Grants and Low-Interest Loans for Ohio Small Farms

by: Eric Barrett, Assistant Professor

Are you looking for funding for a new venture on the farm? Are you interested in doing a research project to try something new on your farm?

OSU Extension has a new factsheet on Ohioline.osu.edu to help you find funding sources that match the ideas you have for your farm. The most difficult part of preparing to apply for these programs is developing a business plan. The factsheet includes information on where to get help with a business plan and where to find enterprise budgets to help develop the plan. The OSU South Centers has a website with templates and other information, a Small Business Toolbox to help you get your plan down on paper. The toolbox is located at: http://go.osu.edu/plans.

Grants to support current farming operations are difficult to find, but more available when it comes to trying a new idea. Most grant programs offer funding for research ideas, new ventures on the farm and ways to add value to products grown or produced on the farm. Many Ohio farmers have found the USDA Sustainable Agriculture Grant Program to be a fruitful funding opportunity for project ideas.

Low interest loan programs support all types of family farming operations. The factsheet explains types of loans and gives examples of where to start the search. One example is the AgriLink Deposit Program through the Ohio Treasurer’s Office that helps Ohio farmers get a lower interest rate by partnering with local banks.

The factsheet includes the names and information to use in internet searches to find the right program fits the needs of your farming operation and your ideas.

For complete details, you can read the factsheet at:

http://go.osu.edu/grantsloans

Farm Business Analysis and Benchmarking

by: Clint Schroeder, OSU Extension

As we turn the page from winter to spring we welcome the longer days and the warmth the sunshine brings us.  In farm country this is the time of year that hope is supposed to spring eternal.  As farmers head to the fields, they may not be as optimistic as previous years.  Although we’ve seen a nice winter rally in the grain markets, USDA forecasts are still predicting net farm incomes to decrease to the lowest levels since 2006.  Much of the talk on the winter meeting circuit focused on the importance of knowing your cost of production.  OSU Extension’s Barry Ward is forecasting higher energy prices with most other input costs staying flat to slightly higher.  Rising interest rates, high health care costs, a strong dollar, and the potential for uncertainty with our trading partners are doing little to brighten the mood.  The dim outlook coupled with already razor thin profit margins are starting to remind some of the more seasoned producers of the 1980’s farm crisis.

The farm crisis of the 1980’s saw land values plummet as many operations were unable to pay high interest rates and saw their farms foreclosed on.   It is estimated that nationwide around 300,000 farms were put out of business during the decade.  The fallout led to the creation of the Farm Financial Standards Task Force in 1989.  Their job was to develop standardized guidelines for agricultural producers.  Today, the name has changed to the Farm Financial Standards Council (FFSC), which currently uses 21 financial guidelines to evaluate farm data.  These guidelines are used by banks and lenders to help make decisions on extending credit to farms.  While the backstory might be a little bit of the unknown to producers, the terms liquidity, working capital, solvency, and several others are not.

While farmers have been relying on OSU Extension for help with developing nutrient management plans, herbicide plans, and analyzing data from on farm research, they have not yet realized the full potential of farm financial planning.  A grant was awarded from the USDA National Institute of Food and Agriculture (NIFA) to expand access to farm business analysis and benchmarking resources with the goal of helping Ohio farmers gain a better understanding of their financial health.  The program gives producers a farm finance scorecard that shows how they stack up in each of the FFSC’s 21 categories.  These numbers are then shown on graphs showing the trend from previous years for that specific operation, as well as their standings compared to the national average of all farms that submit their records.  Benchmark reports are used to identify successes and opportunities to improve.   Each farm that participates in the analysis program will receive personalized benchmark reports that include their farm’s numbers.  These individual values are then highlighted to show where their farm falls in the benchmark report for each item compared to participating Ohio farms.

Farm Business Analysis isn’t just for farms focusing on grain production.  There is a large network of dairy farms, primarily in Eastern Ohio, already participating. When multiple enterprises are present, the analysis can help producers allocate expenses between different areas in their operation.  Whether the farm wants to compare their crops on owned versus rented land, their crop operation compared to their livestock, or the profitability of an individual crop or custom farming operation there are tools available to analyze the data provided.  It has been estimated that the value of the benchmarking data, financial scorecard, and enterprise analysis is well over $1000.  Thanks to the grant from USDA National Institute of Food and Agriculture, OSU Extension is able to provide this service at a cost of only $100.  Several lenders have also stepped up and agreed to reimburse operations that successfully complete an analysis.

