Month: January 2013

IRS Announces Simplified Option for Claiming Home Office Deduction Starting in 2013

By Larry Gearhardt, Director OSU Income Tax Schools

A new option provides eligible taxpayers an easier way to calculate and claim the home office deduction. Currently, they are required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming this optional deduction will complete a significantly simplified form whereby they can claim a flat rate of $5 per square foot up to a maximum of 300 square feet.

The current restriction that the home office be used regularly and EXCLUSIVELY for business still applies (this means that the kitchen table does not qualify). However, if you have a designated area in your home that you use regularly and exclusively for business, you can take advantage of this safe harbor. Other restrictions are that you cannot depreciate the portion of your home used as a business, but using the new option does not diminish your right to deduct allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A.

Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees are still fully deductible. The new simplified option is available starting with the 2013 tax year reported on returns filed in early 2014. Further details on the new option can be found in Revenue Procedure 2013-13, posted on the IRS website at irs.gov.

New Director of OSU Income Tax Schools Hired

Larry R. Gearhardt started on January 2, 2013 as the new Director of the Ohio State University Tax Schools. Larry was hired as a Field Specialist in Taxation in the College of Food, Agriculture and Environmental Sciences Extension. Before coming to Extension, he most recently was the Sr. Director of Legal and Local Affairs at the Ohio Farm Bureau. Larry received his juris doctorate from the University of Toledo College of Law and a BA in Business Administration from Wittenberg University in Springfield, Ohio. In 2011, Larry received the “Excellence in Agricultural Law” award from the American Agricultural Law Association. Larry lives in Miami County where he operates a 40-acre farm.

Contact information for Larry R. Gearhardt is:
Assistant Professor
Field Specialist: Taxation
34 Ag Admin Bldg.
2120 Fyffe Rd.
Columbus, Ohio 43210
(office) 614-292-2433
(cell) 614-309-8992
gearhardt.5@osu.edu

gearhardt#2

What Does it Mean to Be a Leader on Your Farm?

by: Chris Zoller, Extension Educator, ANR

I recently saw an article by Stan Moore from Michigan State University Extension that addressed the topic of leadership on farms. This is a topic many farm managers struggle with, but is one of the critical functions that all farm managers must perform well. Below is the article Moore wrote for the Michigan State University Extension News.

What does it mean to be a leader? According to John Maxwell, “leadership is influence”. Being a leader means that your influence causes people to willingly follow you. Sometimes as farm owners/managers we forget how powerful the “willingly” part of following is. Sometimes we settle for just being the boss and that can mean that people follow you only because they are required to. Employees are still following you, but are they really being as productive as they can be, and how long will they be content in this kind of job?

As a Michigan State University Extension Educator, I recently participated in a webinar on employee management, broadcast from the Outstanding Young Farmer’ Program in Canada. The program was great, and is sure to be the topic of future MSUE News articles, but it also led me to search their recorded webinars on human resource topics. I came across a great webinar by Kellie Garrett, Senior VP for Farm Credit Canada, talking about the leadership topic. During the webinar Garrett shared several excellent thoughts on increasing the effectiveness of our leadership/influence on our farms.

To be a good leader requires more that “just being right”, we need to be able to “win others over” if they are going to willingly follow us. The messenger and how we deliver the message is often just as important as the message, when we are trying to influence others. People are more likely to believe and buy in to the message, when they trust the messenger. Your employees are more likely to get excited about your ideas and about following you if they first trust you.

Influence is about relationships. Knowing your employees, who they are and what they value, allows you to share the message in a way that they can relate to. Be careful in this area though. You need to be genuinely interested in your employees, not just trying to win them over. Trust can be broken quickly by the feeling of being manipulated.

Your ability to influence others is also impacted by the confidence you display and the optimism that you bring to the farm. Your employees need to see that you are excited about your farm and about agriculture, and that you are excited enough to want to be at the top of your game. Investing in your own personal and professional development is a must for every leader if you are going to remain out in front, leading your employees.

