Feature

Act now to manage your tax liability

Written by Nancy Jorgensen on .

“Lower crop and livestock prices mean earnings will be down,” said Joe Koenen, an agricultural business specialist for the Northeast region of the University of Missouri’s Extension Service. “Start gathering records now so you can estimate your taxable income for 2016.

If your income is greatly reduced, the easiest way to defer income is to hold on to crops or livestock and sell them in 2017.”
If you already postponed sales from 2015 to 2016, then holding onto this year’s crops or livestock until 2017 may not work. Income averaging might present another solution—this allows you to spread your income over this year and the last three years.

Koenen, who works out of Unionville, Missouri, says that farmers have more flexibility to control tax liabilities than other types of businesses.

You should make most decisions affecting your 2016 tax bite before year-end. We asked Koenen how you can prepare now for your 2016 taxes, and what to expect.

Can I sell crops or livestock in 2016 and take payment in 2017?

Yes, if you’re a cash-basis taxpayer, and you have a written contract with a particular stipulation, such as you won’t receive payment before 2017. But there’s a danger—what if the buyer’s business folds before you get paid?

What about crop insurance payments?

They count as income. If you receive crop insurance payments and typically sell that crop in the year following harvest, then you can defer non-price-related crop insurance payments into next year, but you must prove it’s your normal business practice. Also, you must report that it does not impact any government disaster payments occuring in a previous year but received in the current year—those payments must be declared this year.

What records do I need to gather now?

Pull together documents related to income and expenses as well as purchases and sales of depreciable assets such as machinery and breeding livestock. Include loan information, as you can deduct interest paid on farm business loans.

Should I purchase equipment before year-end?

Typically farmers purchase equipment in good times. I see fewer purchases this year and expect the same for a couple of years to come. That said, you should consider replacing equipment when you need it—when repair costs grow larger than payments would be for new equipment.

Are there any big changes in tax law?

For farmers, the limit of $500,000 on depreciation allowed under Section 179 of the federal tax law was made permanent—as long as Congress keeps it that way. Also, the bonus first-year depreciation was lowered from the current 50 percent for 2015 through 2017, to 40 percent in 2018 and 30 percent in 2019. Depreciation on farm buildings such as hay barns or machine sheds isn’t allowed under Section 179, but you can use the bonus depreciation.

What about employee expenses such as health insurance?

You can deduct reasonable wages, along with health and other benefit expenses you provide to your workers, but you must withhold Social Security, Medicare and income taxes from their wages. If you employ fewer than 50 people, you do not have to provide employee health insurance coverage. However, if you insure yourself or your family, you may have to cover employees. The rules are complicated, and you should see a professional. I won’t predict the election or changes that may result, but I think the Affordable Care Act is here to stay in some form or another.

Should farmers seek professional tax help?

Taxes are complex, and business taxes for farms are even more so. You need professional help, just as you do for legal and financial issues. It’s cost-effective and brings peace of mind.

What tax changes do you expect down the road?

I don’t anticipate major changes, but who knows what Congress may do? In the future, the IRS may have to clarify rules on equipment repair expenses, which many people don’t understand. Our current financial downturn could affect some producers as well.

How can I make the process easier?

It’s best to keep records up to date on an ongoing basis so you don’t fall behind. Since most farmers log financial records on a computer, it’s easier to do than in the past.

What’s your top advice?

You are responsible for the accuracy of your taxes, so you need to know the laws. Keep up with rules and regulations by taking classes from University Extension and by reviewing the IRS Farmer’s Tax Guide, Publication 225, which you can find online. Don’t cheat—penalties get worse every year!

Paul Neiffer, a CPA and a principal at the agribusiness practice of CliftonLarsonAllen in Yakima, Washington, offers these suggestions as you prepare your 2016 taxes.