If you would like more information on the program, visit our website at https://farmprofitability.osu.edu  There you will find the completed business summaries for previous years and other resources that can help farm businesses.  The Farm Business Analysis team has also grown from the original location in Mahoning County with the addition of four new regional technicians.  To learn more about Farm Business Analysis, contact the technician closest to you:

  • Defiance County:  Clint Schroeder, 419.782.4771, schroeder.307@osu.edu
  • Licking County: David Grum, 740.670.5315, grum.1@osu.edu
  • Miami County: Sharon Harris, 937.440.3945, harris.2835@osu.edu
  • Pickaway County: Trish Levering, 740.474.7534, levering.43@osu.edu
  • Mahoning County (Headquarters): Christina Benton, 330.533.5538, benton.132@osu.edu
    • Program Coordinator: Haley Shoemaker, 330.533.5538, shoemaker.306@osu.edu
    • Field Specialist: Dianne Shoemaker, 330.533.5538, shoemaker.3@osu.edu

Values on Agricultural Land Are Expected to Decline by 11.2%/ acre on Average

Ani Katchova, Associate Professor and Farm Income Enhancement Chair

Robert Dinterman, Postdoctoral Researcher in the Department of Agricultural, Environmental, and Development Economics

There are two types of tax values that are on the minds of farmers: market value (the value per acre for highest and best potential use) and current agricultural use value.  Farmers who farm more than 10 acres and participate in the Current Agricultural Use Value (CAUV) program typically benefit from lower tax bills because tax is calculated based on below true market values.  The program began in 1973 with the intention of leveling the playing field for farmers by computing farmland values based on crop yield, soil conditions, interest rates, and crop prices that have proven to be volatile.

Projections just released by agricultural economists in the College of Food, Agricultural, and Environmental Sciences (CFAES) forecast that agricultural land is expected to see a decline of around 11.2% from 2017 values that averaged around $1,153.  The projected average 2018 CAUV value is expected to be $1,023 per acre for the 24 counties in Ohio receiving either reappraisals or adjustments to their properties’ assessed value.

Ani Katchova, Associate Professor and Farm Income Enhancement Chair, and Robert Dinterman, Postdoctoral Researcher in the Department of Agricultural, Environmental, and Development Economics are releasing their projected CAUV values months before the Ohio Department of Taxation will release the official CAUV values.  They say the reduction will help farmers lower their expenses and help stabilize declining farm incomes.

“It is good news for farmers because it will reduce their tax bill,” says Katchova. “Adjustments to assessed values occur once every three years and this represents a 26.3% decrease from the 2015 average CAUV value of $1,388 which had been the assessed value for the past 3 years for counties receiving an update in 2018.”

Dinterman explains further, “these same 24 counties saw their taxes rise in 2014 due to rising commodity prices and a falling capitalization rate.”

He furthers that CAUV values are anticipated to be even lower in the future, because we still have the phase in process and the CAUV formula is based on seven-year averages of several inputs.  CAUV has undergone significant changes to its formula in the past few years – mostly by changing its formula for the capitalization rate – which impacts the OSU agricultural economists’ projections for the 2018 CAUV values.

To calculate the projected values, Dinterman and Katchova used official Ohio Department of Taxation and USDA data, and data on non-land costs.  The Ohio State agricultural economists anticipate that the decline in CAUV values for 2018 will be a continued trend for at least the next 3 years.

Even though the average value of CAUV is expected to decline by 11.2%, not all soil types will decline by the same percent.

“CAUV is calculated for each of over 3,400 soil types in Ohio,” Dinterman clarifies. “And the factor that differentiates the soil types is how much corn, soybeans, or wheat the soil is expected to produce. Farmland with higher expected yields will be more affected by these CAUV changes than farmland with lower productivity.”

Katchova and Dinterman caution that their projections are not the official Ohio Department of Taxation estimates. They claim it is possible for the average CAUV value to decline by as much as 20.6% while it is also possible for the average CAUV value to rise by over 20.6%. However, an increase is viewed as unlikely.

