The Ohio State University announces the 2012 Southern Ohio New and Small Farm Colleges

by: Tony Nye, Extension Educator

Are you a small farm landowner wondering what to do with your acreage? Are you interested in exploring options for land uses but not sure where to turn or how to begin? Have you considered adding an agricultural or horticultural enterprise but you just aren’t sure what is required, from an equipment, labor, and/or management perspective? Are you looking for someplace to get basic farm information? If you or someone you know answered yes to any of these questions, then the OSU Extension Small Farm College program may be just what you are looking for.

OSU Extension is offering a program targeted at the new and small farmer. The Southern Ohio New and Small Farm College is an 8 week program that introduces new and even seasoned farmers to a wide variety of topics. The program will teach participants how to set goals, plan, budget, and where to find resources available for them if they chose to start a small farming operation. The courses will layout how to manage financial and farm records. Extension Educators will illustrate over 15 different enterprises that can be profitable on land as small as one acre. The educators will show the benefits and pitfalls of each enterprise so that the participant will be able to pick and chose what may work best for them and what suits their interest. To round out the experience, a bus tour will be held around area farms so that participants can see first hand how small farm life works, and also make contacts of practicing farmers in the area.

The Small Farm College was originally conceived as a way to help southern Ohio’s tobacco farmers make the transition away from that crop as government subsidies were phased out. OSU Extension Educators soon realized such programming also could benefit rural landowners who own small acreage in the countryside. Since 2005, past regional New and Small Farm Colleges have helped over 500 individuals representing 400 farms from 46 Ohio counties improve the economic development of their small family-owned farms. This program can help small farm landowners and farmers diversify their opportunities into successful new enterprises and new markets. And, it can improve agricultural literacy among small farm landowners not actively involved in agricultural production.

Many program participants don’t expect to make a living off the land, but do want to recoup something, said organizer Tony Nye of OSU Extension in Clinton County. First time farmers want their interaction with their land to be productive.
“They like living in the country, getting their hands dirty,” Nye said. “That has been their motivation for buying land.”

The New and Small Farm College will be conducted at two locations this year. The first college will be held in Morrow County at the Cardinal Center, 616 State Route 61, Marengo, Ohio on Tuesdays, beginning January 10, 2012. Classes run from 6:30 – 9:00 p.m. The Morrow County Extension office can be reached 419-947-1070.

The second location will be conducted in Pike County at the OSU Endeavor Center, 1862 Shyville Road, Piketon, Ohio on Tuesdays, beginning January 17, 2012. Classes run from 6:30 – 9:00 p.m. The Pike County Extension office can be reached at 740-289-4837.

Limited to the first 50 registrations per location.

The cost of the course is $150 per person, $50 for an additional family member. Along with the vast resources and knowledge gained, participants will receive a notebook of all resource materials, a soil test, refreshments, and the bus tour. Registrations are now being accepted. Individuals interested in the program may contact Tony Nye, OSU State Coordinator for Small Programs at the Clinton County Extension office at 937-382-0901 or E-mail at nye.1@osu.edu.

Registration brochures for the program can be found at www.clinton.osu.edu, www.pike.osu.edu, and www.morrow.osu.edu and are available in area Ohio State University Extension Offices.

2011 Farmer’s Tax Guides Available at OSU County Extension Offices

by David Marrison, OSU Extension Educator

Do you need a resource to answer those tough farm tax questions? If so, farmers can receive a free copy of IRS Publication 225, the 2011 Farmers Tax Guide, at their local county OSU Extension office. The 2011 Farmer’s Tax Guide is an 89 page publication which explains how the federal tax laws apply to farming. This guide can be used as a guide for farmers to figure taxes and complete their farm tax return.

