Section 179, Bonus Depreciation and Tax Strategies

By: Chris Bruynis, Assistant Professor/Extension Educator, OSU Extension Ross County

Harvest is well underway, and even with the lower yields, farmers are starting to look at minimizing their tax liability for 2012. Farmers and their tax accountants are fully aware of the strategies and tools available to them, especially if they are using a cash accounting method. Farmers have historically delayed the sale of crops into the next calendar year and purchased inputs for the next year’s crop. In the past several years there have also been IRS policies that encouraged investment in equipment and buildings.  Section 179 and Bonus Depreciation are the most common ones used by farmers.

The Section 179 tax provision allows businesses to deduct the full amount of the purchase price of equipment (up to certain limits).  It can be elected for either new or used equipment purchased in fiscal calendar year of the business.  In 2012, the deduction amount is $139,000 but is slated to be reduced to $25,000 in 2013. Farmers can elect to use all or part of the deduction amount. An example would be that a farmer purchases new equipment for $100,000 and used equipment for $75,000 in 2012. She can deduct the $75,000 on the used equipment and $64,000 on the new equipment for a total of $139,000 using Section 179. The $36,000 remaining value of the new equipment would then be eligible for bonus depreciation or be placed on the regular depreciation schedule. Section 179 deductions are limited to the amount of net operating income generated by the farm and cannot be used to create a net operating loss.

Bonus depreciation has been a more recent tax law and also geared to encourage investment in equipment and buildings.  For 2012 the bonus depreciation rate is 50% of the purchase price and can only be applied to new items. Bonus depreciation is currently slated to disappear in 2013. An example would be that a farmer purchased a new multi-purpose building for equipment storage and the farm shop for $120,000. He can use the bonus depreciation to deduct 50% or $60,000 of the purchase price on his 2012 taxes.  Bonus depreciation can be used regardless of net operating income even if it results in a net operating loss.

Typically, Section 179 rules should be applied first and then bonus depreciation rules. The exception to this would be if the farm has no net operating income resulting in the farm being ineligible to use Section 179.

While using these tax tools might be a good strategy to lower taxes this year, farmers and their tax accountants need to be careful not to create future tax liability problems. With Section 179 slated to return to $25,000 in 2013 and bonus depreciation being phased out, these tools will not have the same tax management ability as they currently do. Farmers and their tax preparers need to think strategically about future tax management. The goal should never be to eliminate income taxes but to have net operating income that keeps the farmer in the lowest possible tax bracket long term.  This might be the year not to fully utilize Section 179 and bonus deprecation, but to leave more asset value to depreciate with more traditional depreciation methods for future years.  This strategy does result in increased taxes this year but could be beneficial in keeping farmers out of higher tax brackets in the future.  Tax rates, in my opinion, are unlikely to go down, regardless of what the presidential candidates are promising.

2013 Ohio Field Crop Enterprise Budgets

By: Barry Ward, OSU Extension, Leader, Production Business Management, Department of Agricultural, Environmental, and Development Economics and Greg Reinhart, Undergraduate Student Intern, OSU Department of Agricultural, Environmental and Development Economics

Budgeting helps guide you through your decision making process as you attempt to commit resources to the most profitable enterprises on the farm. Crops or Livestock? Corn, Soybeans, Wheat, Hay? We can begin to answer these questions with well thought out budgets that include all revenue and costs. Without some form of budgeting and some method to track your enterprises’ progress you’ll have difficulty determining your most profitable enterprise(s) and if you’ve met your goals for the farm.

Budgeting is often described as “penciling it out” before committing resources to a plan. Ohio State University Extension has had a long history of developing “Enterprise Budgets” that can be used as a starting point for producers in their budgeting process.

Newly updated Enterprise Budgets for 2013 have been completed and posted to the Farm Management Website of the Department of Agricultural, Environmental and Development Economics. Updated Enterprise Budgets can be viewed and downloaded from the following website:

http://aede.osu.edu/programs/farmmanagement/budgets

Enterprise Budget projections updated so far for 2013 include: Corn-Conservation Tillage; Soybeans-No-Till (Roundup Ready); Wheat-Conservation Tillage, (Grain & Straw).

Our enterprise budgets are compiled on downloadable Excel Spreadsheets that contain macros for ease of use. Users can input their own production and price levels to calculate their own numbers. These Enterprise Budgets have color coded cells that allow users to plug in numbers to easily calculate bottoms lines for different scenarios. Detailed footnotes are included to help explain methodologies used to obtain the budget numbers. Budgets include a date in the upper right hand corner of the front page indicating when the last update occurred.