Tax Webinar for Farmers and Farmland Owners

by Barry Ward, OSU Extension, Director, OSU Income Tax Schools

Are you getting the most from your tax return? Farmers and farmland owners that wish to increase their tax knowledge should consider this webinar that will address tax issues important to them. Mark your calendars for January 29th, 2018 to participate in this 2 hour webinar from 10 am to noon.

The webinar, which focuses on tax issues specific to farmers and farmland owners will offer insight into topics such as new and proposed tax legislation as well as buying and selling farmland.

OSU Income Tax Schools which are a part of OSU Extension and the College of Food, Agricultural and Environmental Sciences will offer this webinar on January 29th from 10-noon.

The two-hour program, which will be presented in a live webinar format, is targeted towards farmers and farmland owners who file their own farm taxes or simply wish to arm themselves with more tax information that will help them to better plan for tax filing.

Topics to be discussed during the webinar include:

  • New and Proposed Tax Legislation
  • Ag Income and Expenses
  • Net Operating Losses
  • Buying and Selling Farmland
  • Rental Property
  • Demolition of Structures

The cost for the webinar is $35. To register for this live webinar, go to https://farmoffice.osu.edu/osu-income-tax-schools

Registration will be open on December 15th.

The OSU Income Tax School Program is a part of OSU Extension and the College of Food, Agricultural, and Environmental Sciences at The Ohio State University.

Agricultural Tax Issues Webinar

by Barry Ward, OSU Extension, Director, OSU Income Tax Schools

Tax practitioners, farmers, land owners are encouraged to attend the Ag and Natural Resources Income Tax Issues Webinar on December 18 from 9:00 a.m. to 3:00 p.m. The event is sponsored by Ohio State University Extension and participants can attend the webinar at host locations throughout Ohio.

The webinar, which will focus on issues specific to farm tax returns related to agriculture and natural resources, will offer insight into topics such as net operating losses and buying and selling farmland.

The six-hour program will be presented in a live webinar format. Tax preparers, as well as individuals who file their own farm taxes are invited to attend.

The program is an intermediate-level course and our target audience is tax preparers whose clients include farmers and rural landowners. Farmers who prepare and file their own taxes will also benefit from the webinar.

Topics to be discussed during the webinar include:

  • Agricultural Income and Expenses
  • Net Operating Losses
  • Transfer of Farm Assets
  • Buying and Selling Farmland
  • Rental Property
  • Farm Employees
  • Self-Employment Tax and Social Security Benefits

The cost for the one-day school is $130, and applications have been made for the following continuing education credits:

  • Accountancy Board of Ohio, CPAs (6 hours)
  • Office of Professional Responsibility, IRS (6 hours)
  • Supreme Court of Ohio, Attorneys (5 hours)

Registration includes the Agricultural Tax Issues book. The deadline to register is Dec. 11 to make sure participants will receive the workbook in the mail before the workshop. The live webinar, which will also feature a real-time Q-and-A, can be viewed at several host locations statewide and will include lunch.

Participants also have the option to view the webinar from home if unable to attend a host location.

For those who choose not to attend at a host location, a web address for the webinar will be sent if registered a week in advance of the Dec. 18 presentation. However, all participants must be registered by Dec. 11 if they want to be sure they receive the workbook before the webinar.

Host locations include:

Auglaize County, OSU Extension Office, 208 S. Blackhoof St., Wapakoneta

Clermont County, OSU Extension Office, 1000 Locust St., Owensville

Fairfield County, OSU Extension Office, 831 College Ave., Lancaster

Miami County, OSU Extension Office, 201 W. Main St., Old Courthouse, Troy

Noble County, OSU Extension South Central Region Office, 16714 Wolf Run Road, Caldwell

Putnam County, OSU Extension Office, 1206 E. Second St., Ottawa

Wayne County, Fisher Auditorium, 1680 Madison Ave., Wooster

Wyandot County, Elks Lodge, 320 E. Wyandot Ave., Upper Sandusky

More information on the workshop, including how to register, can be found at go.osu.edu/AgIssuesReg. For more information contact Barry Ward at 614-688-3959 or ward.8@osu.edu

Sharpen Management Skills through Farm Management School

by: Amanda Douridas: Extension Educator

Managing your farm business is always important but the difference in just doing it and doing it well can be big during challenging times. When commodity prices are down, it is crucial to understand your balance sheet, maintain a good relationship with your lender and carefully consider budgets for next year. These topics will be covered during a 5 night Farm Management School in Urbana, Ohio beginning in December.