Some of the new topics for the 2011 tax year which are included in this publication are: standard mileage rate, start-up costs back to $5,000 in 2011, increased section 179 expense deduction dollar limits, special depreciation allowance, self-employed health insurance deduction, lower self-employment tax rates, maximum self-employment net earnings, and new medicare tax rates. More information can be found at the IRS website at: http://www.irs.gov/publications/p225/index.html

Part I of Schedule F (Form 1040) has been revised for 2011, and the line numbers for reporting farm income are not the same as in prior years. The payments reported on lines 1a and 2a for specified sales of resale or raised products are those received through a merchant card or a third-party network. These generally will be reported to the farmer on Form 1099-K, Merchant Card and Third Party Network Payments. Merchant cards include, but are not limited to, Visa® and Master-Card®. Third-party networks include, but are not limited to, Paypal® and Google Check-out®. The IRS instructions for Schedule F (Form 1040) state that merchant card and third-party network transactions are to be reported on line 1a or 2a even if a Form 1099-K is not received. Other sales of commodities are reported on lines 1b and 2b.

The Rural Tax Education Site has an example Schedule F on their web site to help producers as they complete their Schedule F. The sample return can be found on web site at: http://ruraltax.org/

Click here to find the location of the OSU Extension County Extension offices.

Click here to access the 2011 Farmers Tax Guide

Click here to access the Form 1040-Schedule F for 2011

AEDE New Faculty: Steve Vickner

The Department of Agricultural, Environmental and Development Economics (AEDE) is welcoming several new faculty during the 2011-2012 academic year. This month we highlight Professor Steve Vickner, who teaches several key agribusiness courses in the department, including Agribusiness Management and Agribusiness Marketing. Here’s Steve’s short biography and statement of interests:

Although a California native, Steve considers Columbus, Ohio his hometown as he grew up here. He completed a B.S. in Economics with a minor in mathematics at Bowling Green State University in 1989. He moved to Colorado and completed a M.B.A. in the Daniels College of Business at the University of Denver in 1990. After three years working in industry Steve went back to graduate school to pursue his M.S. and Ph.D. in Agricultural and Resource Economics at Colorado State University (1994,1997). Since then Steve has served as a faculty member in the Department of Agricultural Economics at the University of Kentucky and the Department of Economics at Utah State University. Steve’s current teaching/research appointment is in the area of agribusiness management and marketing. As for hobbies, he enjoys anything outside, but prefers archery/bowhunting and fly fishing the most. Last month, Steve caught his first Lake Erie steelhead salmon (an 18-incher) in Conneaut Creek near Ashtabula on his favorite 8-weight fly rod. He plans to go back after the 25-inch salmon that are sometimes caught in those tributaries to Lake Erie.

Welcome Steve!
Steve’s Departmental Website: http://aede.osu.edu/about-us/our-people/steven-vickner

Steve’s Publications in GoogleScholar: http://scholar.google.com/scholar?q=steve+Vickner&hl=en&as_sdt=1%2C36&as_sdtp=on

Get it on the calendar – taking year end inventories and creating or updating balance sheets!

By: Dianne Shoemaker, OSU Extension Educator

Give your farm business a gift that will keep on giving and dedicate a few hours to updating – or creating, if you don’t already have one- your farm business’s balance sheet. Whether you consider it a “year end” or “beginning” balance sheet, it really doesn’t matter. It will be your 2011 year end and your 2012 beginning balance sheet. What is really important is that it be completely and accurately done.

The balance sheet is a numerical snapshot of your business at a particular point in time. What was owned and what it was worth on that day balanced by how much was owed for what and to whom it was owed. While some of those whos, whoms and whats can be reconstructed fairly well months after January 1, others cannot.

There is no substitute for going out during the first week of the year and inventorying animals, feed, seed, fertilizer, fuel, supplies, and any other inputs that are used in production at your farm operation. At the same time you are gathering all sorts of financial information for tax purposes, update checking, saving and hedging account balances. When all final 2011 loan statements arrive in the mailbox or via internet, update loan information on the balance sheet as well.

