Minding Ag's Business

Consider a Tax Upgrade

By Marcia Zarley Taylor , DTN Executive Editor

With tax law, it's out with the old and in with the new every year, so pros need upgrades almost as often as your iPhone. Complicating tax code obsolescence is that farm program rules, estate planning and best business practices often conflict with tax law. Pros who don't dig into farming on a regular basis may be unaware.

Several hundred ag CPAs, lenders, farm managers and comptrollers will gather May 19-20 in Denver for the American Institute of CPAs (AICPA) Agriculture 2016 conference to help sort out those arcane ag specifics. It's a chance for ag advisers and sophisticated farm executives to upload new tax and financial strategies customized for agriculture. (DTN-The Progressive Farmer is a media sponsor.)

Last year, I learned USDA's current definition of Adjusted Gross Income (AGI) could deny families from receiving farm program payments if they operate as either an S Corporation or Limited Liability Corporation (LLC) taxed as a partnership or S Corporation. Unlike sole proprietors, they can't deduct Sec. 179 depreciation from their AGI, an item that hit $500,000 in some recent tax years and may affect farm program eligibility.

Under the 2014 Farm Act, farmers must not generate a three-year average Adjusted Gross Income greater than $900,000. The test applies first to legal entity levels (S Corporation, LLC, LLP, etc.) and then to the individuals in that entity.

That's an expensive but little appreciated "got-cha" that penalizes families organized for legal and estate planning reasons, not to maximize their government payments. Apparently, not all legal and tax advisers know or alert their clients to the potential damage.

This year, attendees will learn:

--Why farm estate planning isn't what it used to be. Since 2014, when Congress raised taxable estates to $5 million per person (inflation adjusted annually), the common practice of gifting stock or property to your heirs is out of vogue except for the Super Wealthy. Now instructors CPA Paul Neiffer and tax lawyer Roger McEowen of CliftonLarsonAllen say the incentives are to hold on to as much farm property as possible until death, to receive a step-up in tax basis and forgive a lifetime of capital gains on farmland and other assets.

--How the 2016 presidential elections will influence tax rules, perhaps changing rates, treatment of capital gains and estate tax treatment. AICPA's Director of Congressional and Political Affairs Diana Deem summarizes the risks and rewards of the candidates' plans.

--How to sustain family harmony across generations, even during stressful commodity cycles. Consultant John Syverson describes how emphasizing family values first can keep peace in the family later.

--Why some so-called equipment "leases" might actually be disguised purchase agreements, posing problems should a taxpayer be audited. James Schmidt, a CPA with Eide Bailly, outlines what's necessary for compliance.

The tax rules and economic climate for farm business have changed radically since 2012-13, says McEowen. "Not only has estate planning strategy undergone a 180-degree reversal, families need to consider more flexibility in their buy-sell agreements and the events that can ruin their plans."

Consider the Denver event to help you install your next tax upgrade.

Early-bird discounts apply through April 4. For more information go to http://www.cpa2biz.com/…


Follow Marcia Taylor on Twitter @MarciaZTaylor



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