For more information on this, or other farm management topics, please contact me at 330-339-2337.
(Source: Michigan State University Extension News, December 2012)

OSU Extension Offers Shale Development Workshop for Landowners

Informing landowners who are dealing with shale development is the goal of a day-long workshop offered in Mahoning County by OSU Extension.   “Shale and You:  A Workshop for Landowners” will take place on Saturday, February 23, 2013 at the Mill Creek MetroParks Farm, 7574 Columbiana-Canfield Road, Canfield, Ohio.   OSU Extension’s Agricultural and Resource Law Program is sponsoring the workshop with grant assistance from the USDA’s North Central Risk Management Education Center and host support from OSU Extension Mahoning County.

Educators in OSU Extension’s Shale Education Program will provide an update on shale development in Ohio and address the topics of taxation of shale development income, wealth management, pipeline construction, oil and gas leasing issues and water testing.   In addition to presentations on each topic, the team will also provide information displays and the opportunity to speak individually with educators.  A discussion with a family who recently  experienced shale development on their farm will conclude the workshop.

Registration is $15.  Materials and refreshments are guaranteed to those who register by February 18.  Session and speaker listings, a registration form and other details are available at  http://serc.osu.edu/events/shale-and-you-workshop-landowners.   For shale development resources, visit the OSU Extension Shale Education Program website at http://shalegas.osu.edu.

Ohio State University to Host Statewide Farm to School Conference March 13

Educators, farmers, food producers, businesses and anyone else interested in creating or expanding a Farm to School program can learn from the experts on how to do so during a Farm to School conference March 13 in Columbus.

With the support of the Ohio Departments of Education, Health and Agriculture, the Ohio State University Extension will host the Farm to School conference as part of its goal to continue to expand the successful program, which works to increase students’ access to healthy foods and to help them learn more about food, health, nutrition and agriculture, said Julie Fox, director of the Ohio Farm to School program.

The conference theme is “Let’s Grow! Farm to School,” and will feature three keynote presentations, 10 panel sessions, a curriculum showcase, a salad bar showcase and other displays designed to illustrate opportunities farmers, schools and community leaders have to work together to increase students’ knowledge and access to healthy foods.

The keynote presentations highlight three national experts including Anupama Joshi, executive director, national Farm to School Network; Deborah Kane, national director of the US Department of Agriculture (USDA) Farm to School Program; and Debra Eschmeyer, director of policy and partnerships, FoodCorps. OSU Extension Director, Dr. Keith Smith and other leaders in Ohio will also join in the day of information sharing, networking and fun.

“This event is going to be something special, thanks to so many dynamic speakers, generous sponsors and a strong statewide Extension network, ” Fox said. “It’s inspiring when food providers, school personnel pre-K though college; and community leader join together to make a difference for Ohio’s youth and economy.

Panel sessions will include:
• Local Food Procurement, Opportunities for Food Service Buyers and Ohio Farmers, Service Buyers and Farmers
• Hands-on Farm to School Education
• It Takes a Village—Farm to School Partnerships
• Finding Farm to School Funding and Resources
• Students Grow: Classroom Containers, School Gardens, Student Farms
• Food Safety is Everyone’s Business
• Telling the Story, Farm to School Communications
• World Café Roundtable: Student Health and Local Food Access

Registration for the Ohio Farm to School Conference, which will be held at the Nationwide and Ohio Farm Bureau 4-H Center, 2201 Fred Taylor Drive, is now open to the first 250 registered participants, Fox said. The conference runs from 8 a.m. to 4 p.m. Registration is $50 and includes conference materials,
jump drive with Farm to School resources, breakfast, lunch, free parking and more.

Registration can be done online at http://go.osu.edu/F2SRegistration. For more information on Ohio’s Farm to School program, visit http://farmtoschool.osu.edu.

Farm to School is a national program, which in Ohio is led by OSU Extension and is supported by numerous agencies, foundations and industry organizations. OSU Extension is the outreach arm of Ohio State University’s College of Food, Agricultural, and Environmental Sciences.

Writer
Tracy Turner
614-688-1067
turner.490@osu.edu
Source
Julie Fox
740-289-2071
fox.264@osu.edu

New Animal Disease Traceability Rule Announced by USDA

A new rule establishing general regulations for improving the traceability of U.S. livestock moving between states became final on December 20, 2012 and will become effective on March 11, 2013.  The USDA has established the animal disease traceability rule to help target when and where animal disease occurs and to facilitate a rapid response that should reduce the number of animals involved in a disease investigation.  According to USDA Secretary Tom Vilsack, “The United States now has a flexible, effective animal disease traceability system for livestock moving interstate, without undue burdens for ranchers and U.S. livestock businesses. The final rule meets the diverse needs of the countryside where states and tribes can develop systems for tracking animals that work best for them and their producers, while addressing any gaps in our overall disease response efforts.”

