|
Newsletter | Past Issues
April,
2005
In This Issue:
Protecting
Your Interests in Crop Insurance
Strategic Investment Alternatives for
Agricultural Producers: Pathways to Wealth Accumulation
Utilizing
Family Business Meetings
Navigating
Volatile Commodity Markets
Conservation
Cost Share Payments and Income Tax
Fuel
Saving Practices
What
Are Farm Families' Priorities for Estate Planning?
Your
Access to Free Credit Reports
Protecting
Your Interests in Crop Insurance
Chris Bruynis, OSU
Extension Educator, Wyandot County
Asian soybean rust will be covered by crop insurance
if it occurs here in Ohio. In talking with some crop
insurance representatives, there is still some confusion
and concern over the vagueness of the definition of
good farming practices. Information posted at http://www.rma.usda.gov
offers the following definition:
Good farming practices - The production methods utilized
to produce the insured crop and allow it to make normal
progress toward maturity and produce at least the yield
used to determine the Final Guarantee, including any
adjustments for late planted acreage, which are: (1)
for conventional or sustainable farming practices, those
generally recognized by agricultural experts for the
area; or (2) for organic farming practices, those generally
recognized by the organic agricultural industry for
the area or contained in the organic plan. We may, or
you may request us to, contact FCIC to determine whether
or not production methods will be considered to be "good
farming practices."
Insured producers should talk with their crop insurance
agent about good farming practices if they are concerned
about the impact of Asian soybean rust on their crop
insurance indemnities. While disease is an insured peril
under the Federal crop insurance program, damage due
to the insufficient or improper application of disease
control measures is not.
Insured producers should follow developments as to the
identification and spread of Asian soybean rust disease,
and continue to stay informed and updated concerning
appropriate treatments that may apply to their situation.
Appropriate treatment may vary from timing of application
(pre- or post-discovery of the disease), frequency,
and choice of chemical or other determining factors.
If crops become infected, discovery of the disease and
any recommendations received regarding the application
of appropriate control measures must be documented.
In the event that rust develops in Ohio, farmers should
follow these recommendations to protect their investment
in crop insurance:
1. If the disease is found in their area, producers
are expected to make their best possible effort to effectively
treat for rust using accepted rust treatment practices.
Farmers who do not treat for rust, or who make efforts
to treat the disease too late, will not qualify for
compensation under multi-peril crop insurance.
2. When making insurance claims, farmers should be prepared
to verify that the cause of Asian soybean rust was natural
and that available control measures were properly applied.
Keep detailed records of dates and contacts associated
with identifying the disease, ordering fungicides, and
applying fungicides. This will assist in the verification
that every effort was made to implement an acceptable
treatment.
3. If an insufficient amount of rust control fungicide
is available for effective control, the resulting loss
of production would be covered. However, producers would
need to show documentation that they attempted to order
a fungicide and that the order could not be filled.
4. If a farmer is able to purchase a fungicide, but
is unable to apply the treatment due to shortages in
custom application services, loss of production would
be covered. Damage resulting from the insufficient or
improper application of rust control measures is not
covered. If your sprayer is inadequate to apply the
fungicide as recommended by the label, make sure you
have documentation stating so from a reputable source.
For more information regarding good farming practices
and crop insurance protection against Asian soybean
rust, please see the crop policies area on the RMA website
at http://www.rma.usda.gov.
Return
to Top
Strategic
Investment Alternatives for Agricultural Producers:
Pathways to Wealth Accumulation
Thomas L. Sporleder, Professor of Agribusiness
and Farm Income Enhancement Endowed Chair, Department
of Agricultural, Environmental, and Development Economics,
The Ohio State University.
Click
here for the entire article, available as a PDF
Farmers often are invested heavily in fixed assets (overhead)
such as farmland and a harmonized set of equipment and
buildings dedicated to the production of commodities
such as corn, wheat, or milk. These commodities are
the outputs from the inputs that are owned or controlled
by the farm operator for the purpose of producing income.
Over a lifetime every household participates in wealth
accumulation. Wealth accumulation consists of a set
of activities over time aimed at producing household
income or wealth. While most farmers engage in commodity
production to generate current household income, the
household often accumulates substantial wealth through
farmland appreciation over a lifetime. There are several
alternative strategies available for wealth accumulation
through additional investment, either on-farm or off-farm.
This article discusses these strategic alternatives
and provides some evaluation of their characteristics.
Return
to Top
Utilizing
Family Business Meetings
Chris
Zoller, OSU Extension Educator, ANR/CD, Tuscarawas County
It is no secret that managing a family business has
its ups and downs. Some family members may not have
a desire to be involved in the business, while others
want to understand and manage the business, but have
never been given the opportunity to participate in making
decisions. Utilizing family business meetings can help
with making multi-generational businesses be successful.
