Farm Management Webinars Announced

OSU Extension is pleased to announce a series of farm management webinars to be held in the upcoming two months. These webinars are designed to deliver current educational information for farmers, landowners, and other interested participants.  There is no pre-registration required for these webinars. Just log on from the comfort of your home or business! Attend all or any of the meetings by logging on to: http://carmenconnect.osu.edu/ohioagmanager.  The following is a description of the upcoming webinars.

Financial & Tax Implications of Oil & Gas Leases – Wednesday, March 13, 2013, 7:00 p.m. – 9:00 p.m.

David Marrison, Associate Professor & OSU Extension Educator, will be the featured speaker for this webinar. Don’t get caught blindsided by the taxes which will be due from signing an oil & gas lease. Learn how the IRS handles oil & gas payments. Learn which payments are subject to ordinary income taxes versus capital gain; about the percentage depletion deduction; and how signing a lease may affect your CAUV status. Learn what questions to ask and receive financial planning tips for managing the potential income from these wells.

Navigating the ACRE/DCP Decision in 2013 – Monday, March 18, 2013, 7:00 p.m. – 8:30 p.m.

Chris Bruynis, Assistant Professor & Extension Educator will be the featured speaker. With the passage of the 2012 American Taxpayer Relief Act, Congress extended many provisions of the 2008 Farm Bill. Farmers now can elect to enroll into the traditional Direct and Counter Cyclical Payment (DCP) Program, the Average Crop Revenue Election (ACRE) program, or neither program. Participants will learn the mechanics and restrictions of the programs as well as some strategies to decide which program may be the best election for their farm business.

Getting Your Financial Affairs in Order – Wednesday, March 27, 2013, 7:00 p.m. – p.m.9:00 pm

David Marrison, Associate Professor and Chris Bruynis, Assistant Professor will be the featured speakers for this webinar. Participants will learn how to get a grasp on their financial situation by learning how to develop a year-end balance sheet.  In addition to developing a balance sheet portfolio, this program will help participants develop a letter of instructions to their heirs regarding their financial matters. Learn how to consolidate all of your financial and personal information (real property, savings & investment accounts, legal documents) in one easy document.  This will help you get a better handle on your finances and allow you to get a jump start on your estate plan. Take time in 2013 to organize your financial matters for your peace of mind.  This program will save you hundreds of dollars as you plan and develop your succession, retirement, and estate plans. Get your affairs in order so you can concentrate on your family, career, and bucket list!

Return to Drainage: Calculating the Payback Period – Tuesday April 9, 2013, 7:00 p.m. – 8:30 pm

Bruce Clevenger, Assistant Professor & Extension Educator and Eric Richer, Extension Educator will be the featured speakers. Participants will learn how farmland drainage enhances crop production yields from 40+ years of Ohio State University field research.  Learn how improved field drainage has yield, soil quality and water quality advantages compared to poor field drainage.  Farmers and landowners can mutually benefit from a properly designed drainage system.  Learn how to estimate the cost of subsurface (tile) drainage and estimate a drainage payback period for your farmland.  Do today’s crop prices make drainage a good investment?  Can a drainage system be designed to address water quality concerns?  This program will help answer your questions on returns to drainage.

Financial & Tax Implications of Oil & Gas Leases (repeat) – Friday, April 12, 2013, 9:30 to 11:30 a.m.

David Marrison, Associate Professor & OSU Extension Educator, will be the featured speaker for this webinar. Don’t get caught blindsided by the taxes which will be due from signing an oil & gas lease. Learn how the IRS handles oil & gas payments. Learn which payments are subject to ordinary income taxes versus capital gain; about the percentage depletion deduction; and how signing a lease may affect your CAUV status. Learn what questions to ask and receive financial planning tips for managing the potential income from these wells.

For additional information about these programs contact the respective presenter.