  1. Work up a tax plan before year-end. Summarize your income and cash expenses, calculate depreciation and see what your tax situation looks like. Review the results with your tax adviser to determine if you need to prepay farm expenses or defer income.
  2. Pay your children for working on the farm. If the child is under age 18, this tax deduction is not subject to payroll taxes, assuming you file a Schedule F or husband/wife partnership. Your child might consider investing the earnings in a Roth IRA, which defers income taxes on the earnings.
  3. Pay employees with grain or other commodities. These wages are not subject to payroll taxes, which could benefit you and your employees. However, employees need to understand how this works.
  4. Set up a retirement plan. Farmers who invest in a retirement plan throughout their career have a much easier time of transitioning their operation to their successors than if they simply rely on land rents.
  5. Take advantage of a fuel tax credit. Review your fuel records to see if you qualify for a fuel tax credit on your tax return. Dyed diesel does not qualify, but other purchases may. For example, if you drive your pickup on the farm a lot, those gallons used qualify.
  6. Take advantage of deferred payment contracts. This allows you to sell grain this year and record income next year if that’s when you receive the cash. However, if your income looks to be too low, you can report the income in the current year on a contract-by-contract basis.
  7. Make grain gifts to a charity. This reduces your taxable income, and you do not need to report the gift on your tax return. If you are self-employed, it reduces your self-employment tax as well.
  8. Make sure you pay enough tax. Many farmers want to pay zero taxes. However, consider “soaking,” which means paying at least some tax—say up to the 15 percent bracket. If not, you face paying a tax rate of 35 percent or more when you retire. Keep in mind, working capital that has been taxed is yours. If it hasn’t been taxed, then it could belong to the bank or the IRS.

These articles provide general suggestions, but you must follow specific IRS rules to avoid penalties. Consult a professional tax preparer for advice on your situation.

Have you applied for conservation funding?

Written by Nancy Jorgensen on .

Have you applied for conservation funding?

For more than a decade, federal farm programs have evolved from rewarding production to encouraging conservation. USDA conservation spending grew over the past 10 years, but based on the 2014 Farm Bill, USDA projects the spending will level off. Since 2010, USDA conservation spending has averaged about $6 billion a year, and the agency forecasts it will remain stable through 2018—although spending levels could change.

In Missouri, USDA’s Natural Resources Conservation Services programs made $68 million in financial assistance available for the fiscal year ending Oct. 1, 2014, according to Curt McDaniel, NRCS assistant state conservationist. The funding covered 3,400 contracts on 1.4 million acres.

Also, Missouri has a state sales tax that dedicates $40 million a year to conservation, including cost-sharing programs available to farmers. NRCS delivers technical assistance for this program as well as for its own.

Mitch Thierry, public affairs officer for NRCS in Kansas, says that for fiscal year 2015, Kansas general EQIP had a total of 1,416 applications, of which 594 were funded for $17 million, comprising 125,089 acres. For CSP in fiscal year 2015, Kansas had 510 funded contracts for $11 million on 1 million acres.

“There’s a big demand for these programs,” McDaniel said. “Only one in four applications are accepted.” NRCS accepts applications based on merit rather than on a first-come, first-served basis. You’ll be asked to provide farm records, and explain your problems, goals and a plan for improvement. NRCS staff will evaluate your application and guide you through implementation.

NRCS accepts applications year-round, but each program carries its own annual deadlines, which vary by state. Contact your local NRCS office for more information. To find your local office, search the Web by entering “NRCS local service centers” and click on your state and county.

For information on the Missouri Department of Natural Resources Soil and Water Conservation Program, visit www.dnr.mo.gov/env/swcp.

What's up with conservation

Written by Nancy Jorgensen on .

Meet Matt Symn...

In Kansas the Symms family shines. Matt and Stephanie Symns won the 2014 Kansas Farm Bureau Natural Resources Award for work on their farm near Atchison, Kan.

“Conservation is critical to maintaining a productive farm,” said Matt Symns. “We would rather take the time and make the effort to protect our soil, our most important natural resource, than watch it erode away.”

The Symnses raise 900 acres of corn, 850 acres of soybeans and 300 acres of hay, and graze 65 head of cattle. They operate on small field sizes with highly erodible soils on mostly upland hilly terrain with some creek bottoms. USDA’s Natural Resources Conservation Service has provided financial and technical help for many of their conservation efforts.

Matt is responsible for the day-to-day farm work. Stephanie works as a crop insurance adjuster and helps out on the farm when she can. They take their children, William, 5 and Elizabeth, seven months, along for the ride while farming when possible.

“Someday we hope to have our children working alongside us,” Matt Symns said. “Our dream is to pass on highly maintained farm ground.”

Besides protecting soil and water, conservation meshes with two other Symns values. As he says, “We try to save costs or increase efficiencies in everything we do.”

Symns began using no-till methods on row crops when he started farming 16 years ago. No-till reduces soil erosion and improves soil structure. By reducing the number of passes over the fields, no-till also reduces equipment, labor and fuel costs. Symns also saves by rotating corn and soybeans to combat chemical intolerance in weeds.

The NRCS Conservation Stewardship Program helped Symns start using variable-rate application of chemicals on his row crops. “Variable-rate  application puts nutrients where they are needed the most and doesn’t waste them on acres that may not need as much,” Symns said. He works with an agronomist to determine rates. Since he hasn’t invested in the equipment needed, he hires a contractor to apply the fertilizer.