Good, complete financial statements including balance sheets are important management tools for all farm businesses, large, small, beginning, and on-going. Once good balance sheets and other financial statements are developed, using them to manage the farm business is the next step. The Ohio Farm Benchmarking Project can help farms with enterprise analysis of 2011. Contact Dianne Shoemaker at shoemaker.3@osu.edu for more information.

Hours of Service Exemption Extended for Ohio Farmers

Article is courtesy of Ohio AgriBusiness Association

Earlier this week, the Public Utilities Commission of Ohio granted an extension of the hours of service exemption for agricultural operations until January 1, 2012 to account for this year’s longer harvest.

The extension resulted from a request the Ohio Agribusiness Association (OABA) submitted on November 18, 2011 and a similar request submitted by the Ohio Farm Bureau on November 23. In its request, OABA stated that extreme and unpredictable weather conditions, including a much wetter than normal spring that delayed planting and a wet fall, have compounded an already delayed 2011 crop harvest and could extend Ohio’s crop harvest into at least the first few weeks of December.

This posed a problem for Ohio farmers and agribusinesses, because under current hours of service rules, agricultural operation are only exempted from hours of service requirements during planting and harvesting seasons, which the state of Ohio defines as March 1 through November 30 of each year. Without the exemption, drivers would have been limited to working only 60 hours per week and only 12 hours per day.

OABA informed the Public Utilities Commission of Ohio that farmers, cooperatives and other agribusinesses needed an extension of the hours of service beyond November 30, 2011, to get their crop harvested and to market as quickly as possible.

The Public Utilities Commission of Ohio granted a 30-day extension of the exemption to give farmers and the agribusiness industry time to complete harvest, and should adverse conditions still exist around January 1, 2012, the commission invited OABA to submit a request for further extension at that time.

To view the Commission’s final order, click here. OABA encourages drivers to print a copy of the order and carry it with them in case clarification is needed.

©2011 OABA – Ohio AgriBusiness Association
5151 Reed Rd. Suite 126-C
Columbus, Ohio 43220
Tel: (614) 326-7520 | Fax: (614) 326-7519
Email: Info@OABA.net

2012 Farm Outlook Meetings from OSU Extension

By: Bruce Clevenger, OSU Extension Defiance County

Farmers and agribusiness need to keep tuned into markets, production economics and farm policy. Trends can change due to measurable factors or seemingly unpredictable forces. Farmers, agribusinesses and others in the agricultural industry have the opportunity to learn more about the current farm outlook at an Ohio State University Extension 2012 Farm Outlook Program.

Ohio State University’s Department of Agricultural, Environmental, and Development Economics and OSU Extension will make presentations that will bring forth the latest outlook on grain markets, domestic and foreign energy, livestock and dairy and farm policy.

Five programs are scheduled beginning December 13. Meetings are coordinated by local OSU Extension office and/or local agri-business to deliver Ohio State University’s foremost authorities.

Featured speakers include: Matt Roberts, OSU Extension Agricultural Economist, on grain and energy outlook; Barry Ward, OSU Extension Agricultural Economist, on production economics of farmland values and input costs such as seed, chemical and fertilizer markets; Carl Zulauf, OSU Extension Agricultural Economist, on Farm Policy and the Farm Bill; Cam Thraen, OSU Extension Agricultural Economist, on Dairy Marketing and Policy.

The 2012 Farm Outlook Programs are open to the public and will provide insightful information for farming in 2012 and beyond.