Families and the 2012 Drought

By James S. Bates, Ph.D., CFLE & Assistant Professor

This past July, Governor John R. Kasich signed Executive Order 2012-11K, which instructs state agencies to help farmers minimize the negative effects of this year’s drought. Upon request from Governor Kasich, in September of this year, the Secretary of the U.S. Department of Agriculture, Thomas Vilsack, designated 85 Ohio counties as Secretarial Disaster areas. While much of the focus of disaster relief is designed to mitigate negative financial and economic impacts, family relationships are, in the end, what is most impacted by drought.

How are family relationships affected by the drought? The logic is simple:
1. Smaller livestock and crop yields = less revenue to the farm family business and employees;
2. Less revenue to the family business and employees = reduced income to the family (possible layoffs of employees);
3. Reduced income to families = increased stress, increased possibility of depressive symptoms, decreased possibility of positive well-being, and increased tension between spouses and between parents and children

Family and Consumer Science OSU Extension personnel are here to help! We know that Ohioans are resilient, especially farm families, but sometimes it’s good to be reminded of ways to address adversity before it gets the best of us. Professor Froma Walsh (2006) identified several characteristics of resilient families that may help farm families get through this tough time (see also http://fyi.uwex.edu/familyresiliency/).
• Make meaning out of adversity and challenge
• Maintain a positive outlook
• Rely on spirituality and higher power
• Be flexible to change
• Remain connected with others
• Obtain support through social and economic sources
• Communicate clear, consistent messages
• Openly share emotions
• Problem solve collaboratively

We’ve also compiled a list of informational resources to assist families with pressing issues related to family finances, family stress and crisis, family communication and conflict resolution and much more. These resources are available at our website: http://fcs.osu.edu/resources/drought.

Reference: Walsh, F. (2006). Strengthening Family Resilience. New York: Guilford Press.

Farm Bill Expiration Impacts FSA Programs

By: Chris Bruynis, Assistant Professor & Extension Educator, OSU Extension, Ross County

Agriculture Secretary Tom Vilsack released the following statement today. He stated that “many programs and policies of the U.S. Department of Agriculture were authorized under the Food, Conservation and Energy Act of 2008 (“2008 Farm Bill”) through September 30, 2012. These include a great number of critical programs impacting millions of Americans, including programs for farm commodity and price support, conservation, research, nutrition, food safety, and agricultural trade. As of today, USDA’s authority or funding to deliver many of these programs has expired, leaving USDA with far fewer tools to help strengthen American agriculture and grow a rural economy that supports 1 in 12 American jobs. Authority and funding for additional programs is set to expire in the coming months. Without action by the House of Representatives on a multi-year Food, Farm and Jobs bill, rural communities are today being asked to shoulder additional burdens and additional uncertainty in a tough time. As we continue to urge Congress to give USDA more tools to grow the rural economy, USDA will work hard to keep producers and farm families informed regarding those programs which are no longer available to them.”Many programs and policies of the U.S. Department of Agriculture (USDA) were authorized under the Food, Conservation and Energy Act of 2008 (“2008 Farm Bill”) through Sep. 30, 2012.  These include a great number of programs impacting millions of Americans, including programs for farm commodity and price support, conservation, research, nutrition, food safety, and agricultural trade.

What this means is that Farm Services Agency cannot take new applications for programs until there is new guidelines passed by congress in the form of a new Farm Bill. This does not mean their doors are closed. FSA employees continue to work on existing contracts approved prior to end of the 2008 Farm Bill and on programs that have authorized funding beyond September 30, 2012. County FSA offices will be designing some strategy to track interest for producers asking about new CRP, CREP offers, etc. and work with these producers once the new rules are in place.

However, USDA continues to analyze the full impacts of the expiration of the 2008 Farm Bill and has produced a tentative list of programs to which new commitments cannot be made. The following programs are deemed to have expired with the end of the 2008 Farm Bill:

  • Dairy Forward Pricing Program
  • Milk Income Loss Contract Program
  • Dairy Promotion and Research Program
  • Conservation Reserve Program
  • Wetlands Reserve Program
  • Grassland Reserve Program
  • Market Access Program
  • Foreign Market Development Cooperator Program
  • Technical Assistance for Specialty Crops
  • Emerging Markets Program
  • Senior Farmers’ Market Nutrition Program
  • Organic Agriculture Research and Extension Initiative
  • Specialty Crop Research Initiative
  • Beginning Farmer and Ranchers Development Program
  • Healthy Forest Reserve
  • Biomass Research and Development Initiative
  • Biomass Crop Assistance Program
  • Farmers’ Market Promotion Program
  • Specialty Crop Block Grants
  • National Clean Plant Network
  • National Organic Certification Cost-Share
  • Outreach and Technical Assistance for Socially Disadvantaged Farmers or Ranchers

This is a partial list of programs that are understood to no longer be funded and new applications cannot be accepted until a new Farm Bill is passed.

