

Source: Peggy Kirk Hall, Associate Professor, Agricultural & Resource Law

 

Taxes, Taxes and More Taxes.  

WOW … Just WOW!! 

Part II

 

You can count on tax law to generate interest in the agricultural community and that’s certainly the case with several tax bills recently introduced in Congress.  Within the last month, members of Congress proposed a flurry of tax proposals that could impact agriculture if enacted.  Of course, passing tax legislation is always difficult and subject to partisanship, and we expect that to be the case with these bills.

Here’s a look at the tax proposals receiving the most attention.

Death Tax Repeal Act of 2021.  Sen. Thune (R-SD) and Rep. Smith (R-MO) are the primary sponsors of S. 617 and H.R. 1712, companion bills introduced March 9 that propose to repeal the federal estate tax, which the sponsors claim to be “the most unfair tax on the books.”  The Act would also repeal the generation-skipping tax and make modifications to the computation of the federal gift tax, beginning at 18% under $10,000 and incrementally increasing by an additional 2%.  Cosponsors of the Senate proposal includes 30 other Republicans, and the House bill has 137 cosponsors including one Democrat.  The bills were referred to committee but have yet to see any further action.

For the 99.5 Percent Act.  Introduced March 25 by Senators Sanders (D-VT), Gillibrand (D-NY), VanHollen (D-MD), Reed (D-RI) and Whitehouse (D-RI) to “tax the fortunes of the top 0.5% and reduce wealth inequality,” this bill would reduce the federal estate tax exemption from its current level of $11.7 million per individual.  Under the proposal, estates in excess of $3.5 million per individual and $7 million per couple would pay the estate tax, which would begin at 45% for estates between $3.5 and $10 million.  The tax would increase incrementally, reaching 65% for estates over 1 billion.  The proposal would also reduce the lifetime gift tax exemption from its current level of $11.7 million to $1 million but would not reduce the annual $15,000 per person per year gift tax exemption for cash gifts.  It would limit the exemption for gifts to trust at $20,000 per year.  Protections for farmland include allowing farmland value to be lowered by up to $3 million for estate tax purposes and increasing the maximum exclusion for conservation easements to $2 million.  The bill would also prohibit reduced valuation for assets held in a pass-through entity, affecting the 35% valuation discount that is typical for farmland LLCs.

Sensible Tax and Equity Promotion (STEP) Act.  A group of Democrats in the Senate introduced the STEP Act on March 29 in an effort to “close the stepped-up basis loophole by taxing unrealized capital gains when heirs inherit huge fortunes on which the original owner never paid income taxes.”  The proposal would tax the transfer of property that has a net gain either during lifetime or at death.  During lifetime, a completed transfer to a non-grantor trust or individual other than spouse would be subject to tax but the first $100,000 of cumulative gain would be exempt.  At death, the first $1 million of appreciated assets would pass without taxation.  Transfers to charity, spouses, charitable trusts, qualified disability trusts would be exempt, as would gains on residences up to $250,000 per individual or $500,000 for married couples.  Taxes on illiquid property such as farms and some farm assets could be paid in installments over a 15-year period, and any taxes paid under the Act would be deductible from the federal estate tax.  The bill would also require gains on non-grantor irrevocable trusts to be reported every 21 years.

Corporate Tax Dodging Prevention Act.  Another bill by Sen. Sanders (D-VT) would go after the corporate tax rate.  The bill would restore the top corporate tax rate to 35%, its level prior to the reduction to 21% by the Tax Cuts and Jobs Act of 2017.  It also includes a number of provisions to reduce the ability of corporations to avoid paying federal taxes by moving income and profits offshore.

We are likely to see several more tax proposals in Congress in the coming year and time will tell whether any of them will have traction.  Some may merely be bargaining chips among the many legislative agendas in Washington.  One thing is certain–tax bills will continue to generate interest in the agricultural world, so we’ll keep readers updated on these and future proposals.

Taxes, Taxes and More Taxes. WOW … Just WOW!!

Source: Ohio Farm Bureau

Taxes are becoming more of a hot topic in Washington D.C. and some of the plans being proposed would have a disastrous impact on rural Ohio and rural America as a whole. Proposed legislation in Congress would tax capital gains at death and eliminate stepped-up basis as a way to raise revenue for government spending, causing Farm Bureau to issue an Action Alert to our members. Ty Higgins has more with OFBF’s public policy vice president, Jack Irvin.

Click here for more information

 

Farm Office Live Returns on February 10 & 12

Source: Peggy Hall, OSU Extension

Wondering what’s happening with CFAP, the Paycheck Protection Program, and Executive Orders?  So is the Farm Office team, and we’re ready to provide you with updates.  Join us this month for Farm Office Live on Wednesday, February 10 from 7–8:30 p.m. and again on Friday, February 12 from 10–11:30 a.m., when we’ll cover economic and legal issues affecting Ohio agriculture, including:

Status of the Coranivirus Food Assistance Program (CFAP)

Update on the Paycheck Protection Program (PPP).

Tax credits information

Executive Orders that may impact agriculture

Legal update on small refinery exemptions

Farm Business Analysis program results

Legislative update

Your questions

To register for the free event, visit this link:  go.osu.edu/farmofficelive