Tax Management

Lady Landowners Leaving a Legacy Series 

by: Amanda Douridas and Amanda Bennett, OSU Extension

Land is an expensive and important investment that is often handed down through generations. As such, it should be cared for and maintained to remain profitable for future generations.

Almost half of landowners in Ohio are women. OSU Extension in Champaign and Miami Counties are offering a series designed to help female landowners understand critical conservation and farm management issues related to owning land. It will provide participants with the knowledge, skills and confidence to talk with tenants about farming and conservation practices used on their land. The farm management portion will provide an understanding of passing land on to the next generation and help establish fair rental rates by looking at current farm budgets.

The series runs every Friday, February 26 through March 26 from 9:00-11:30 a.m. and will be a blend of in-person and virtual sessions. It is $50 for the series. If you are only able to attend a couple of session, it is $10 per session but there is a lot of value in getting to know other participants in the series and talking with them each week. Registration can be found at go.osu.edu/legacy2021. For more information, please contact Amanda Douridas at Douridas.9@osu.edu or 937-772-6012. Registration deadline is February 24. The detailed agenda can be found at

https://miami.osu.edu/events/lady-landowners-leaving-legacy.

 

Whole Farm Planning – Take Time to Plan Your Work and Work Your Plan

By David Marrison, OSU Extension Educator

We have all heard the saying “Plan Your Work and Work Your Plan.”  Planning is one of the most important aspects of managing any business. This is especially true for farms and agribusinesses due to their complexity and the inherent uncertainties associated with agriculture.

OSU Extension encourages farm families to adopt a whole farm planning approach as they develop strategies for the future success of their business. The whole farm approach allows families to examine the internal structure of their business and then develop business, retirement, transition, estate, and investment plans that work in harmony.

The Farm Business– At the center of most farms and agricultural businesses is the family unit. Each family, individually and collectively, has its own history, values, and goals. It is valuable for the business to begin the planning process by reflecting on family and farm history. Valuable lessons can be learned by all the generations involved by examining past successes and disappointments. The underlying values and goals of the family unit and each individual should also be determined. While these values and goals oftentimes remain unspoken, they have a large impact on how family members treat each other and employees and make business decisions.

An analysis of the current state of the farm should also be conducted to determine the physical, fiscal and personnel status of the business. This analysis should also examine the operation’s efficiency and identify any available resources that are not currently being utilized. The farm’s profitability, business structure, operating procedures and employee management should also be examined. It is also helpful for the management team to identify the external influences that could impact the business in the future. These influences could include any governmental, political, economic, environmental, social or technological elements.

Developing the Five Essential Plans – Once a family has completed its internal analysis, family members can continue the planning process by developing business, retirement, transition, estate, and investment plans. A description of each planning area is given in the following paragraphs. It should be noted that each of these planning areas does not stand alone. Like spokes in a wheel, all will need to work in harmony to ensure the long-term viability of the business. Each area can positively or negatively affect the performance of the others. One example of this would be if investment planning has gone well, more assets will be available to help fund business operations or retirement needs. As plans are developed for each of the five areas, it is essential that the management team examine the effects that each has or could potentially have on the other plans.

 

 

Business Plan– A business must be profitable in the long run in order to exist. On most farms, the major planning that occurs is for the farm’s production practices. An example of this is deciding what variety of corn to plant or deciding what sires to use for breeding cows. However, planning for the success of the farm business should include much more.

A comprehensive business plan should be developed. This plan not only helps the family develop a plan of action for production and operation practices, but also helps develop plans for the financial, marketing, personnel and risk-management sectors of the business. One recommended method of evaluating the farm business is to conduct a SWOT analysis. This analysis examines the Strengths, Weaknesses, Opportunities and Threats in each of these areas. In short, the agricultural business plan presents a picture of the agricultural business or farm, where the business is going, and how it will get there.

Retirement Plan– No one expects to work forever. A strategy to help each business member meet his or her expected retirement needs should be developed. The two main retirement questions that should be addressed are how much money does each family member need for retirement and what will the farm’s obligation be to retirees? A variety of factors such as age at retirement, retirement housing and other retirement accounts held by the family will affect retirement needs. It is essential that retirement plans are established early for all members of the business. It is also important that the profitability of the farm be such that a family member can retire and not adversely affect the financial position of the business.