David Marrison: marrison.2@osu.edu  or 440-576-9008

Chris Bruynis: bruynis.1@osu.edu or 740-702-3200

Bruce Clevenger: clevenger.10@osu.edu or 419-782-4771

Eric Richer: richer.5@osu.edu or 419-337-9210

 

SEPARATING MINERAL INTERESTS FROM THE SURFACE MAY RESULT IN TWO REAL PROPERTY TAX BILLS

by Larry Gearhardt, OSU Income School Director

Some landowners in the oil and gas drilling area of Ohio may receive two real property tax bills for the same property. How can this happen? When the mineral interests are separated from the surface, the Ohio Revised Code (section 5713.04) requires the county auditor to list and value the land in separate entries, specifying the interest listed, and tax the parties owning the different interests. If the same person owns both the surface and the separated mineral interests, he may receive two property tax bills. This has surprised some landowners after the separation of the mineral interests.

WHY WOULD A LANDOWNER SEPARATE MINERAL INTERESTS BUT RETAIN OWNERSHIP?
Some landowners are taking the proactive step of separating the mineral interests from the surface for succession planning and tax management. It is not uncommon for a trust to be used. When we say that the landowner retains ownership of both the surface and mineral interests, we are also including the scenario where the mineral interests are separated and placed in a trust for the benefit of the surface owner. Each landowner has his own reason for doing this, but one reason is that it may provide flexibility when doing succession planning.

ONE LANDOWNER RECEIVING TWO PROPERTY TAX BILLS HAPPENS IN ONLY RARE CIRCUMSTANCES
The focus of this paper is on the very narrow circumstance where a landowner separates the mineral interests from the surface, by deed, and retains ownership of both interests, either personally or in trust, and the mineral interests are not yet developed.

Leasing mineral rights to another entity does not cause a separate tax bill. A lease is merely an equitable interest in property that allows another to explore for minerals and develop those minerals if found. The landowner normally receives a lease signing bonus and shares in the royalties from the well. OSU Extension Factsheets explain the income tax and Ohio CAT tax treatment of those proceeds.

If the mineral rights are separated from the surface by deed and sold to another person, there may be a new tax bill created, but the new tax bill is sent to the owner of the mineral interests. The landowner pays only the property taxes on the surface.

If the mineral interests are developed, the mineral interests are valued according to a formula that is based on production and is provided by the Ohio Department of Taxation

WHAT IS THE VALUE OF AN UNDEVELOPED MINERAL INTEREST?
Determining the value of a producing well for property tax purposes is clearer than determining the value of an undeveloped mineral interest. The Ohio Administrative Code (sec. 5703-2-11(I)) provides that oil and gas rights that have been separated shall be valued in accordance with an annual entry of the Ohio tax commissioner. This annual entry is based upon a uniform formula and is required to be used in all eighty-eight counties. The property value depends upon the production of the well. A sharp negotiator would make the developer responsible for this tax.

So how does the auditor value mineral interests that have been separated, but not yet developed into a producing well? Once again, we look to Ohio Administrative Code sec. 5703-25-11 (I). A literal reading of this Ohio Administrative Code section makes no distinction between oil and gas rights that have been developed and those that have not been developed. Instead, the auditor is directed to value oil and gas rights that have been separated according to the annual entry of the tax commissioner. The entry is based on production. Since there is no production, one can reasonably conclude that the value of separated, but yet undeveloped, mineral rights would be zero.

Notwithstanding the Ohio Administrative Code section, some county auditors have assigned values of $200, $300, or $400 per acre. The value assigned by the county auditor is based on the level of activity and amount of production in the area, as well as historical practices. County auditors are looking for some guidance in the future to clarify how to determine the value of a separated, but yet undeveloped mineral interest.

CONCLUSION

Tax management and succession planning are very important. Landowners should seek advice from a trained professional to prepare a plan that fits their needs. Part of the plan is to be aware that a separation of mineral rights, by deed, with retained ownership in the name of the surface owner may cause the landowner to receive two real property tax bills. The best recommendation at the present time is to check with your county auditor to see what the value of that undeveloped mineral interest will be.