The animal disease traceability rule differs from the National Animal Identification System launched by the USDA in 2006 and later discontinued for lack of voluntary participation by producers.   An important guiding principle for the new rule is that it is state-driven. The traceability framework will be owned, led and administered by the States and Tribal Nations with federal support. The rule proposes to provide maximum flexibility for the States, Tribal Nations and producers to work together to find identification solutions that meet their local needs and to maintain traceability data at their discretion. The intent of the rule is to address only those animals moving interstate and to encourage the use of low-cost technology.

We will take a closer look at the rule in the next few months, but for now will share a few important notes about the rule:

  • Unless specifically exempted, livestock moved interstate must be officially identified and accompanied by an interstate certificate of veterinary inspection or other documentation, such as owner-shipper statements or brand certificates.
  • The use of brands, tattoos and brand registration will be accepted as official identification when accepted by the shipping and receiving States or Tribes.
  • Backtags remain an alternative to official eartags for cattle and bison moving directly to slaughter.
  • All livestock moved interstate to a custom slaughter facility are exempt from the regulations.
  • Chicks moved interstate from a hatchery are exempt from the official identification requirements.
  • Unless moved interstate for shows, exhibitions, rodeos, or recreational events, beef cattle under 18 months of age are exempt from the official identification requirement (traceability requirements for this group will be addressed in separate rulemaking)

USDA will work with states to implement the rule in the coming months.  For more information on the new rule, visit http://www.aphis.usda.gov/traceability/.

Farm Bill Extension Means Decisions for Farmers

By: Chris Bruynis, Assistant Professor & Extension Educator

In 2008 when farmers were first provided the choice between the Direct and Counter-Cyclical Payment Program (DCP) and the Average Crop Revenue Election Program (ACRE) questions arose about what would happen if the 2008 Farm Bill was extended. Since the original rules required farmers that elected ACRE to remain in that program until the Farm Bill expired the question surfaced again when The American Taxpayer Relief Act of 2012 extended the authorization of the Food, Conservation, and Energy Act of 2008 (the 2008 Farm Bill).

USDA’s Farm Services Agency recently released the following information:

The 2013 DCP and ACRE program provisions are unchanged from 2012, except that all eligible participants in 2013 may choose to enroll in either DCP or ACRE for the 2013 crop year. This means that eligible producers who were enrolled in ACRE in 2012 may elect to enroll in DCP in 2013 or may re-enroll in ACRE in 2013 (and vice versa).

FSA will begin sign-ups for DCP and ACRE for the 2013 crops on Feb. 19, 2013. The DCP sign-up period will end on Aug. 2, 2013; the ACRE sign-up period will end on June 3, 2013.

Farmers may want to delay making the decision to elect a farm program until later in the spring once planting intentions (and possible planting progress) are known.  Projected harvest prices will reflect the planting intentions resulting in a better estimate of crop revenue.  Having a good crop revenue estimate for Ohio and each farm will allow farmers to make a better decision of the potential benefits of enrolling in ACRE.

Based on 2011 and estimate 2012 prices and the cap and cup rules in the ACRE program, the estimates revenue guarantees for 2013 are expected to be $688 (corn), $534 (soybeans), and $393 (wheat). Using average yields for these crops (157 corn, 47.5 beans, and 63 wheat) the corresponding average market year price that crops would need to be below for an ACRE payment to trigger would be $4.38 corn, $11.24 soybeans, and $6.24 wheat.  The average market year price is determined from harvest 2013 until harvest 2014 for the respecting crops.

Farmers need to pay attention to the markets and the projections and decide if ACRE is a viable risk reduction strategy to purchase (via reduced direct payments) in 2013. Farmers with questions concerning ACRE can contact Chris Bruynis at bruynis.1@osu.edu.

Changes to Federal & Ohio Estate Taxes will help Ohio Farm Families

By David L. Marrison, OSU Associate Professor

One worry which was taken off the minds of many farm families was the threat of the federal estate tax reverting to a $1 million dollar exemption in 2013. This worry was eliminated with the estate tax provisions of the fiscal cliff legislation titled American Taxpayer Relief Act of 2012 in January 2013. Farmers now can breathe easier with respect to the federal estate tax. To top it off, the Ohio legislature had also voted to repeal the Ohio Estate tax beginning January 1, 2013. These article examines these changes and how they may impact Ohio farm families.