Transition Plan– The goal of transition planning is to ensure that the business has the resources to continue for many generations. Transition planning helps the family analyze its current situation, examine the future, and then develop a plan to transfer the business to the next generation. This includes planning not only for the transfer of assets but also managerial control. Members of the primary generation should invest time in transferring their knowledge to the next generation.

Estate Plan– Farm estate planning is determining how the farm assets, such as land, buildings, livestock, crops, investments, machinery, feed, savings, life insurance, personal possessions, and debts owed to or by the farm, will be distributed upon the death of the principal operator(s). The estate plan, in concert with the transition plan, helps to address how the off-farm heirs can be fairly treated without jeopardizing the future of the farming heir.

Investment Plan– The primary investments made by farm families are usually in land, machinery, and livestock. Farm operations may, however, wish to invest in such off-farm investments as stocks, bonds, mutual funds, real estate, life insurance, retirement homes, precious metals or disability insurance. These investments allow farm families to save for future education or retirement needs and allow for investment diversification. Factors that farmers will need to consider during investment planning include the rate of return, personal risk tolerance levels, tax considerations and the time horizon available for investing.

More Information- More information about the whole farm planning model can be found in a factsheet accessible at: https://ohioline.osu.edu/factsheet/anr-52

Farm families are encouraged to use this and other OSU Extension farm management resources, along with a competent attorney and accountant, to develop their plans.

Check out the Farm Office Website at http://farmoffice.osu.edu/ for additional farm management resources.

Farm Office Live Returns on February 10 & 12

by: Peggy Kirk Hall, Associate Professor, Agricultural & Resource Law

Wondering what’s happening with CFAP, the Paycheck Protection Program, and Executive Orders?  So is the Farm Office team, and we’re ready to provide you with updates.  Join us this month for Farm Office Live on Wednesday, February 10 from 7–8:30 p.m. and again on Friday, February 12 from 10–11:30 a.m., when we’ll cover economic and legal issues affecting Ohio agriculture, including:

Status of the Coronavirus Food Assistance Program (CFAP)

Update on the Paycheck Protection Program (PPP).

Tax credits information

Executive Orders that may impact agriculture

Legal update on small refinery exemptions

Farm Business Analysis program results

Legislative update

Your questions

To register for the free event, visit this link:  go.osu.edu/farmofficelive

 

 

Consolidated Appropriations Act, 2021 – Highlights of Tax Issues Impacting Farm Businesses

by: Barry Ward, Leader, Production Business Management/Director, OSU Income Tax Schools

Congress passed the Consolidated Appropriations Act (CAA), 2021 on Monday, December 21, 2020 which was signed by the President on December 27th. The CAA funds the government through September 30, 2021, implements COVID-19 relief provisions, and extends a number of expiring tax provisions. The $2.3 trillion bill provides $900 billion in COVID-19 relief. This article highlights key provisions for farm related issues from several Acts within the CAA’s 5,593 pages.

Additional 2020 Recovery Rebates

“Economic Impact Payments”

The Act provides for “additional 2020 recovery rebates for individuals.” The additional recovery rebate credit is $600 for “eligible individuals” or $1,200 for “eligible individuals” filing a joint return. “Eligible individuals” are entitled to a $600 credit for each “qualifying child”. (Generally includes dependent children under the age of 17.) Phaseouts apply for higher income taxpayers.

Paycheck Protection Program Loans – Covered Expenses Now Deductible

Previously, the IRS and Treasury indicated that the expenses covered by PPP loans that were forgiven (or would be forgiven) would not be deductible. This new legislation now allows for these expenses to be deducted. This provision overrides IRS Notice 2020-32 and Rev. Rul. 2020-27. The CARES Act indicated that the loan proceeds from PPP loans are not to be included as taxable income. This tax treatment would apply to original PPP loans, as well as any subsequent loans made possible by the Act.

Paycheck Protection Program – Other New Guidelines

Qualified self-employed farmers who did not have employees and had less than $100,000 of net income in 2019 were not originally eligible for the maximum forgivable PPP loan. The new legislation now allows for the PPP loan forgiveness based on gross income rather than net income. Farmers are now able to receive a PPP loan of up to $20,833 (reduced by any loan already received) based on gross receipts of at least $100,000.