2013 Farm Program Choice: An Initial Perspective

By: Carl Zulauf, Professor, Ohio State University and Gary Schnitkey, Professor, University of Illinois at Urbana-Champaign

Congress extended the 2008 Farm Bill to the 2013 crop. Thus, farms will have the decision to enroll in either the Direct and Counter-Cyclical Program (DCP) or Average Crop Revenue Election (ACRE) program. Enrollment status in the 2012 farm program does not matter. Any Farm Service Agency farm serial number, hereafter simply referred to as a farm, can enroll or not enroll in the 2013 ACRE program. This post discusses this decision. It is not an easy decision. It involves consideration of all 3 farm safety net programs: the traditional DCP program, the ACRE election option, and crop insurance. As in prior years, ACRE appears to offer more risk management assistance than DCP, especially for crops associated with the midwest and plains. However, unlike prior years, ACRE also appears, in general, to offer higher price risk assistance relative to individual crop insurance. Thus, as of late February 2013, the context in which the 2013 ACRE decision will be made is likely to differ from that of prior years.  Click here to read the entire article.

Conference to Help Small Farm Owners Live their 'Small Farm Dream'

Small farm owners who want to learn more about how to make their farms work better for them or expand their operations, or those new to agriculture who are looking for ways to utilize acreage, can attend workshops and presentations on these and more issues during a small farm conference March 23 in Zanesville, Ohio.

The “Living Your Small Farm Dream” conference and trade show is designed to help participants learn more tips, techniques and methods for diversifying their opportunities into successful new enterprises and new markets as a way to improve economic growth and development on their farms, said Mark Mechling, an Ohio State University Extension educator in agriculture and natural resources.

“It may be a person who is new to agriculture, or someone that may have acreage that they aren’t using to the fullest, or even someone who has newly acquired land and may not know what to do with it,” he said. “What we try to do with this conference is to give participants a smorgasbord of ideas that may interest them by offering a wide variety of sessions in which they can learn more in-depth about an issue, gain resources and learn how to finance a new venture.”

The conference, which will be held at the Muskingum County Convention and Welcome Center, 205 N. Fifth St. in Zanesville, kicks off with a keynote address on “Planning and Goal Setting,” presented by Mike Hogan, an OSU Extension educator.

OSU Extension is the outreach arm of Ohio State University’s College of Food, Agricultural, and Environmental Sciences.

Following Hogan’s address, participants can choose from over 20 sessions from Ohio State and industry experts on issues related to small farms and a trade show for small farmers that will offer information that can benefit a variety of growers, Mechling said.

The overall goal of the event and the mission of the OSU Small Farms Program is to provide a greater understanding of production practices, economics of land-use choices, assessment of personal and natural resources, marketing alternatives, and the identification of sources of assistance, he said.

“Participants will gain awareness and knowledge of different enterprises that they can venture into and how to begin the process of becoming an entrepreneur by exploring some of the different ideas that are out there,” Mechling said. “Participants will learn some of the basic information needed to get started and leave the conference with the knowledge of some of the resources of how to start a new venture and what other help or sources are available.”

Some of the topics to be addressed include:

Maple syrup
Sheep production
Goat health and production
Forages
Livestock nutrition
Direct marketing of meat
Social media
Christmas trees
Legal issues for small farms
Soil basics
Brambles
High tunnels
Beekeeping
Vegetables
Financing/loans
Tax issues

The conference is an outgrowth of the Ohio New and Small Farm College, an eight-week program created by OSU Extension that offers an introduction to the business of small farming for those who are new to the industry. The program offers information on budgeting, business planning and how to develop a farm structure, among other issues.

The conference is co-sponsored by OSU Extension’s Small Farm Program, Farm Credit Mid-America, USDA’s Farm Service Agency, the Natural Resources Conservation Service and the National Agricultural Statistics Service and Rural Development.

The conference starts at 8:30 a.m. and runs until 4:15 p.m. Registration is $50. The deadline to register is March 18. For more information or to register, go to http://muskingum.osu.edu or contact Mechlingat 740-454-0144 or mechling.1@osu.edu.