To effectively work as a family team, it is important
that business meetings be held because they can provide
a vehicle for making important decisions that may impact
several members. Although important for a number of
reasons, sitting at the kitchen table during a meal
is not a true business meeting. Consider the following
as you make family business decisions.
Holding meetings in a business environment can enhance
the quality of the meeting. If possible, meet in an
office and limit telephone calls, distractions and other
interruptions. If a kitchen table is used, be sure it
is cleared of food and other items. Too often, meetings
are held only when fires need to be extinguished. Pick
a consistent time to meet and stick to the schedule.
If the meetings are to be held the first Monday of the
month, make it a habit to meet. If for some reason the
meeting has to be cancelled, be certain it is rescheduled.
Be prepared. Take time to prepare an agenda of the items
you intend to discuss and provide a copy to each person.
Provide an opportunity for all family members to add
items to the agenda prior to or at the start of the
meeting. If there are any materials (financial records,
building plans, etc.) that need to be used at the meeting,
give the materials to members for review prior to the
meeting. Prior to the start of the meeting make sure
someone will take minutes of the discussion. Unless
minutes are recorded, disagreements may emerge later
about what decisions were reached.
What kind of decision-maker are you? Decisions that
affect the business are important to all family members.
Below is a listing of different decision-making styles.
Those who make decisions quickly without consulting
others would be considered autocratic. This is the fastest
and easiest way to make decisions, but the lack of ownership
by everyone involved is a major disadvantage. This approach
can be used if time is a constraint or individual parties
don’t feel a need to contribute. A second style
is democratic. In this approach a vote is taken and
the majority wins and the minority looses. This may
not be the best approach for small families, but sometimes
may be the only viable alternative.
Consensus building is a third decision making style.
In this approach, facts are used to outline the pros
and cons of the decision. This style relies on the belief
that those opposed will gravitate to the desired solution
when given the right information. Finally, the most
preferred method for making decisions is the collaborative
style. Collaboration is a time consuming process, but
is one that is best when major decisions must be made
and the support of all affected members is needed.
If you are not already, I hope you will use this information
to begin holding regular meetings with your family members.
Do some self-assessment about your decision making style.
Understand how your style is similar or different to
those of your family members. These meetings can help
to enhance communication and improve the performance
of your business.
(Adapted
from: Two-Generation Farming, Iowa State University,
November 1998)
Return
to Top
Navigating
Volatile Commodity Markets
Brian
Roe, Associate Professor, Ohio State University and
OSU Extension
Recent grain and livestock markets feature more ups
and downs than all the rides at Cedar Point. To help
you navigate the market’s twists, turns, ups and
downs, check out Matt Robert’s analysis of the
grain markets (http://aede.osu.edu/people/roberts.628/extension/GrainsNewsletters.htm),
Brian Roe’s overview of hog and beef markets (http://aede.osu.edu/people/roe.30/livehome.htm)
and Cam Thraen’s look at the Dairy Markets (http://aede.osu.edu/programs/OhioDairy/).
Return
to Top
Conservation
Cost Share Payments and Income Tax
Donald
J. Breece Ph.D., Farm Management Specialist, OSU Extension
Center-Lima
The value to society, from the benefits of various conservation
program improvements, may be much greater than the benefits
received by the taxpayer. Therefore, federal and state
governments have encouraged farmers and other landowners
to apply conservation practices and improvements through
cost share incentives. Would it be expected that these
cost share monies be provided tax free? Such is not
the case. In fact, the general rule is for government
payments to be included as income and subject both to
income and self-employment tax. However, cost share
payments are generally offset by the deduction of associated
expenses. This article will discuss appropriate deductions
to be taken and even the possibility of exclusion from
tax, under certain conditions, for conservation cost
share payments.
First, expenditures related to soil and water conservation
practices may be deductible as ordinary and necessary
business expense if they were incurred in the course
of a trade or business and were not an asset with more
than one year of useful life. Examples of seed used
for a cover crop or for a grass waterway, the fertilizer
as well, would be deducted on Schedule F as seed and
fertilizer expenses. A concrete manure storage structure
or field drainage tile are examples of items that may
be depreciated or considered for I.R.C. Section 179
Expensing. These expenses are otherwise deductible and
are not eligible for the soil and water conservation
deduction under I.R.C. Section 175 (line 14 on Schedule
F).