The legislation amends the Paycheck Protection Program (PPP) to extend the covered period from December 31, 2020, through March 31, 2021. An allocation of $284 billion is included to provide first and second PPP loans to small businesses. Details of the expanded program will not be known until SBA releases required guidance.

The PPP allows borrowers to spend proceeds on payroll costs and non-payroll costs of business mortgage interest, business rent payments, and business utility payments. This new legislation expands the allowable use of PPP loan proceeds.

The legislation allows borrowers to choose a covered period anywhere between an eight-week and 24-week covered period for purposes of loan forgiveness. The covered period must begin on the date the proceeds are disbursed.

The legislation provides a simplified forgiveness procedure for PPP loans up to $150,000. The new procedure provides that such loans “shall be forgiven” if the borrower signs a certification that shall not be more than one page in length and shall require minimal supporting information.

The legislation repeals the provision in the CARES Act requiring the SBA to reduce a borrower’s PPP forgiveness by the amount of an EIDL advance.

PPP Second Draw Loans

The new legislation establishes a PPP Second Draw Loan program that generally applies to businesses with 300 or fewer employees if the business had gross receipts during any quarter in 2020 that were reduced by at least 25 percent from the gross receipts of the business during the same quarter in 2019.

To be eligible for a second draw loan, the borrower must have received a PPP loan in 2020 and used all of the proceeds of that loan for permitted purposes.

The Act allows borrowers who have not yet received forgiveness to request an increase in their loan amount if they returned all or part of a PPP loan or did not take the full amount of a PPP loan to which they were entitled. This provision allows borrowers who received loans before more favorable regulations were enacted to take advantage of those new provisions.

Employee Retention Credit (ERC)

The legislation extends and expands the employee retention credit, allowing employers to remain eligible up until July 1, 2021. Previously, employers who received a PPP loan were ineligible to claim the ERC. The new legislation retroactively allows employers who receive PPP loans to claim the ERC and to treat payroll costs paid during the loan-covered period as qualified wages to the extent the wages are not paid for with forgiven PPP loan proceeds.

For the period from January 1, 2021 and prior to July 1, 2021 the ERC percentage increases from 50 percent of qualified wages to 70 percent. Employers can count qualified wages up to $10,000 per employee per quarter (instead of for all quarters) in calculating the credit. Employers qualify for the credit if their gross receipts for a calendar quarter are less than 80 percent of the gross receipts of the corresponding calendar quarter in calendar year 2019.

Economic Injury Disaster Assistance (EIDL) Loans and Advances

The Act allows Economic Injury Disaster Assistance (EIDL) Advances provided as emergency grants under the CARES Act to be excluded from gross income while the corresponding expenses would remain deductible. Additionally, loan forgiveness granted to an EIDL loan recipient under discretionary powers provided by the CARES Act does not result in gross income or a denial of deductions for allocable expenses.

New Net Operating Loss (NOL) Options

The new legislation provides farmers new net operating loss options not otherwise available in the wake of the CARES Act. Farmers have the option to temporarily carry back Net Operating Losses 2 or 5 years with some caveats.

Extension of Credits for Paid Sick and Family Leave

The Act extends the tax credits made available to employers by the Families First Coronavirus Response Act through March 31, 2021 (They were set to expire on December 31, 2020). This includes the sick and family leave credits for self-employed individuals. The new legislation does not provide additional credits for employees but allows for a larger window to utilize them if the employer chooses.

Emergency EIDL Grants

The Act appropriates an additional $20 billion for emergency EIDL grants. The Act extends the covered period for this program through December 31, 2021, and extends the period to approve the applications from three days to 21 days.

Temporary Allowance of 100% Deduction for Business Meals

The new legislation allows for a 100 percent deduction for business meals where food or beverages is provided by a restaurant, for the 2021 and 2022 tax years.

Charitable Contributions Deduction by Non-Itemizers

For tax years beginning in 2021, the Act extends and increases the above-the-line deduction for cash contributions by non-itemizers to $300 for individuals and $600 for married filers.