2012 OSU Income Tax Schools to be held across Ohio in November & December

by: David Marrison, OSU Extension Educator & Interim Director for OSU Income Tax School

OSU Extension is pleased to be offering the 49th Annual OSU Income Tax Schools at eight locations across Ohio in November and December. These two-day schools are designed for individuals who have some experience preparing and filing federal and state tax returns for individuals and small businesses. Instruction will focus on federal tax law changes and on the issues that tax preparers may encounter in 2012 preparing tax returns. Highly qualified instructors will explain and interpret tax regulations and recent changes in tax laws.

The tax school locations are as follows:
Columbus – November 13-14
Bridgewater Banquet & Conference Center (10561 Sawmill Parkway, Powell, OH 43065)

Fremont – November 15-16

Ole Zim’s Wagonshed (1375 State Route 590, Gibsonburg, OH 43431)

Kent – November 19-20
Kent State University-Student Center (Summit Street, Kent, OH 44242)

Dayton – November 27-28
Presidential Banquet Center (4548 Presidential Way, Kettering, OH 45429)

Ashland – Nov. 29-30
Ashland University-Convocation Center (820 Claremont Avenue, Ashland, OH 44805)

Lima – December 4-5
Old Barn Out Back (new location-3175 W Elm Street, Lima, OH 45805)

Chillicothe – December 6-7
Ross County Service Center (475 Western Avenue, Chillicothe, OH 45601)

Zanesville – December 11-12

Ohio University-Zanesville Branch Campus Center (1425 Newark Road, Zanesville, OH 43701)

The registration fee of $335 includes the 700+ page National Income Tax Workbook (http://www.taxworkbook.com) prepared by the Land Grant University Tax Education Foundation, especially for the income tax schools held in Ohio and more than 27 other states for over 28,000 tax professionals. The Workbook includes a searchable CD containing the 2004-12 Workbooks. The chapter’s which will be included in this year’s workbook include: New Legislation, Rulings and Cases, Individual Taxpayer Issues, Business Issues, Agricultural and Natural Resources Issues, Retirement, Business Entities, IRS Issues, Ethics, Tax Practice, Fiduciary Tax Issues, Gifts and Inheritances: Estate and Gift Taxes, Business Assets, and Loss Limitations. The workbook is available only as a part of tax school registration. Participants will also receive the RIA 2013 Federal Tax Handbook (a $75 value).

New this year…..Ethics material will be included in the all of the regular schools. No need to attend a separate session. This is a $60 added savings to this year’s school. Refreshments and lunches are provided at all locations. Continuing education credit is available for accountants, enrolled agents, financial planners and attorneys. Participants attending all sessions of the 2 day schools will qualify for the following continuing education credits: Accountancy Board of Ohio (16 hours); IRS Return Preparer’s Office (16 hours); CFP Board of Standards, Inc (16 hours) and Continuing Legal Education, Ohio Supreme Court (12 hours). These schools will also fulfill the NEW Return Preparer’s Office requirements for Registered Tax Return Preparers (RTRP) of 15 total credit hours consisting of 2 hours of ethics, 3 hours of federal tax law update and 10 hours of general federal tax law.

Complete registration details can be found at: http://incometaxschools.osu.edu/ A downloadable registration form as well as on-line registration is available at this location. Information can also be received by contacting David Marrison, Interim Director for the Ohio Income Tax Schools Coordinator, at 440-576-9008 or marrison.2@osu.edu

What’s the Value of an Agricultural Economics Degree?

Dr. Brian Roe, Associate Professor-Department of Agricultural, Environmental and Development Economics.

The Answer: a 98.7% Chance that You’ll have a Job after Graduation

You may have seen the Yahoo! News article highlighting three agricultural degrees as among the top five “College Majors That Are Useless,” which left many professionals in the agricultural sector scratching their heads, particularly recruiters and educators of students in the fields of Agribusiness and Agricultural Economics. The Yahoo! article, and several others like it, used findings from the National Association of Colleges and Employers’ (NACE) 2012 Job Outlook study, which surveyed less than 1,000 employers on their future hiring plans.

Click here to read an article that Dr. Brian Rose has written that shows there is a great need for agricultural degrees.