Federal Estate Tax Changes
The American Taxpayer Relief Act permanently sets the federal exemption for gifts and estates at $5 million instead of dropping to the aforementioned $1 million level. This amount will be indexed for inflation. The IRS has announced the 2013 limits will be $5,250,000 up from its 2011 level of $5,125,000. It should be noted that this legislation included the word “permanent.” This is significant as many fiscal agreements made by Congress since 2001 have contained a phase out date.

The legislation also allows for portability or the transfer of the unused exemption of a deceased spouse to the surviving spouse. To gain this portability, the executor of an estate must properly file the deceased’s estate tax return within nine months. Once the filing is completed, the remaining exemption is transferred to the spouse of the deceased, who can then use it for her or his estate or lifetime giving. Married individuals should file an estate tax return so that their spouses can receive the exemption, no matter their wealth at the time of death.

The rate for taxing amounts in excess of $5,250,000 has increased from 35% to 40%. But for many, this was an acceptable compromise since it was scheduled to increase to 55% in 2013 (with an exemption of $1,000,000).

Ohio Estate Tax
As of January 1, 2013, the Ohio estate tax has been repealed. Governor John Kasich signed the provision into law on June 30, 2011 as part of the state’s budget package. Previously, the value of any estate over $338,333 was taxed at 7%. This limit of $338,333 was one of the lowest limits in the nation making estate planning for farm families often a tricky process.

Review your Estate Plans
With more favorable estate tax limits at both the federal and state levels, there have been concerns expressed by attorneys that farm families should not get lulled into a false sense of security. In the past, it was the fear of paying the estate tax which often prompted the family to visit their lawyer, accountant, and other planners to talk about farm succession and estate planning. Farm families should take this opportunity to visit their professionals to review their plan especially to make sure that they will not exceed the limits in the future. Families should also have a plan B for if the Ohio Estate Tax returns under future governmental leadership as well as plan for long-term care, retirement, and succession.

IRS’s New Competency Requirements for Registered Tax Return Preparer’s Struck Down by U.S. District Court

By David Marrison, OSU Associate Professor

On Friday, January 18, 2013, the United States District Court for the District of Columbia has enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order issued by U.S. District Court Judge James E., tax return preparers covered by this program are not currently required to register with the IRS, to complete competency testing or secure continuing education.

Three independent tax preparers (Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wisc) worked in conjunction with the Institute for Justice, in filing this suit against the IRS.

Beginning January 1, 2011, the IRS mandated that all paid preparers must have received a Preparer Tax Identification Number (PTIN). In addition to the PTIN, the IRS had mandated that PTIN holders who were not under a regulatory practice (such as Certified Public Accountants, attorneys, and enrolled agents) to pass the Registered Tax Return Payer’s competency exam by the end of 2013 and to obtain 15 hours of continuing education each year. Registered Tax Return Preparers would have been required to obtain 2 hours of ethics, 3 hours of federal tax law updates, and 10 hours of other federal tax law each year.

The court opinion is available online at http://www.ij.org/images/pdf_folder/economic_liberty/irs_tax_preparers/irs-opinion-1-18-13.pdf. The IRS can appeal the ruling to the U.S. Court of Appeals for the District of Columbia Circuit.

The Internal Revenue Service in a news release on its website indicated it continues to have confidence in the scope of its authority to administer this program and it is considering how best to address the court’s order and will take further action shortly. It was noted that RTRP should continue to monitor the IRS website for additional information as it is released. Information can be obtained at: http://www.irs.gov/uac/IRS-Statement-on-Court-Ruling-Related-to-Return-Preparers

Flexible Cash Farm Leases, Do or Do Not? Or Give them a Try

by: Barry Ward
Department of Agricultural Environmental and Development Economics
Ohio State University Extension, Leader, Production Business Management

We have been preaching about flexible leases for years. Flexible cash leases are THE ANSWER to all problems plaguing farmers and landowners attempting to find an equitable cash lease each year. Right?! Well….ok maybe not. Flexible leases may not be for everyone but they may be a tool you should at least consider as you try to manage the volatility in the crop sector these days.