Extension of Deferred Employee Portion of Payroll Taxes

The Act delays the repayment requirement for the employee portion of the payroll taxes that were deferred in response to the President’s August 8 Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster.  Instead of requiring full repayment of these deferred taxes by April 30, 2021, the new legislation delays this deadline to December 31, 2021.

References:

Tidgren, Kristine A. “What COVID Relief Provisions are in the Spending Bill?” Ag Docket Perspective on Agricultural Law & Taxation, Center for Agricultural Law and Taxation, December 23, 2020

Neiffer, Paul “Deeper Dive into PPP” Agribusiness Blog Farm CPA Today, CliftonLarsenAllen Wealth Advisors, December 22, 2020

H.R. 133 Consolidated Appropriations Act, 2021 https://www.congress.gov/116/bills/hr133/BILLS-116hr133enr.pdf December 27, 2020

Ernst & Young LLP, Consolidated Appropriations Act, 2021 extends many credits and other COVID-19 relief, Tax News Update, December 23, 2020

 

OSU Extension to Host “Planning for the Future of Your Farm” Workshop

By David Marrison, Peggy Hall and Jeffrey Lewis

Planning For Future Farm Webinar

OSU Extension will host a virtual three part “Planning for the Future of Your Farm” workshop on February 15, 22 and March 1, 2021 from 6:30 to 8:30 p.m. via Zoom. This workshop will challenge farm families to actively plan for the future of the farm business. This workshop is designed to help farm families learn strategies and tools to successfully create a succession and estate plan that helps you transfer your farm’s ownership, management, and assets to the next generation. Learn how to have the crucial conversations about the future of your farm.

Topics discussed during this series include: Developing Goals for Estate and Succession; Planning for the Transition of Control; Planning for the Unexpected; Communication and Conflict Management during Farm Transfer; Legal Tools & Strategies; Developing Your Team; Getting Affairs in Order; and Selecting an Attorney

This workshop will be taught by members of the OSU Farm Office Team featuring Peggy Hall & Jeffrey Lewis, Attorneys from OSU Agricultural & Resource Law Program and David Marrison, Extension Educator for Coshocton County.

Because of its virtual nature, you can invite your parents, children, and/or grandchildren (regardless of where they live in Ohio or across the United States) to join you as you develop a plan for the future of your family farm.

Pre-registration is required as one packet of program materials will be mailed to participating families. Electronic copies of the course materials will also be available to all participants. The registration fee is $40 per farm family.  The registration deadline is February 10, 2021. More information and on-line registration can be obtained at go.osu.edu/farmsuccession

For more information about this webinar contact David Marrison at the Coshocton County Extension office at 740-622-2265 or by email at marrison.2@osu.edu.

FARM OFFICE LIVE WINTER EDITION

by: Barry Ward, David Marrison, Peggy Hall, Dianne Shoemaker – Ohio State University Extension

“Farm Office Live” returns virtually this winter as an opportunity for you to get the latest outlook and updates on ag law, farm management, ag economics, farm business analysis and other related issues from faculty and educators with the College of Food, Agriculture and Environmental Sciences at The Ohio State University.

Each Farm Office Live will start off with presentations on select ag law and farm management topics from our experts and then we’ll open it up for questions from attendees on other topics of interest.  Viewers can attend “Farm Office Live” online each month on Wednesday evening or Friday morning, or can catch a recording of each program. The full slate of offerings for this winter:

January 13th 7:00 – 8:30 pm

January 15th 10:00 – 11:30 am

February 10th 7:00 – 8:30 pm

February 12th 10:00 – 11:30 am

March 10th 7:00 – 8:30 pm

March 12th 10:00 – 11:30 am

April 7th 7:00 – 8:30 pm

April 9th 10:00 – 11:30 am

Topics to be addressed this winter include:

  • New COVID Related Legislation – Consolidated Appropriations Act, 2021
  • Outlook on Crop Input Costs and Profit Margins
  • Outlook on Cropland Values and Cash Rents
  • Outlook on Interest Rates
  • Tax Issues That May Impact Farm Businesses
  • Legal trends for 2021
  • Legislative updates
  • Farm business management and analysis updates
  • Farm succession & estate planning updates

Who’s on the Farm Office Team?  Our team features OSU experts ready to help you manage your farm office:

  • Peggy Kirk Hall — agricultural law
  • Dianne Shoemaker — farm business analysis and dairy production
  • David Marrison — farm management
  • Barry Ward — agricultural economics and tax

Register at  https://go.osu.edu/farmofficelive

We look forward to you joining us this winter!