Locations, dates, times and registration information are:

December 13, 2011, 9:30 am – Ashland County, Ashland, Ohio. Fraternal Order of Eagles Club, 400 East Lake Dr. Speakers: Matt Roberts, grain markets; Carl Zulauf, Farm Policy; Cam Thraen, Dairy. Registration: Sutton Bank, John Augenstein 419-207-3644 or jaugenstein@suttonbank.com

December 13, 2011, 4:00 pm – Seneca County, Attica, Ohio. Attica Fairgounds, Social Hall, 15131 E. Twp Rd 12. Speakers: Matt Roberts, grain markets; Carl Zulauf, Farm Policy Registration: Sutton Bank, Chris Willman 419-426-6253, cwillman@sutton.com

December 20, 2011, 9:30 am – Darke County, Greenville, Ohio The Anderson’s Marathon Ethanol Plant, 5782 Sebring Warner Rd. Speakers: Matt Roberts, grain markets; Barry Ward; inputs and farmland; Carl Zulauf, Farm Policy. Registration: OSU Extension Darke County 937-548-5215

December 20, 2011, 5:30 pm – Defiance County, Defiance, Ohio. Jewell Community Center, 7900 Independence Rd. Speakers: Matt Roberts, grain markets; Barry Ward; inputs and farmland; Greg LaBarge, Phosphorus and Lake Erie; Carl Zulauf, Farm Policy. Registration: $15 per person, OSU Extension Defiance County 419-782-4771, http://defiance.osu.edu clevenger.10@osu.edu

February 21, 2012, 4:00 pm – Sandusky County, Bellevue, Ohio. Bellevue Society for the Arts, 205 Maple Street. Speakers: Matt Roberts, grain markets; Barry Ward; inputs and farmland; Carl Zulauf, Farm Policy. Registration: First National Bank, Valerie Bumb 419-483-7340, ext 25. BumbV@fnblifetime.com or www.fnblifetime.com

Pre-registration is required at all locations.

Year End Farm Record Keeping Issues

By: Chris Bruynis, Assistant Professor & Extension Educator, OSU Extension.

With the size and scope of many farm businesses today keeping accurate farm records are more critical than ever. The first reason to prepare accurate farm records is to allow management to make critical management decisions. Farm records are needed to determine resource use efficiency, which in turn indicates whether or not the farm business is profitable. Farm records, including enterprise analysis, are also essential for planning and decision making for the business.

A second reason for keeping farm records is for income tax management. Good records are needed to accurately determine potential tax liability and allows for tax planning before the end of the fiscal or calendar year. Poor farm records will typically result in increased tax liability of the farm owner. Obtaining credit is the third reason for keeping farm records. Good financial information provides lenders the necessary information needed to make lending decisions. In addition to determine the amount of the loan, this information is helpful in determining the interest rate a farm business owner may pay.

Characteristics of a Good Record Keeping System

The characteristics of a good record keeping system include easy to use and records the necessary information detail. Depending on the complexity of the business, the amount of detail will vary. Some businesses will want to keep detailed records down to the enterprise or location level. Recommended documents for a good record keeping system include:

• Business accounts for checking, savings, investing and credit cards. It is recommended not to inter-mingle business funds with personal funds. 

• An income and expense ledger or appropriate software program to record all cash business transactions by date and category.

• An inventory that involves both the physical counting and valuation assignment completed at least annually at the end of the business fiscal or calendar year.

• A depreciation schedule for all business assets showing asset basis, cost valuation and market valuation.

• A cost and market valuation balance sheet summarizing assets and liabilities of the farm.

• An income statement listing receipts, expenses, accounts receivable and accounts payable.

• A statement of cash flows showing the source of cash inflows into the business and where business cash outflows went.

• Enterprise records showing receipts and expenses by enterprises with some level of profitability analysis.

Year End Record Adjustment Considerations

Farm businesses typically use the calendar year for their business year and for tax return purposes. Additionally, farmers normally use a cash accounting method for filing their income taxes making it important to make the accrual adjustments in the income statement and balance sheet. Cash accounting can also mask financial issues for several years of low profitability. Farmers can generate cash for family living expenses through a variety of activities such as selling down inventory, not replacing equipment or other capital assets, selling capital assets, increasing accounts payable, or refinancing operating losses. 