Second, farmers and share rent landlords may deduct
soil and water conservation expenditures for non-depreciable
capital improvements that would ordinarily be added
to the basis of the land. These expenses must be consistent
with a NRCS conservation plan. Under the I.R.C. Section
175 provision examples of these deductions include:
the movement of earth for such things as leveling, grading,
contouring or restoration of soil fertility; construction,
control or protection of drainage ditches, earthen dams,
waterways, outlets or ponds; the eradication of brush
or planting of windbreaks. The taxpayer's deduction
limit per year is 25% of the gross income from farming.
There is no limit as to how many years that excess expense
may be carried forward.
Third, part or all of the cost sharing payments that
a farmer, share rent landlord or cash rent landlord
receives may be eligible for an election to exclude
form income under I.R.C. Section 126. A somewhat complicated
provision, it may be useful to either a cash rent landlord
not eligible for section175 treatment of expenses since
they receive no share of the crop production, or to
a farmer in a situation that the government payment
exceeds the allowable depreciation for a capital asset
in the year it was placed in service. I.R.C Section
126 excludes part or all of certain cost sharing payments
made under approved state and federal programs, to an
extent that they were made primarily for the purpose
of conserving soil and water, protecting the environment,
or improving wildlife habitat. Furthermore, it may not
substantially increase the annual income derived by
the taxpayer from the affected property. The amount
of gross income that a taxpayer realizes upon the receipt
of a section 126 cost share payment is the value of
the section 126 improvement reduced by the sum of the
excludable portion and the taxpayer's share of the cost
of the improvement. Taxpayers may be surprised at how
little, if any, cost share money is included in income
under this formula.
The fair market value of an improvement is not defined
under I.R.C. Section 126 or in the regulation, rather
there is an example in a treasury regulation. The example
is an improvement that cost $700,000 but had a fair
market value (what a willing buyer would pay a willing
seller for the improvement) of only $21,000. In other
words, this expense did not add much market value to
the property, however remember who receives the environmental
benefit. In effect, it is all those taxpayers living
down stream. This fair market value is further reduced
by fraction defined in the regulation to arrive at the
"Section 126 Value." This value is further
reduced by the excludable portion which is the market
value of the right to receive annual income equal to
the greater of 10% of the average annual income derived
from the affected acres for the last three tax years
or $2.50 per acre times the affected acres. To determine
the market value, the present value is calculated by
dividing the annual income by a discount factor (interest
rate) such as an Applicable Federal Rate or the Federal
Land Bank interest rate used for special use valuation.
An example would be as follows:
Value of the Section 126 Improvement $90,000
Tax payers cost
- 25,000
Excludable portion *
- 150,000
Amount of Cost Share included
as income
$ 0
* The excludable portion example is:
10% of $300 (3 year average income) = $30 income per
acre X 300 affected acres divided by 6% discount factor
equals the excludable portion $150,000.
To report the Secton 126 exclusion, attach a statement
to the income tax return including the following: The
dollar amount of the cost funded by the government payment,
the value of the improvement, and the amount to be excluded.
Report the total cost share payment on Schedule F line
6a and the taxable amount on 6b.
More information is found in the IRS Publication 225,
The Farmers Tax Guide. It should be obvious that the
assistance of a competent tax accountant or practitioner
may be essential to accurately determine the income
tax implications from cost share payments. Many tax
practitioners have received training on this subject
at the Ohio Income Tax Schools sponsored by OSU Extension
and the Land Grant University Tax Education Foundation,
INC. However complicated tax regulations are, it still
should not discourage farmers or landlords from participating
in conservation programs to save soil and water or to
protect the environment.
Return
to Top
Fuel
Saving Practices
Donald
J. Breece, Farm Management Specialist, OSU Extension
Center-Lima
Robert Grisso and Robert Pitman, Virginia Tech, have
written an article that may be of interest to farmers
looking for ways to save fuel. For the most efficient
operation, a tractor's engine should be operated near
its rated capacity. However, there are many field operations
(such as light tillage, planting, cultivating, and hay
raking) that do not require full tractor power. This
is especially true when older implements, which were
sized for a smaller tractor, are used with higher horsepower
tractors. This article describes a fuel saving practice
to ‘Gear Up and Throttle Down’ for light
drawbar loads. The article is available at: http://www.ext.vt.edu/pubs/bse/442-450/442-450.html
Return
to Top
What
Are Farm Families' Priorities for Estate Planning?
Andy
Kleinschmidt and Carol Trice, OSU Extension Educators,
Van Wert County
During an estate planning workshop conducted in February,
2005, OSU Extension personnel surveyed twenty-eight
participants to identify estate planning priorities.