Farm Management Needs Pulse Survey

The Ohio State University Extension Agriculture and Natural Resources program works to improve production and maximize profitability while promoting environmental stewardship.

We are reviewing our farm management resources and ask you to rank your “top 3” areas from the following list for your farm management needs and support wanted.

  1. Agricultural Finance: farm income, farm business analysis, financial management, budgeting, and investing, agricultural taxes, benchmarking, record keeping
  2. Agricultural Human Resources: farm succession planning, labor law and policy, human resource management/labor management, liability
  3. Agricultural Law: legal issues within the agriculture system and estate planning
  4. Agricultural Marketing: marketing and price analysis, commodity trading
  5. Agricultural Policy: Farm Bill/Agricultural Policy, environmental and resource policy agricultural trade
  6. Agricultural Production and Risk Management: risk evaluation and management, land use, crop and livestock production, crop and livestock insurance
  7. Agricultural Supply Chain Stability and New Market Access: stability of upstream and downstream supply chains during disruptions, identifying new markets
  8. Rural and Community Development: infrastructure – broadband access, community resources, health care, non-agricultural small business support; rural/urban interface

Please complete the survey at: https://go.osu.edu/FarmMgmtNeeds by December 18, 2020.

Thank you.

Farmer’s Tax Guide- Tax Guidance for Your Farm Business

By: Barry Ward, Director, OSU Income Tax Schools & Leader, Production Business Management

Do you need a resource to answer those tough farm tax questions? If so, you can access the Farmer’s Tax Guide (IRS Publication 225) online at: https://www.irs.gov/pub/irs-pdf/p225.pdf  The 2020 Farmer’s Tax Guide explains how 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.

The explanations and examples in this publication reflect the Internal Revenue Service’s interpretation of tax laws enacted by Congress, Treasury regulations, and court decisions. However, the information given does not cover every situation and is not intended to replace the law or change its meaning.

Some of the new topics for the 2020 tax year which are included in this publication are: Tax treatment of Coronavirus Food Assistance Program (CFAP) payments, Payroll Protection Program (PPP) Loans and Forgiven Debt, Increased section 179 expense deduction dollar limits, COVID-19 related employment tax credits and other tax relief, Redesigned Form W-4 for 2020, New Form 1099-NEC, and much more.

Hardcopies of the 2020 Farmer’s Tax Guide are also available at select county OSU Extension offices.

The Rural Tax Education Site has additional resources for agriculturally related income and self-employment tax information that is both current and easy to understand: https://ruraltax.org/

Dairy Risk Management Series Offers a Range of Important Information to Producers

By Ben Brown, Dianne Shoemaker and Chris Zoller

Offered in three sessions during November, OSU Extension, in partnership with the Ohio Dairy Producers Association, delivered a dairy risk management webinar series covering three important topics: milk pricing and producer price differentials, outlooks for domestic and international milk product markets, and dairy risk management tools. Slides and recordings for all presentations can be found at https://farmoffice.osu.edu/events/archived-videos.

Session one was presented by Mark Stephenson from the University of Wisconsin discussing milk pricing and producer price differentials. Due to COVID-19 disrupting supply chains and a change in the 2018 Farm Bill using the average of Class III and Class IV milk prices instead of the higher of the two to set Class I milk prices, Ohio dairy producers experienced several months of historically large negative producer price differentials. According to Dr. Stevenson, these negative PPDs could continue for a couple more months and producers need to be aware of these when making business planning decisions. Dr. Stephenson’s presentation can be found at https://studio.youtube.com/video/fpGfd5c0pi4/edit.