The accrual income statement measures the profitability of the business for the year. An accrual adjusted income statement combines the cash basis farm records with the inventories from the balance sheets (the beginning and end of the year) to give a true measure of profitability. The balance sheet measures the operator’s level of ownership or equity in the business. These statements should be prepared using the same time period or point in time from year to year. The income statement typically covers the January 1 through December 31 time period while the balance sheet should usually be prepared as of December 31.

Farm managers need to make several accrual adjustments to properly capture the true profitability of the business providing a more accurate measure of profitability then the income tax schedule F. Income tax returns are not a good measure of farm profitability because the goal in income tax management is to minimize taxes paid (or at least level them off so we can consistently stay in a lower tax bracket). The main accrual adjustments on financial statements include prepaid expenses (including inputs used in the current year that is used to produce product in a subsequent year such as fall fertilizer applications), accounts payable, accounts receivable, changes in grain and livestock inventories, and investment in growing crops.  A final item that should be included is the tax liability due next year. 

Some farmers are also calculating the total deferred tax liability if the farm business were liquidated. This allows for better decision making in tax planning. Using the tax management tools available to farmer businesses such as Section 179, can significantly increase future taxes. Farm managers may want consider paying some additional tax now instead of in future year when the tax rates are unknown. Talk to your accountant and/or tax professional for a more detailed discussion of this issue.

Farm Business Risk Management

Farming has its share of volatility and risk associated with production, marketing, and financing the business. Michael Boehlje and Brent Gloy from Purdue have written an excellent article on managing the risk and capturing the opportunity in crop farming. They offer nine risk management strategies that farmers should be considering in today’s volatile environment. To read the full article go to: http://www.agecon.purdue.edu/extension/pubs/paer/pdf/PAER11_2011.pdf.

Farmers will notice changes to the Schedule F

by David Marrison & Chris Bruynis, OSU Extension Educators

Part I of Schedule F (Form 1040) has been revised for 2011, and the line numbers for reporting farm income are not the same as in prior years. The payments reported on lines 1a and 2a for specified sales of resale or raised products are those received through a merchant card or a third-party network. These generally will be reported to the farmer on Form 1099-K, Merchant Card and Third Party Network Payments. Merchant cards include, but are not limited to, Visa® and Master-Card®. Third-party networks include, but are not limited to, Paypal® and Google Check-out®. The IRS instructions for Schedule F (Form 1040) state that merchant card and third-party network transactions are to be reported on line 1a or 2a even if a Form 1099-K is not received. Other sales of commodities are reported on lines 1b and 2b.

Click here to access the Form 1040-Schedule F for 2011

Click here to access the 2011 Farmers Tax Guide

Year End Farm Tax Questions

by David Marrison, OSU Extension Educator

As winter approaches, it is a good time for Ohio farmers to grab a cup of coffee and start to gather their income and expenses records to determine their cost of production and profitability from 2011. It is also the time to take a peak at their potential income tax liability for the year. This article addresses some of the questions which our Ohio AG Manager team has received with regards to income taxes.

I just signed a lease with an oil company to give them the rights to drill into the Marcellus Shale formation. Will I owe any taxes on this money?
Chuckle, Chuckle-Yes! Lease payments received for the right to drill are subject to ordinary income taxes. A reminder the higher the lease payment, the higher the tax bracket a landowner will be subject. As a general rule, you will need to set aside 35-45% of the payment for federal and state taxes. When the well is drilled, the owner will begin receiving royalty payments which will once again be subject to ordinary income taxes after depletion is taken.

With potential for strong incomes from crop production this year, what are some strategies farmers can use to reduce their potential tax burden?
Now is time for farmers to take a look at their records to examine potential income tax liability. Remember, that paying taxes is not a bad thing! By paying self-employment tax, the farmer is paying into social security which is the primary source of retirement income for many farmers. That said, farmers can use a variety of methods to reduce their liability. This may include using I.R.C. § 179 expensing and/or bonus depreciation, purchasing 2012 inputs in advance, or utilizing Farm Income Averaging to borrow unused tax brackets from the 3 prior years. Farmers can also postpone sales of raised commodities or use deferred-payment contracts to delay receipts into 2012.