During the first session, learn how to properly complete your end of year balance sheet from Greg Knight with Civista Bank and Chris Bruynis, OSU Extension, will provide tips on tax issues that make the most sense for your farm business. During the next session, a panel of agricultural lenders will talk about what they would like to see from farmers before making a loan and will answer questions from the participants.

Legal issues can be very specific to agriculture and also very complicated. Peggy Kirk Hall, OSU Extension Agricultural Law Specialist, will discuss the legal issues that are most important to the class. Another complicated issue that can be difficult to make a decision on is healthcare. The fourth session will focus on the issues farmers face with healthcare and a healthcare professional will cover any changes and updates to the current system.

Lastly, Barry Ward, OSU Extension, will talk about commodity budgets for 2018 and take a look at cash flow to help you prepare for the 2018 season.

The session dates are Dec 6, 20, and Jan 3, 17 and 31. They begin at 5:30 pm with dinner and the program will run 6-8:00 pm. The cost to attend is $50 per farm and RSVPs are due Nov 27. Class space is limited so register early. Download the registration flyer at http://go.osu.edu/agevents. Childcare is available for $10 for the first child and $5 for each additional per night due day of. For questions about the program or to register with a credit card, please contact Amanda Douridas at 937-484-1526 or douridas.9@osu.edu.

2017 Tax Outlook- The Truth is in the Detail

By David Marrison, Extension Educator

With all the changes in Washington, we at OSU Extension have gotten a lot of questions on what may be in store for tax reform n 2017?   Most of the experts are saying we will see the most comprehensive tax reform since the tax reforms of 1986 by President Ronald Reagan.

Some of these proposed tax changes could happen while others will just be fodder for talk shows and columns like this one.  Given the shift of control to the Republican side of the aisle, it is wise to look at the “A Better Way” report released by Speaker Paul Ryan last summer for some potential tax reforms.  For those who want more insight, the complete report can be found at: http://abetterway.speaker.gov/_assets/pdf/ABetterWay-Tax-PolicyPaper.pdf.

So let’s peak into the crystal ball…..

Estate Tax- At the beginning of January, House Resolution 198 titled the “Death Tax Repeal Act of 2017” was introduced into Congress and it currently sits in the Ways & Means Committee (https://www.congress.gov/bill/115th-congress/house-bill/198).  This bill is seeking to eliminate the federal estate tax.  This is one area where I caution us to be careful of what you wish for!  On the outside this may look like a good move but in the long run it could mean higher taxes for farmers and small businesses.

Currently, Americans can pass on $5,490,000 to their heir(s) tax free when they die.  The federal estate tax law also includes portability to a spouse which essentially means as a couple we can pass on a combined $10.98 million tax free to our heirs.  Even better, Ohio, led by Governor Kasich, repealed the Ohio Estate tax in 2013. So, if your estate is less than $5.49 million as an individual or $10.98 million as a married couple you should have very little concern in this area.  And given that less than 0.2 percent of all estates are subject to federal estate tax each year, should this really be on the chopping block?

So what am I concerned about?  The introduced bill has very little in the way of detail.  And the detail will be important.  One item that could disappear if the estate tax is eliminated is the ability for heirs to “step-up” the value of the inherited assets to its current market value at death.  This could be a significant loss to most farming operations.

Again, the detail in the Repeal Act will be important.  It has been suggested a complete repeal of the estate tax could pave way for a capital gains tax collection at death.  So imagine your heirs having to pay a 20% capital gain tax on the assets from your estate when you die.  For a $2.5 million dollar farm in Ohio, this would mean $500,000 in taxes versus $0 under our current system.  Ouch!  Be careful what you wish for as the truth will be in the detail!  We need to know what a repeal of the federal estate tax actually means.

Complete Expensing of Equipment & Buildings- The administration is also advocating for businesses to be able to completely write-off the expense of any building or equipment in the year of its purchase instead of recovering its value through a depreciation schedule.  This too could have some unattended consequences.  Again, the truth will be in the detail.