Participants in the estate planning workshop were asked
to select their estate planning priorities from a list
of twenty-seven objectives. Below are the results:
Top Ten Estate Planning Priorities for Farm Families
(ranked according to participants’ order of importance):
1. Minimize estate taxes on estates of both spouses.
2. Minimize probate estate.
3. Provide security for surviving spouse.
4. Provide security for both spouses after retirement
5. Nominate agent in a durable power of attorney in
case of disability
6. Assure continuity of farm or business
7. Minimize estate taxes on estate of first deceased
spouse
8. Provide means of paying expenses of estate settlement,
taxes and other debts
9. Take full advantage of the marital deduction
10. Keep business in the immediate family
These findings emphasize the importance that farm families
place on minimizing taxes and probate. Not surprisingly,
providing security for surviving spouse or both spouses
after retirement ranked high. Clearly, participants
also felt that having someone act as durable power of
attorney in case of disability was important. Finally,
transferring the farm business is still a high priority
for farm families. Two of the top ten priorities are
related to transferring the farm business, #6 and #10.
Return
to Top
Your
Access to Free Credit Reports
Source:
Federal Trade Commission
A recent amendment to the federal Fair Credit Reporting
Act (FCRA) requires each of the nationwide consumer
reporting companies to provide you with a free copy
of your credit report, at your request, once every 12
months.
A credit report contains information on where you live,
how you pay your bills, and whether you’ve been
sued, arrested, or filed for bankruptcy. Reviewing your
credit report is important for several reasons:
• because the information it contains affects
whether you can get a loan — and how much you
will have to pay to borrow money.
• to make sure the information is accurate, complete,
and up-to-date before you apply for a loan for a major
purchase like a house or car, buy insurance, or apply
for a job.
• to help guard against identity theft. That’s
when someone uses your personal information —
like your name, your Social Security number, or your
credit card number — to commit fraud. Identity
thieves may use your information to open a new credit
card account in your name. Then, when they don’t
pay the bills, the delinquent account is reported on
your credit report. Inaccurate information like that
could affect your ability to get credit, insurance,
or even a job.
Nationwide consumer reporting companies sell the information
in your report to creditors, insurers, employers, and
other businesses that use it to evaluate your applications
for credit, insurance, employment, or renting a home.
There are three nationwide consumer reporting companies
— Equifax, Experian, and Trans Union.
You can order your free annual credit report online
at www.annualcreditreport.com, by calling 877-322-8228,
or by completing the Annual Credit Report Request Form
and mailing it to: Annual Credit Report Request Service,
P.O. Box 105281, Atlanta, GA 30348-5281. When you order,
you need to provide your name, address, Social Security
number, and date of birth. To verify your identity,
you may need to provide some information that only you
would know, like the amount of your monthly mortgage
payment.
The only authorized source for your free annual credit
report from the three nationwide consumer reporting
companies is www.annualcreditreport.com. This website,
along with the nationwide consumer reporting companies
will not send you an email asking for your personal
information. If you get an email or see a pop-up ad
claiming it’s from www.annualcreditreport.com
or any of the three nationwide consumer reporting companies,
do not reply or click on any link in the message —
it’s probably a scam.
You may order one, two, or all three reports at the
same time, or you may stagger your requests. It’s
your choice. Some financial advisors say staggering
your requests during a 12-month period may be a good
way to keep an eye on the accuracy and completeness
of the information in your reports.
The complete article is available online from the FTC
at: http://www.ftc.gov/bcp/conline/pubs/credit/freereports.htm
Return
to Top
Readers
can subscribe electronically to this newsletter by sending
an e-mail message to: ohioagmanager-on@ag.osu.edu.
A successful subscription message will receive by an
automatic reply from the listserv. Contact your local
Ohio State University Extension Office or e-mail dmarrison@ag.osu.edu
if you have problems subscribing.
Editors:
Chris Bruynis & David Marrison
Information
presented above and where trade names are used, they
are supplied with the understanding that no discrimination
is intended and no endorsement by Ohio State University
Extension is implied. Although every attempt is made
to produce information that is complete, timely, and
accurate, the pesticide user bears responsibility of
consulting the pesticide label and adhering to those
directions.
All
educational programs conducted by Ohio State University
Extension are available to clientele on a nondiscriminatory
basis without regard to race, color, creed, religion,
sexual orientation, national origin, gender, age, disability
or Vietnam-era veteran status.
Issued
in furtherance of Cooperative Extension work, Acts of
May 8 and June 30, 1914, in cooperation with the U.S.
Department of Agriculture, Keith L. Smith, Director,
Ohio State University Extension.
link
TDD
# 1 (800) 589-8292 (Ohio only) or (614) 292-1868
|