Writer(s):
Tracy Turner
614-688-1067
turner.490@osu.edu

Source(s):
Mark Mechling
740.454.0144
mechling.1@osu.edu

Conference to Help Small Farm Owners 'Open Doors to Success'

Small farm owners who want to learn more about how to make their farms work better for them by increasing profits, increasing marketing efforts, expanding operations, or adding new educational or agritainment amenities can attend workshops and presentations on these and more issues during a small farm conference on March 8-9 in Wilmington, Ohio.

The “Opening Doors to Success” conference and trade show is designed to help producers learn more tips, techniques and methods and to increase their awareness to make their small farm operations more successful, which can lead to increased farm profits, said Tony Nye, an Ohio State University Extension educator.

“This intensive conference will provide participants the opportunity to choose from a diverse variety of seminars that can help their farming operations be successful,” he said. “The conference is a great opportunity to network and learn from other producers, Extension experts and representatives from the U.S. Department of Agriculture.”

The conference kicks off with a panel discussion of Ohio producers who will talk about “Opportunities and Challenges to Running a Successful Small Farm Operation.” The group will address issues surrounding labor, financing, deciding on a farm specialty, dealing with customers, and whether or not to add agritainment or education components to a farm.

The conference, which will be held at Wilmington College, Boyd Cultural Arts Center, 1870 Quaker Way in Wilmington, will feature 25 sessions from Ohio State and industry experts and a trade show for small farmers that will offer information that can benefit a variety of growers, Nye said. About 250 people are expected to attend the conference. The overall goal of the event is to teach farmers, producers and growers how to connect with buyers and to know the importance of marketing to make sure they understand what it takes to be successful in marketing their agricultural products, he said.

Some of the topics to be addressed include:
Beekeeping
Vermiculture
Vegetable Nutrient Management
Generating Energy for the Small Farm
Utilizing Maps and Apps Technology to Market Your Business
Christmas Tree Production
Cover Crops
Grafting of Trees
Lavender Production
Raised Bed Production
Pasture Management
Selecting a Livestock Enterprise for a Small Farm
Fertigation of Tomatoes
Greenhouse/Tunnel Production
Food Safety
Agricultural Law Considerations
Developing Water Systems for Pastures
Growing Hops
Marketing
Financial Management
Disease Management of Fruits and Vegetables

The conference is an outgrowth of the Ohio New and Small Farm College, an eight-week program created by OSU Extension that offers an introduction to the business of small farming for those who are new to the industry. The program offers information on budgeting, business planning and how to develop a farm structure, among other issues.

The conference is co-sponsored by OSU Extension’s Small Farm Program; Wilmington College; Farm Credit Mid-America; USDA’s Farm Service Agency; Natural Resources Conservation Service; and National Agriculture Statistic Service and Rural Development.

The conference starts at 8:30 a.m. and runs until 4:15 p.m. Registration is $20 for the March 8 session and $50 for the March 9 session, or $60 for both days. The deadline to register is March 1. For more information or to register, go to http://clinton.osu.edu or contact Nye at 937-382-0901 or by email at nye.1@osu.edu.

Writer(s):
Tracy Turner
614-688-1067
turner.490@osu.edu

Source(s):
Tony Nye
937-382-0901
nye.1@osu.edu

Depreciation, Section 179 Expensing, and Accelerated First Year Depreciation Deductions

By Larry R. Gearhardt, Director of OSU Tax School

The depreciation deduction (usually MACRS method) for assets used in a trade or business has always been very important to farmers when preparing their income tax returns. In addition to MACRS, the “fiscal cliff” legislation, passed early in 2013, allows two additional cost recovery deductions in the year a depreciable asset is placed in service. Click here to view the IRS news release on the fiscal cliff changes to depreciation.

First, Code Section 179 allows the entire cost of qualifying assets to be deducted in the year they are placed in service, subject to some dollar and income limitations. Second, Code section 168(k) allows 50% of the cost of qualifying property to be deducted as additional first year depreciation (AFYD) for property placed in service in 2012 and 2013. Since MACRS depreciation, Section 179, and AFYD can all be applied to the same asset, whichever method you choose, or a combination of all three, deserves attention as a planning tool to minimize taxes both now and in the future.