I think it matters very little on how we recapture the cost of these purchases. We have used Accelerated Bonus Depreciation and Section 179 for fifteen years to recapture the cost of capital purchases quicker.  My main concern is that complete expensing could cause a Net Operating Loss.  This could lead to the farm family not paying anything into Social Security and Medicare or at such a low level that it would affect their retirement years.  So while it may look good in the short term, without changes to how we pay into Social Security, it could lead to farmers not having enough eligible quarters to retire or be covered under Medicare.  Again, be careful for what you wish for as the truth will be in the detail.

Border Adjustment Tax (BAT)- There has been a lot of chatter on the potential impact of implementing a border adjustment tax or BAT.  This tax would be a huge change in the way we do business as Americans.  Currently, products shipped overseas bear the cost of income tax where imported products don’t.  In short, it could be considered a tariff without being called such.  It would be a huge revenue source for the government and would promote domestic production.  It is similar to the Value Added Tax used by many of our trading partners. The BAT along coupled with the proposed reductions in the tax rates for businesses should be a major catalyst for businesses here in the United States.

So, how will the BAT impact agriculture?  More specifically, how will it affect our trade relations especially with the top three international buyers of agricultural exports- Canada, China, and Mexico?   I think most sectors of the economy will be weighing in on the BAT issue.  Many retailers are very opposed to a border tax as a large percentage of the products they sell are imported.  For agriculture, it is anticipated it would add 10-15% to some of the costs of our inputs such as diesel fuel and to other inputs such as fertilizer and equipment.  The BAT debate is going to be fascinating to watch.  Make sure to keep asking your legislators how it will impact agriculture!

Summary- My recommendation is not to fall asleep on policy and tax reform in 2017.  Be engaged, ask questions and ask how it will impact your operation and our entire industry in the short term as well as long term.

 

Ohio Legislature is Set to Reconsider CAUV Bill

Written by:  Chris Hogan, Law Fellow, OSU Agricultural & Resource Law Program

The Ohio Legislature is once again considering a bill regarding Ohio’s current agricultural use valuation (CAUV) program. CAUV permits land to be valued at its agricultural value rather than the land’s market or “highest and best use” value. Senator Cliff Hite (R-Findlay) introduced SB 36 on February 7, 2017. The bill would alter the capitalization rate used to calculate agricultural land value and the valuation of land used for conservation practices or programs. The bill has yet to be assigned to a committee.

The content of SB 36 closely mirrors the language of a bill meant to address CAUV from the last legislative session: SB 246. Introduced during the 131st General Assembly, SB 246 failed to pass into law. SB 246 proposed alterations to the CAUV formula which are identical to those proposed by the current bill: SB 36. According to the Ohio Legislative Service Commission’s report on SB 246, the bill would have proposed changes that would have led to a “downward effect on the taxable value of CAUV farmland.” The likely effect for Ohio farmers enrolled in CAUV would have been a lower tax bill.

Due to the similarity between the two bills, the potential impacts of SB 36 on the CAUV program will likely be comparable to those of the previous bill. The proposed adjustment of the capitalization rate is likely to reduce the tax bill for farmers enrolled in CAUV. More specifically, the bill proposes several changes to the CAUV formula:

  • States additional factors to include in the rules that prescribe CAUV calculation methods. Currently, the rules must consider the productivity of the soil under normal management practices, the average price patterns of the crops and products produced to determine the income potential to be capitalized and the market value of the land for agricultural use. The proposed legislation adds two new factors: typical cropping and land use patterns and typical production costs.
  • Clarifies that when determining the capitalization rate used in the CAUV formula, the tax commissioner cannot use a method that includes the buildup of equity or appreciation.
  • Requires the tax commissioner to add a tax additur to the overall capitalization rate, and that the sum of the capitalization rate and tax additur “shall represent as nearly as possible the rate of return a prudent investor would expect from an average or typical farm in this state considering only agricultural factors.”
  • Requires the commissioner to annually determine the overall capitalization rate, tax additur, agricultural land capitalization rate and the individual components used in computing those amounts and to publish the amounts with the annual publication of the per-acre agricultural use values for each soil type.