Farm input costs are projected to be higher next year, should farmers consider purchasing some of those inputs this year to save money and offset tax levels?
Every farm’s tax obligations are unique; however the pre-purchasing of inputs is one way to reduce your tax liability for the current year. Remember that your deduction may be limited to 50% of your other deductible farm expenses for the year. Any prepayment of livestock feed must also meet specific business purpose criteria and must not cause a material distortion of income.

What is bonus depreciation, how can farmers use it for tax purposes, and how is it scheduled to change next year?
Over the past decade, Congress has repeatedly allowed faster depreciation of capital assets to stimulate business investment by providing a “bonus” depreciation allowance in the year the asset is purchased. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended the depreciation bonus for 2011 and 2012 to encourage new equipment purchasing. The additional first-year depreciation rules allow farmers to deduct on their 2011 income tax returns 100% of the cost of qualifying assets purchased in 2011 and 50% of the cost of qualifying assets in 2012.

How can farmers use Section 179 deductions and how is that tax strategy scheduled to change in 2012?
I.R.C. § 179 expensing allows farmers to elect to deduct part or all of the cost of qualifying farm assets in the year they are placed in service. The deduction is limited to the taxpayer’s income from all businesses and is also limited to a set dollar amount that varies by tax year. Under current law, the dollar limit is $500,000 for 2011, $125,000 in 2012, and $25,000 in 2013 and beyond. New and used equipment is eligible for this deduction.

What other changes are known or projected for next year, and how might farmers prepare for or react to those?
Farmers purchasing depreciable items should take notice now of the reductions which may occur in 2012. The reduction of the I.R.C. § 179 expensing will drop from $500,000 in 2011 to $125,000 in 2012 and then $25,000 per year thereafter. In addition, the bonus depreciation is scheduled to drop to 50% of the purchase price of eligible assets in 2012. So if the purchase of capital assets is in your farm’s business plan, now is the time to consider such a purchase. A word of caution, don’t buy “new paint” or “new steel” without first doing a comprehensive cost analysis.

I am a new farmer, are there any special tax deductions that I can take?
For 2011, you can deduct up to $5,000 of your business start up costs paid or incurred after October 22, 2004. The increased limit of $10,000 for start-up costs was only allowed in 2010.

Are there any Ohio tax issues farmers should keep in mind in 2011 and 2012?
One of the major tax issues for farmers to be aware of is not an income tax change but rather the increases which are being seen across Ohio for the CAUV (Current Agricultural Use Valuation) property tax program. Every three years, each county in Ohio is required to complete a triennial update on property values. This also required the re-calculation of the CAUV values. CAUV values are calculated for each soil type in Ohio (approximately 3500 soils) by a formula that is based on five factors. The factors used in the calculation are based on three crops: wheat, corn and soybeans. Also considered is the cropping pattern, production costs and the capitalization rate. These CAUV rates have increased significantly since 2008. These increases could cause landowners to increase the rental rates to the tenant farmers. Farmers should pay particular attention to their tax statements over the next 3 years.

What are some good sources of tax advice and information for farmers with questions?
A great location to find agricultural tax advice is through the new agricultural tax web site at www.RuralTax.org. This website provides with a source for agriculturally related income and self-employment tax information that is current and easy to understand. Producers should also watch for tax articles on OSU Extension’s Ohio Ag Manager web site located at http://ohioagmanager.osu.edu. Producers who prepare their own taxes should plan on attending OSU Extension’s Agricultural Tax Issues Update which will be held in 9 locations across Ohio on Monday, December 12, 2011. More information about this update can be found at: http://incometaxschools.osu.edu/. And last but not least, the Farmer’s Tax Guide is an excellent resource and it can be found at: http://www.irs.gov/pub/irs-pdf/p225.pdf.