The Symnses handle their own herbicide, fungicide and pesticide application, using low-drift nozzles to apply responsibly and avoid impacting neighboring fields.

“Chemical application has evolved, and we use new chemistries to manage herbicide tolerance in weeds,” Symns said. “While low-drift nozzles increase droplet size and keep applications on target, recently we started to use finer droplet sizes to get better coverage while still targeting applications. A set of nozzles is fairly inexpensive, so we try to keep the tools available for the right job.”

Terracing and tiling are trending here

No-till and terracing have been common practices in northeastern Kansas for years now. Variable-rate applications came later, and now cover crops are being adopted.

Local farmers started installing tile outlet terraces, both conventional and grass, in the 1970s. The Symnses are replacing old tiles as they fail with improved modern-day material. “Tile outlets increase tillable acres and eliminate the need for grassed waterways that present maintenance challenges of their own,” Symns reported.

Participating in NRCS cost-share funding, Symns installed grassed terraces. “Conventional broad-based terraces don’t work as well on our 10- to 20-percent slopes,” he explained. “This kind of conservation work is expensive, and this is where we benefit the most from cost-share programs.”

The family’s first cover crops hit the ground in 2012. “They have been an absolute priority, following terrace building and repair, ever since,” Symns said. “After bulldozers scrape away the dirt to build terraces, cover crops help replace residue and organic matter, drastically decreasing erosion of the exposed soil.” He’s experimenting with cover crops on other acreage to assess additional benefits including increased water infiltration and weed suppression.

The family has received funds from NRCS programs including its Environmental Quality Improvement Program, Missouri River Water Restorations and Protection Strategy and Kansas Water Quality Improvement. “We also help our landlords participate in the programs,” Symns said.

Making grazing sustainable

As part of CSP, the Symnses worked with an NRCS grazing specialist to implement rotational grazing for their cattle where water sources and connecting pastures allow. This year, they will try grazing cattle on stockpiled forage to reduce hay needed for winter feed.

The Symnses use prescribed burns on underused grazing land to reduce invasive species such as trees, and to help warm the soil for early growth. They also use prescribed burns on NRCS Conservation Reserve Program acres. The family owns about 20 acres enrolled in CRP, and manages another 75 CRP acres for landlords. “We reduced CRP acres where it’s more profitable to return it to tillable acres,” Symns said. “We left smaller and less accessible fields in the CRP.”

Deer have plagued the Symns farm for years. “CSP provides financial incentives to leave deer-damaged acres around the outside of fields unharvested, which increases habitats and food for upland game birds,” Symns said. “It seems to be working.”

Learn more about the Symns family by going to www.youtube.com and searching for “Doniphan County family receives Kansas Farm Bureau Natural Resources Award.”

Meet Kenny Reichert…

Learn conservation from an award-winner 

Kenny Reichert farms near Brunswick, Mo., on hilly, hardpan, clay soils that tend to trap moisture. While he successfully raises corn, soybeans and wheat, he’s spent a lifetime figuring out how to improve his soil. By pioneering conservation practices including no-till, terracing, drainage tiling and cover crops, he’s saved input costs and increased yields.

Reichert and his wife, Julie, farm with their grown son, Justin, who represents the sixth generation of his family on the farm. “When I was a kid, Dad would say, ‘We’ve got lots of clods out there—we’d better get out there and break it up,’” said Kenny Reichert. “I got tired of plowing and disking! I want to save some of our soil for the future.”

In 2013, the National Association of Conservation Districts and the Natural Resources Conservation Service recognized Reichert with the Olin Sims Conservation Leadership Award for his work promoting and leading conservation. In announcing the award, NRCS said that Reichert played a key role in promoting conservation through Mississippi River Basin Healthy Watersheds Initiative. He’s been on the Chariton County Soil and Water Conservation District board of supervisors for 10 years and served as chairman for the last seven.

Reaping the benefits

Reichert started no-till practices 30 years ago, but no-till alone wasn’t working the way he wanted. In 2011, he began planting cover crops. Cereal rye is his mainstay, but he’s tried things like radishes, sorghum, millet, cowpeas and mung beans as well.
“No-till and cover crops go together,” said Reichert, who farms 800 of his own acres and custom farms another 400 for others. “I see more and more farmers adopting these practices.” Here’s what he sees as the benefits:

  • No-till saves fuel and labor costs since you run equipment over the field less often
  • No-till and cover crops build healthy soil
  • They keep the soil in place
  • They prevent water, nutrients and chemicals from running off
  • They improve yields
  • Cover crops naturally control weeds
  • You can graze cattle on cover crops


Leading the way on his own dime

Reichert hasn’t received much in the way of financial incentives from government conservation programs because he was already using conservation techniques when programs became available.