Session two highlighted domestic and international markets. William Loux from the U.S. Dairy Export Council started off the session with a presentation on dairy supply and demand outside the United States. International demand for US dairy products is up in 2020 driven primarily by China and the Middle East/ North Africa Region. Southeast Asia also saw large year over year increases in dairy product imports. Loux pointed out there are a couple things to watch for in the next couple of months: COVID-19 resurgence, Brexit and the ability to trade with England, and the subsidization of dairy exports by India. He concluded by saying it is a good sign that the US continues to export dairy products in strong numbers even with US dairy prices above world dairy prices. His session can be found at https://www.youtube.com/watch?v=fJsHMSkcHVc

Also in session two, Mike McCully from the McCully Group provided price expectations for US dairy markets over the next 12 months. Key points from his presentation included product specific outlooks with cheese prices being strong on solid demand, butter prices being extremely weak on burdensome supplies and milk prices being relatively stable. He continued that the outlook is mixed, with dairy markets having a bearish tone heading into the first quarter of 2021 on growing milk supplies and concerns over demand, but the second half of 2021 being more bullish given an expected reduction in milk supply growth and possible demand improvements. Mike’s full presentation can be found at https://www.youtube.com/watch?v=NAy6Xy-Nb7s&t=119s

Session three focused on risk management tools for dairy producers. OSU Extension Educator Chris Zoller provided an overview of USDA’s Dairy Margin Coverage program, which is authorized through the Farm Bill every year. Producers wishing to sign up for DMC need to contact their FSA office prior to December 11 to enroll for 2021. Chris’ presentation can be found here: https://www.youtube.com/watch?v=ZR_4SukNX2I&t=24s

Dr. Kenny Burdine, Associate Extension Professor, University of Kentucky, also presented during session three.  Dr. Burdine discussed Livestock Gross Margin Insurance- Dairy and gave a brief overview of using futures and options in milk price protection. Dr. Burdine suggested USDA’s Dairy Margin Coverage Program as the first level of protection for smaller producers, with Livestock Gross Margin Insurance- Dairy being the second level of protection. Kenny’s presentation can be found here: https://www.youtube.com/watch?v=PdjEijnDCMw

Session three concluded with a presentation by OSU Extension Educator Jason Hartschuh on Dairy Revenue Protection Insurance offered through the Risk Management Agency. Jason reviewed six decisions for dairy producers to consider and provided examples of how to use the program. Additional information about this topic can be found at dairy@osu.edu under Dairy Revenue Protection. Jason’s presentation from the webinar series can be found at https://www.youtube.com/watch?v=B38TVJkrlQU

For any additional questions or thoughts for future risk management webinars please reach out to Ben Brown at brown.6888@osu.edu, Dianne Shoemaker at shoemaker.3@osu.edu, Chris Zoller at zoller.1@osu.edu or your local OSU Extension Office.

Agricultural Risk Coverage and Price Loss Coverage for the 2021 Crop Year

By Ben Brown, The Ohio State University

The 2018 Farm Bill reauthorized the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) safety net programs that were in the 2014 Farm Bill. Producers must enroll  in ARC/PLC for the 2021 crop year through their local Farm Service Agency office. Producers can amend the program elections they made for the 2019 and 2020 crop years for the 2021 crop year. The signup period for the 2021 crop year is open now, and the deadline to enroll and make amendments to program elections is March 15, 2021.

If changes are not made by March 15, 2021 deadline, the election defaults to the programs selected for the 2020 crop year with no penalty. Producers will have the opportunity to amend program elections again for the 2022 and 2023 crop years.

Producers again have the option to enroll covered commodities in either ARC-County, ARC-Individual, or PLC. Program elections are made on a crop-by-crop basis unless selecting ARC-Individual where all crops under that FSA Farm Number fall under that program. ARC program payments are made when crop revenue falls below a guaranteed level, while PLC payments are made when a crops specific effective price is lower than its reference price. These are the same program options that were available to producers during the 2019 and 2020 crop years. In some cases, producers may want to amend program election to better manage the potential risks facing their farms during the 2021 crop year.

On December 1, 2020 at 10:00 a.m. EST program directors from the Ohio Farm Service Agency and Ohio State University Extension will host a free informational webinar about ARC/PLC enrollment and election for the 2021 crop year. During this free 1-hour webinar, state leaders will cover program design, economic considerations and frequently asked questions. To make sure your question is addressed during the webinar, please send to Ben Brown at brown.6888@osu.edu or 660-492-7574 prior to December 1, 2020.

To register, visit: go.osu.edu/arc_plc