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While death is the ultimate tax dodge, Congress recently provided some long term fixes to some rather helpful provisions of the tax code that quite frankly, a lot of businesses are hooked on using like crack cocaine. That of course, is exactly what Congress intended. After all, once they have you hooked, you are more likely to behave as intended.
Section 179 Deduction- The Good Crack

Enhanced "Section 179" deduction, or expense method depreciation is something that most business love. It allows items that would normally be required to be deducted slowly over many years, to be treated like a purchase of a bag feed that is consumed in a short amount of time.   Now  under I.R.C. § 179, the section allows farmers and  businesses to deduct $500,000  of certain business property or equipment during the year in which the property was placed into service.  It used to be $25,000. That's a big jump.  Future amounts will be indexed for inflation. True, last year the Congress did the same thing, but this time, it is scheduled to last for a couple of years, which will allow for greater planning and less made dashes to the equipment dealer on 28 DEC.

Farmer can use §179 deduction to purchase machinery and equipment, office equipment, livestock, grain bins, and single purpose agricultural structures such as hog barns or under roof calving barns. The deduction applies to purchases of new or used equipment. To use deduction for the 2015 tax year, the purchase must have been placed in service in 2015 - ready for use .

Other items to induce action on your part.

The new bill also  extends several frequently renewed credits for individuals. These include the enhanced child tax credit ($1,000 per qualifying child), the enhanced earned income tax credit, and the enhanced American Opportunity Tax Credit ($2,500 for four years of college expenses). Congress has also made permanent a provision granting teachers a $250 deduction( indexed for inflation) for supplies purchased for their K-12 classrooms.    Now you can also elect to claim state and local sales tax instead of state and local income tax as an itemized deduction. Although this provision generally benefits those taxpayers from states without a state or local income tax (We are looking at you Washington State), it can also benefit taxpayers who make a large purchase in a given tax year.

Also charitable giving is getting some love. Tax payers over70.5 years old can  make tax free distributions from their IRAs to a qualified charity. Up $100,000 per taxpayer (per spouse for married taxpayers that file as married filing jointly) .

Some things to remember: First, permanent means until Congress decides to mess with the code again. Second, all tax provisions are designed to induce or prevent behaviors. Look again at the provisions discussed above. They might as well be titled "Buy more stuff provision," "The have more children act", "the go to school act", "Teachers  please keep buying supplies yourself instead of asking for a raise measure"  and "you saved too much so share it with a charity provision."

Six years ago, I had to be convinced to get a smart phone so I could check email while away from the office. Now I rarely don't have the phone in pocket, whether I am in the office or on the farm. Toddlers  get frustrated when the encounter TVs that don't respond to touch like IPADS. The world is changing. As I hear from time to time, "I saw on the internet that if it is on the internet it must be true."

Ag is no exception. Online and televised auctions for livestock are becoming all the rage. Unfortunately, just because it looks like an auction, doesn't always mean it is conducted like the auction at the sale barn. Basically, an auction is a series of offers (will you buy at this price) followed by a rejection (any other bidders) followed by a counter offer (okay your price is agreeable to me). Auctions are covered by federal regulation if they take a commission of the sale, those who are regulated can be found at  www.gipsa.usda.gov . Auctions that take a flat fee per animal may not be covered or regulated by the federal rules at all. Which makes it hard to deal with.  As always, it is good to do a little back ground work  and check the owners of the web site and auction company.

To report a problem you've encountered buying livestock, or to file a complaint, call 1-800-998-3447.

It is not too early to consider sending notice to terminate the land owner tenant relationship, but it will be if it is not taken care of by 1 Sept.

When terminating a lease, Iowa Code requires adherence to proper notice, and failure to follow Iowa laws regarding notice to a farm tenant may result in a renewal of the lease under the current terms:

  • If you lease ground you have to provide notice of termination to the tenant by September 1, or the lease automatically renews for the following year;
  • Farm tenants who are leasing crop parcels of less than 40 acres the rules have changed and they also have the right to notice by 1 September. This is a change from the prior law.

Tenants with crops still in the ground may not be able to harvest until after March 1. Each respective party (and their legal counsel) most likely has different beliefs about what the result should be there:

  • Landowners believe tenants must abandon the crop left (which the landowner most likely plans to harvest and keep); 
  • Tenants believe they have as much time as they like (perhaps even after spring planting on the acres that the tenant DID renew on).

Neither side is entirely correct. This issue has been before the Iowa Supreme Court already, in a case where weather prevented the tenant from making a timely harvest. He did not renew the lease. That spring, the landowner refused access to the tenant's harvest attempts and instead, turned cattle and hogs out on the ground to consume the crop.

The Iowa Supreme Court declared that a matured crop belongs to the tenant, subject to the landowner's lien (if filed correctly). Maturity doesn't matter if the crop is severed from the ground, but the question turns on whether or not the crop still draws sustenance from the soil. However, abandoned crops are not treated the same. Abandoned crops become the property of the landowner and can be disposed of however they like.

No clear guidance from the court is available to distinguish matured, non-severed crops from abandoned crops. However, common sense can help. A couple of stalks of corn in the corner of the field left, or maybe even a partial row left to help with snow drifting, can likely be declared abandoned by the tenant and taken by the landowner.  Some would call that a "blonde corn maze". Conversely, 20 acres left in the field is still property of the tenant, who has a reasonable right to harvest in peace. 

Those who are just beginning the farm operation or those who are slowly withdrawing from it would do well to familiarize themselves with the Internal Revenue Code § 183 "Activities Not Engaged in for Profit", occasionally referred  The "Horse Shelter" or Hobby Loss Rules.

This code section is designed to prevent tax payers from claiming business losses (and thereby reducing income available for taxation) on activities that the tax payer primarily engages in for recreation, entertainment and personal enjoyment rather than a legitimate business purpose. Specifically, horse farms and cattle operations of small sizes are eyed with greater scrutiny.

The IRS has historically found this a difficult area to litigate in, but has developed training manuals and policies to help examiners who may have no knowledge of farm operations, in order to ensure compliance with the Internal Revenue Code.  A review of the training manual shows the IRS attempts to familiarize its agents with the world of competitive show animals, but also the distinction between registered herds of cattle and commercial herds of cattle. The manual advises examiners to consider calculating the volume of feed purchased versus animals sold to ensure no under reporting of income, such as cash sales.

Thursday, June 13, 2024
  • Patrick B. Dillon
  • Jill Dillon
  • Tori Beyer
Dillon Law PC
Patrick B. Dillon enjoys finding solutions to legal issues and catching problems for clients. Pat practices in the Sumner office regularly represents clients in district, associate district and magistrate courts for agricultural, real estate, criminal and collection issues. He drafts wills and trusts, creates estate plans and helps clients through the probate process.
Dillon Law PC
Jill is a University of Northern Iowa undergraduate (Political Science Cum Laude) and a Drake University Law School graduate. Jill is a firm owner but not currently accepting private pay clients. Jill still has ties to her family farm operation which includes a dairy herd.
Dillon Law PC
Tori is a University of Iowa undergraduate where she double majored in Criminology, Justice, and Law and Ethics and Public Policy and a North Dakota Law School graduate. Tori practices in the Sumner office. Tori's areas of practice include but are not limited to estate planning, wills/probate, criminal defense, and civil litigation.

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