For starters, incentives weren’t in place when Reichert adopted no-till methods. He began terracing to protect the local watershed in 1985 and received cost-sharing for that for a while. But terracing requires heavy equipment, which gets expensive even with financial help. He installed drainage tiling on some of his land and sees more tiling coming to his area. He also grew cover crops before incentives came along.

Even without incentives, conservation has been worth it for Reichert, and he continues to reap rewards.

Building the case for cover crops

“I have never seen as much excitement as there is now with cover crops,” Reichert said in an NRCS news release issued when he won the Olin Sims award. “We’re revisiting the days of my grandfather. Farmers were using cover crops without knowing the science behind why they worked. Now we have the technology and research to back up why they make such good sense.”

When Reichert first tried cover crops, he had to take a road trip to Ohio to find the seed. A few other farmers went in on the purchase. “Now the seed’s easy to find,” Reichert said, “Back then, we had no idea what we were doing.”

Topsoil tends to be shallow on Reichert’s fields, but he makes the best of what he’s got. “After I began using no-till, I saw organic matter in the soil grow to about 3 percent, which was an improvement,” Reichert said. “After planting cover crops for a few years, I’m seeing 4 to 4.2 percent organic matter, so I know I’m improving soil health.”

The more years you plant a cover crop, the easier it is to plant, he said—the soil develops a looser texture, and doesn’t seal up on the surface as much.

“Cover crops are teaching us to look at soil in a more holistic way,” Reichert said. “We’re moving away from a generic approach with fertilizer, and looking at what works best for each soil type.” That’s where variable-rate fertilizer application comes in, which can reduce fertilizer use and costs.

Reichert watches for soil texture and color, and when he sees earthworms, he knows the soil is happy. “Happy soil produces better crops and higher yields,” he said. He’s learned a lot but continues to work with NRCS, agronomists and other experts to analyze soil needs.

Cows like it too

Reichert also raises about 60 cow/calf pairs. His momma cows give birth in the spring. The calves are weaned by the first of September. Reichert begins planting cover crops on his harvested wheat fields around the first of August as well as after corn harvest later in the fall. The mommas graze on the cover crops for a couple of months once the cover crops come up. He raises hay to get the cows through the winter, but when the ground isn’t too wet, he puts cattle back on the cover crops occasionally through the colder months.

“Cover crops extend our grazing season and let us keep the cows off our pasture longer, allowing it to recover,” Reichert said. He’d like to use rotational grazing techniques to preserve pasture further, but they don’t work on his farm because it’s divided up by some roads.

Showing other farmers how it works

Under Reichert’s leadership, the Chariton County Soil and Water Conservation District worked with the Missouri Department of Natural Resources to develop a pilot project to test cover crops. The program helped alleviate fears of his fellow farmers who were concerned with the costs and effectiveness of changing their practices. “The program went statewide last year, and we’re pretty proud of that,” Reichert said. A Missouri state sales tax dedicated to conservation funds the program.

Reichert also helped bring a University of Missouri conservation demonstration farm to Salisbury, in Chariton County about 25 miles from his farm. Associated Electric Cooperative owns and contributes use of the ground where the farm is located, near an Associated power plant.

So far, conservation programs have been voluntary across the U.S., and Reichert would like to keep it that way. “If farmers don’t take the lead on conservation on a voluntary basis, I’m afraid someone will start telling us what to do.” He cites a case near Des Moines, where a lawsuit is brewing over watershed damage.

As for the future, “We’ll continue to make conservation advances,” Reichert said. “Just when you think you’ve got it figured out, the soil tells you something different. There’s always something new coming down the road.”

Missouri farmers face special challenges

Water quality, soil health, forestland conditions and wildlife habitat are Missouri’s main conservation concerns, according to Dwaine Gelnar, Missouri state resource conservationist for NRCS.

“Agriculture has come under greater scrutiny over the past few years due to hypoxia in the Gulf of Mexico created by agricultural runoff, and due to the costs of treating water from drinking water supply reservoirs,” Gelnar said. “Limiting runoff of nutrients and sediment is a primary concern.”

More than 50,000 acres of Missouri grassland were converted to row crops in recent years, he said. “Fertilizer consumption in the state increased and nutrient and sediment loss increased in some areas.”