Section 179 Property
Many taxpayers are eligible to deduct (in lieu of depreciation) the cost of most tangible personal property used in the active conduct of a trade or business. The taxpayer can elect on Form 4562 to expense the cost of eligible “Section 179 property.” Under the old law, this deduction was limited to $139,000.00 for 2012 and $25,000.00 for 2013. The new legislation increased the amount that can be deducted under section 179 to $500,000.00 for 2013 and $500,000.00 retroactive to 2012. This deduction can be used for both new and used equipment.

“Eligible property” that qualifies for Section 179 includes: Machinery and equipment; Property contained in or attached to a building (other than structural components), such as milk tanks, automatic feeders, barn cleaners, and office equipment; Livestock, including horses, cattle, hogs, sheep, goats, and mink and other fur-bearing animals; Grain bins; Single purpose agricultural (livestock) or horticultural structures; and Agricultural fences and drainage tile. You cannot take the expense for drainage tile if the costs of installation were paid by a government agency. Land improvements do not qualify.

Some limitations apply to Section 179 property. First, the deduction is limited to the taxpayer’s new basis in the property. This means that if eligible property is acquired through a like-kind exchange (such as a trade-in allowance), only the “boot” payment can be expensed. Second, the expense deduction is limited to the amount of taxable income received by the taxpayer from conducting any of his active trades or businesses. This includes taxable income from Schedules C, E, or F. The unused expense deduction can be carried forward and used in following years. The Section 179 expense deduction can be used to offset income, however, the deduction cannot be used to create a “loss” from income. Third, taking the Section 179 expense deduction reduces the basis in the property the same as taking depreciation. If the property is sold before the end of its useful life, the taxpayer will be subject to “recapture” of the deduction.

A taxpayer can elect on Form 4562 not to take the Section 179 deduction, or take a portion of the deduction. If the taxpayer elects to not use Section 179, or a portion thereof, the remainder defaults to AFYD.

Accelerated First Year Depreciation (AFYD)

The new legislation continued into 2013 the additional 50% first year bonus depreciation deduction on qualified property. “Qualified property” is tangible personal property that qualifies to be depreciated under the MACRS method with a recovery period of twenty years or less. This deduction can only be used when purchasing new property and the taxpayer must be the original user of the property. Land does not qualify for depreciation, but buildings and other real property improvements can be. Property used solely for personal use does not qualify. Property that is used less than 50% in the business does not qualify.

If you do not want to take the AFYD and utilize more depreciation in later years, you can elect, for any class of property, not to deduct the special depreciation allowance for all property in such class placed in service during the tax year. Please note that this differs from the Section 179 deduction where you can elect not to take the deduction for various items of property. To make the election, attach a statement to your return indicating the class of property for which you are making the election. If the AFYD is not claimed, the asset will be depreciated over time according to the taxpayer’s common method of depreciation.

Conclusion
The Section 179 expensing election and AFYD are powerful tools to manage income taxes. They do not increase the deduction relating to a purchase; rather, they allow a farmer to time manage purchases and deductions. Section 179 and AFYD allow for a larger deduction in the first year and smaller deductions in future years. Since Section 179 and AFYD can have both a cash flow and income tax effect, it is important for the taxpayer to understand their capabilities and make decisions in consultation with their tax professional.

More Information:
More information about each of these depreciation methods can be found on the Internal Revenue Site at http://irs.gov

Click here for the 2012 Form 4562

Higher Gross Receipts May Require an Additional Tax to be Paid

By Larry Gearhardt, Director of OSU Tax Schools and David Marrison, Extension Educator, ANR, Ashtabula and Trumbull Counties

Some landowners have already discovered that lease bonus and royalty dollars received for shale oil and gas lease payments over $150,000.00 per year are subject to the Ohio Commercial Activity Tax (CAT). See OSU Extension Fact Sheet at http://ohioline.osu.edu/sh-fact/pdf/SOGD_TAX2_12.pdf written by David Marrison, Extension Educator. However, some farmers may be surprised to find that they too are subject to the CAT tax because of higher gross receipts.