To remove disincentives for landowners who engage in conservation practices yet pay CAUV taxes at the same rate as if the land was in production, the proposed legislation:

  • Requires that the land in conservation practices or devoted to a land retirement or conservation program as of the first day of a tax year be valued at the lowest valued of all soil types listed in the tax commissioner’s annual publication of per-acre agricultural use values for each soil type in the state.
  • Provides for recalculation of the CAUV rate if the land ceases to be used for conservation within three years of its original certification for the reduced rate, and requires the auditor to levy a charge for the difference on the landowner who ceased the conservation practice or participation in the conservation program.

To read SB 36, visit this page. For more information on previous CAUV bills, see our previous blog post.

 

Employers Must Use New 1-9 Form Beginning January 22, 2017

by Peggy Hall

Beginning January 22, 2017, employers must use a new version of Form I-9 for employment eligibility verification of new hires.  The U.S. Citizenship and Immigration Services (USCIS) revised Form I-9  last November and gave employers a short grace period for making the conversion to the new form, dated 11/14/16.  The new form is available on the USCIS website at https://www.uscis.gov/i-9.

Employers will  notice several improvements to the new I-9:

  • The instructions are now separate from the form and include specific guidance on each section.
  • The form is much more computer-friendly, with drop-down lists, calendars, on screen prompts and instructions for each field, a “start over” button and easy access to full instructions.
  • The employer may now list more than one preparer and translator who assisted in completion of the form.
  • In the first section, the employer must list only “other last names used” rather than “other names used.”
  • A new “additional information” box provides space for the employer to note important information for the employer’s purposes such as additional documents presented, employee termination dates or form retention dates.

Employers must complete a Form I-9 to verify the identity and employment authorization of every individual hired for employment.  For more information, see our previous post on Form I-9, and visit the USCIS’s “I-9 Central” at https://www.uscis.gov/i-9-central.

 

New Deadline for Reporting Non-Employee Compensation on Form 1099

By: David Marrison, Associate Professor & Extension Educator

There is a new change from the Internal Review Service which farmers need to be aware of in regards to the Form 1099. New this year is a provision that if the Form 1099s is being issued to report “Non-Employee Compensation” it is due both to the recipient and to the IRS by January 31, 2017.   The recipient due date has always been January 31, but taxpayers usually had until February 28 or in the case of e-filed returns March 31 to file with the IRS.  However, this is no longer true for those receiving a 1099 for non-employee compensation.  They are due to both by January 31 with no extensions.

A Form 1099 for “non-employee compensation” is generally required if the total payments for services exceeds $600 during the calendar year. Examples of this could be for hiring a neighboring farmer to harvest, spray, or plant your crops.  It could also include hiring a professional such as an accountant or veterinarian.  Reporting is needed for payments made to unincorporated businesses (ie. sole proprietorship or LLC) in excess of $600.  Generally payments to a corporation do not require a 1099 to be issued or payments made to LLC which have elected to be taxed as a corporation.  One exception that should be noted is that payments over $600 to an attorney, regardless of business entity (corporation or unincorporated), need to have a Form 1099-MISC issued.

Form 1099s are also used for report rent paid to landlords, royalty payments from gas wells, and for reporting crop insurance proceeds. For 1099s issued for these other reasons, they still must be to the recipient by January 31 but remain under the old filing deadline to the IRS of February 28 or in the case of e-filed returns March 31.  However, it is recommended that you file all of your Form 1099s at the same time.  This way you don’t forget to file the other forms by the later due date!

It is highly recommended that farmers obtain a Form W-9 from each business they purchase products and services from. This form provides the necessary information that allows you to process the Form 1099. Don’t guess on if the entity is a corporation or not.  The W-9 will indicate the type of entity.  You do not need to get a new Form W-9 each year, but it is a good idea to get them updated annually if you can.

It should be noted that payments paid for products do not require a Form 1099 to be filed. Therefore, when farmers buy fertilizer or feed, they are not required to issue a Form 1099.  However, if services are provided along with a product (ie. you hire for the spraying and the entity provides the spray chemicals) then a Form 1099 is required and the form should include the total payment made.

More information about 1099 reporting can be obtained at the Internal Revenue Systems website at: https://www.irs.gov/uac/about-form-1099misc.  And just a friendly reminder, if you miss the deadline or do not issue Form 1099s that are required, the penalty for EACH form 1099 not timely filed is $250 for not sending to the recipient and $250 for not filing with the IRS.

Click here to access the form 1099: https://www.irs.gov/pub/irs-pdf/f1099msc.pdf.