However, he added, significant progress is being made in addressing water quality through the efforts of farmers, USDA, and soil and water conservation districts in conjunction with the Missouri Department of Natural Resources’ Soil and Water Conservation Program. Terraces have helped keep sediment out of streams and lakes, and most farmers are managing fertilizer application more efficiently, which limits the loss of nutrients to streams and lakes.

The agency’s second priority is soil quality. “Intensive use of cropland has significantly impacted the health of Missouri soils,” Gelnar said. “Over the years, intensive tillage, harvesting and erosion have degraded our soils to the point where production may be less sustainable. Organic matter has deteriorated significantly, and it’s affecting the soil’s capacity to absorb and retain nutrients and water.”

Fortunately, farmers are doing something about it. “The soil health movement is one of the most significant conservation efforts in decades,” Gelnar said. “Many farmers are planting cover crops, and federal, state and local agencies have provided extensive resources.”

As for forestland, Gelnar reported that Missouri suffers from overstocked stands of hardwoods, as well as erosion caused by logging. Also, wildlife habitat has been adversely affected by row-crop production and intensive grazing of cool season pastures. The state has made significant strides in restoring and establishing wildlife habitat, especially for grassland birds and waterfowl.

Gelnar expects NRCS to focus more on climate issues in the future. “In Missouri, we are experiencing more occurrences of prolonged drought and intense rainfall,” he said. “The result is reduced water infiltration into the soil, and greater surface water runoff.”

100 days with a wild mustang

Written by Kerri Lotven on .

 

To do it right takes time.

That’s why Lance Dixon and Dennis Cappel, both of Silex, Mo., spent the summer in the arena training for a competition called The Extreme Mustang Makeover.

The competition gives each rider 100 days to train and tame a wild mustang. At the end of those 100 days, the trainers compete to see who has best broken their horse, and horses are auctioned off for adoption. Dixon is 18 years old and in his first year of eligibility for this competition. Cappel is a seasoned veteran. Dixon watched Cappel take home the championship last year. Dixon was drawn to the challenge—the work, the end result.

After a long run in the competition, Cappel wasn’t going to compete this year. But Dixon asked Cappel for help. The ask was all it took.

In his 30 years of experience, Cappel has sought to work with some of the best hands in the world. “I get more enjoyment out of watching him (Dixon) do well, than doing so myself. That’s where the reward comes from,” Cappel said.

Cappel has a philosophy: he teaches riding with a clear mental picture. “It’s everything,” he says. Like an artist with a canvas, he first constructs an image in his mind—down to the finest details. “If you don’t have a clear picture when you start working with a horse, pretty soon the horse is telling you what to do and it doesn’t work. It’s dangerous.”

By the third day of training, Dixon and Cappel were able to saddle the horses. They were both thrown from those saddles on the fourth day. That’s when Dixon’s horse, Starbucks, earned her name. It’s more of a sentence really: Star bucks. On the fifth day, Cappel found himself in the air again. Cappel said he’s learned something different from every mustang he’s competed with. “This one’s taught me an understanding of what the majority of people I’m helping are going through, because most of them are scared. She’s taught me what it is to be fearful and that was a new experience for me. In that aspect she’s been really good for me because she’s made me a better teacher.”

The competition lasts for three days and takes place in 10 states. Because the goal is adoptability, judges want horses to demonstrate a variety of skills to ensure they are standard use. Horses are evaluated on appearance; performance in a series of agility tests; cattle management; and trail obstacles. If a horse makes the top 10 in these categories, it goes on to compete in a freestyle competition. At the freestyle competition in Sedalia, Mo., a rider came out of the gate, rode past two balloons, pulled out a pistol, popped each of them, fired two shots into the ground next to his horse’s feet, herded a calf to the back wall and then at full gallop, the horse leapt into the back of a pick-up truck with rider still in saddle. When the dust settled, that rider won the competition.

Cappel came in second and the horses he and Dixon trained were sold to new owners. As the sales were processed, trainers led their horses back to the stables, patted them on the neck and gave them hay for the night.

Dixon left the arena for college in Oklahoma this fall with a new outlook for success. “This journey has really been about the mind, establishing our goals, writing them down, focusing on them. I’ve learned with all of that done, everything just seems to fall into place. The mustang is really just a tool that we’ve used to better ourselves, our mind, and determine what we want out of life. The biggest thing is to stay on track and follow through and I can use that toward anything.” Dixon said.

 

Magazine

  • Subscriptions
  • Advertising
  • This email address is being protected from spambots. You need JavaScript enabled to view it.

Support

  • This email address is being protected from spambots. You need JavaScript enabled to view it.
  • FAQ
  • Copyright Notice