Landowners and farmers have found it increasingly hard to agree on an equitable cash rent as crop prices and input costs have experienced a fair bit of volatility over the last several years. Cash lease rates aren’t public knowledge and don’t have any public clearinghouse such as a futures exchange so information on rates is often sketchy. The local diner does not qualify as a reliable information clearinghouse! Farmers with full yield and profit information are often reluctant to share this information with the landowner for fear of rent escalation. Landowners knowing there is significant value in “fringe benefits” that farmers provide (snow clearing, rock removal, fence-row maintenance, tiling, etc.. ) may be reluctant to recognize this value in the negotiation process.

Farmer: “I’m only paying $125 per acre for a similar farm” or landowner: “my neighbor is getting $200 per acre for land that isn’t nearly as good as my farm” are often part of the discourse as landowners and tenant farmers negotiate for a “satisfactory” lease amount.

Flexible cash leases do allow flexibility but they may not be for everyone. They do require more communication between landowner and farmer. They also require more management and record keeping. These flexible leases typically require a sharing of data from the farming operation and have a set of mathematical calculations that need to be performed at the end of the lease period. Since most flex leases require some combination of yield and price there needs to be verification mechanisms agreed to and written into the lease. (And yes, we know that not all of the leases out there are of the written variety! We recommend that you rectify this situation…that discussion is for another column…)

The following two examples display a couple of different flex lease methods that have been utilized by farmers in Ohio. The parameters included in these examples are only one possible set of figures and are not meant to suggest that these should be included in all flex leases. Lease parameters will vary widely!

Flex Lease #1
Cash Lease with a Bonus Approach

Tenant and Landowner agree on:
1. Base Rent (and Max Rent?) Base Rent should be below market rent due to landowner upside.
2. Base Gross Revenue (Agreed upon price x yield combo or Tenant Cost of Production plus X$s?)
3. How to calculate and verify Actual Year-End Revenue (Yield and Price verification)
4. How Extra revenue (Actual Revenue – Base Revenue) is shared? What %?

Example:
Base Rent: $150 (Max: $250)
Base Revenue: $869 (158 bpa*$5.50/bu.)
Excess revenue shared: 33% to landowner
Actual Revenue: $1018 (177 bpa*$5.75)
Bonus: ($1018-$869)*0.33 = $50
Total Flex Cash Lease Amount: $150 + $50 = $200/acre

Flex Lease #2
Percent of Gross Income Approach

Tenant and Landowner agree on:
1. Minimum Rent (and Max Rent?) Min. Rent should be below market rent due to landowner upside.
2. How to calculate and verify Actual Year-End Revenue (Yield and Price verification)
4. Percent of gross income as rent by crop

Example:
Minimum Rent and Maximum Rent: Minimum $150 and Maximum $250
Percent of Gross Income as Rent:
Corn -28%
Soybeans – 37%
Actual Revenue:
Corn – $750 (150 bpa*$5.00)
Soybeans – $552 (46 bpa*$12.00)
Rent: Corn -$750*0.28 = $210/a
Soybeans -$552*0.37 = $205/a

The verification part of a flex lease may be the trickiest part of the whole arrangement. The price component verification can be easily solved by choosing a market destination for price averaging in the flex lease calculation that is accessible to both tenant and landowner. Four to ten dates for closing prices may be agreed upon to include in the average price.

The difficult parameter to verify in most flex lease calculations is the yield component. Depending on the level of trust between the two parties, weight tickets, yield maps or bin measurements may be sufficient. If another verification piece is required, crop insurance yield submissions may be a good option.

One possible suggestion for handling Crop Insurance payments in a Flex Lease is to share the crop insurance proceeds and premiums in the same % as Flex Lease parameters.

For additional information on farm leases see the following sites:

OSU Extension Farm Rental Factsheet Series
http://ohioline.osu.edu/fr-fact/index.html

Legal Aspects of Ohio Farmland Leases
http://agnr.osu.edu/sites/d6-agnr.web/files/FarmLeaseFactSheet2008_1.pdf

AgLease101
http://aglease101.org/

Flexible Cash Rent Lease Examples
http://www.extension.iastate.edu/agdm/wholefarm/html/c2-22.html

For more information: ward.8@osu.edu