The Ohio CAT tax was passed in 2005 in response to a lagging economy. In exchange for the CAT tax, businesses are no longer required to pay personal property tax and individuals pay a lower Ohio income tax rate. Ohio’s income tax rate is currently approximately 20% lower than it was in 2004.

The CAT tax is an annual tax that is imposed on most businesses in Ohio and is measured by the amount of taxable gross receipts from most business activities. A business with taxable gross receipts of more than $150,000.00 per calendar year is subject to this tax, which requires the person to register as a taxpayer with the Ohio Department of Taxation. The term “gross receipts” is broadly defined to include most business types of receipts from the sale of property or the performance of services. Certain receipts are not taxable receipts and are excluded from the taxpayer’s tax base, such as dividends, capital gains, wages reported on a W-2, interest income (other than from credit sales), and gifts.

TAX RATES:
If gross receipts are less than $150,000.00, no tax is due and no registration is required. If gross receipts are between $150,000.00 and $1,000,000.00, the business is required to register with the Ohio Department of Taxation and pay a flat fee of $150.00. If gross receipts are over $1,000,000.00, the business is required to register, pay the $150.00 flat fee, plus 0.26% on the amount over $1,000,000.00.

The $150.00 annual minimum tax is due no later than May 10th of each year, payable with the annual return for calendar year taxpayers or with the first quarter return for calendar quarter taxpayers. A taxpayer with more than $1,000,000.00 in gross receipts is required to pay the tax on a quarterly basis.

CAT EXAMPLES:
If gross receipts are below $150,000.00 = no registration and no tax;
If gross receipts are between $150,000.00 and $1,000,000.00 = registration and $150.00 tax;
Let’s assume gross receipts of $1,200,000.00 = registration, $150.00 flat fee plus 0.26% on $200,000 ($520.00) equals $670.00 and requires quarterly filing.

HOW TO PAY CAT:
Electronic registration for paying the CAT is available online through the Ohio Business Gateway at http://business.ohio.gov. Additional instructions on registering and paying the tax are available on Ohio’s CAT website at http://www.tax.ohio.gov/commercial_activities.aspx

New Micro-Loan Program for New & Beginning Farmers from USDA

by: David Marrison, OSU Extension Educator

New and beginning farmers, returning veterans and disadvantaged producers may qualify for a new micro-loan program being offered by the USDA Farm Service Agency.

This program will offer applicants a micro-loan designed to help farmers with credit needs of $35,000 or less. Farms seeking a smaller loan for start-up or operational now have a new source of revenue. The loan features a streamlined application process built to fit the needs of new and smaller producers.

The new micro-loan program is aimed at bolstering the progress of producers through their start-up years by providing needed resources and helping to increase equity so that farmers may eventually graduate to more traditional commercial loans. Producers can apply for a maximum of $35,000. Microloans can be used for all approved operating expenses as authorized by the FSA Operating Loan Program, including but not limited to: Initial start-up expenses; Annual expenses such as seed, fertilizer, utilities, land rents; Marketing and distribution expenses; Family living expenses; Purchase of livestock, equipment, and other materials essential to farm operations; Minor farm improvements such as wells and coolers; Hoop houses to extend the growing season; Essential tools; Irrigation; and Delivery vehicles. As their financing needs increase, applicants can apply for a regular operating loan up to the maximum amount of $300,000 or obtain financing from a commercial lender under FSA’s Guaranteed Loan Program.

The repayment term for the loans may vary and will not exceed seven years. Annual operating loans are repaid within 12 months or when the agricultural commodities produced are sold. Requirements for managerial experience and loan security have been modified to accommodate smaller farm operations, beginning farmers and those with no farm management experience.

Producers can access an information sheet on the micro-loan program by clicking on this link

Additional information on the FSA micro-loan program may be obtained at local FSA offices or through the FSA website at http://www.fsa.usda.gov.