Tag: taxes

Reap What You Sow: Tax Planning Opportunities

Curtis has been helping his clients with strategic tax planning, compliance and consulting services for more than 10 years.

As we look back at the last calendar year, it’s a good time to sharpen your pencil and consider some tax strategies that may help minimize your tax liabilities. Here are three areas that every agribusiness should be aware of when working with their tax advisor:

Transition of Family LLCs: In order to minimize estate taxes, farmers often transfer their land and real property into family-owned LLCs. Minority interests may be granted in these LLCs to their heirs at discounted values due to lack of control. These discounts can be up to 50% of the fair value of the LLC interest and help reduce the estate tax impact of the gift. However, if proposed changes to the IRS Code are enacted, this tax planning tool will go away.  To date, it’s not certain what the final effective date will be for these changes, if they are enacted into law.  Therefore, if you have a family owned LLC and have not evaluated the impact of these potential changes on your estate and business transition planning, we recommend that you contact your CPA or attorney immediately to evaluate the appropriate course of action for your personal situation.

Eric provides his clients assurance services which includes audit, reviews and compilations and specializes in financial consulting and employee benefit plan audits.

New Repair Regulations: IRS regulations now allow businesses to expense asset purchases of $2,500 or less, per unit (up from $500 or less). This increase alleviates the time and effort required to track, capitalize, and depreciate relatively minor purchases. It also provides an incentive to make year-end purchases as they can be expensed against income for the current year, even if they were only placed in service for a day.  Businesses should create or update their written capitalization policies to document their chosen dollar threshold to be applied consistently to all asset purchases to take advantage of this strategy.

Expanded Bonus Deprecation on Trees and Fruit Bearing Plants: A tax savings opportunity is available to those who haven’t elected out of UNICAP (i.e., the IRS rules for capitalization of inventory for cash basis tax payers). These businesses can plant trees and plants bearing fruits and nuts now and take bonus depreciation. Under the old rules, agribusinesses would have to wait until the tree or plant become commercially productive to claim the depreciation expense. This potential tax savings should be considered when you are deciding when to plant any new fields.  The available bonus depreciation is 50% in 2016, 50% in 2017, 40% in 2018, and 30% in 2019.

Don’t Forget

Here are some additional reminders for you to review with your tax advisor:

Entity Structure Planning: The PATH Act of 2015 made permanent the five year waiting period for built-in gains associated with C-Corporations that have converted to S-Corporations.  If you have been considering converting to an S-Corporation because of the tax advantages now may be the right time to convert to an S-Corporation.

Tax Filing Deadlines:  This new tax year brings a few adjusted deadlines for businesses that you should be aware of as you gather documents in preparation for your 2016 returns.  Partnership returns are now due by March 15th (previously April 15th) and C-Corporation returns are now due by April 15th (previously March 15th).

Oregon Pass-Through Tax Rate: Effective last year, Oregon taxpayers may apply a lower tax rate on active pass through income that they receive from an S-Corporation or Partnership (other than a single-member LLC). However, there is an election that must be made on the Oregon business tax return to take advantage of the reduced rate.   You should work closely with your tax advisor to ensure this election was made correctly – the tax impact for many could be as much as 2%.  If you have questions on taking this election, you may contact one of our team members at agribusiness@aldrichadvisors.com.  Unfortunately, once the initial filing deadline has past a missed election cannot be corrected with an amended return.

Many of these tax saving strategies may seem daunting, however, when you are working with your team of experts they can be easily implemented to help you reap what you sow and keep more of your hard earned dollars.

Planning Ahead

Our knowledge of the entire agri-business supply chain from grower to processor to retailer allows us to help our clients achieve their goals. Please contact either of us at Aldrich Advisors (formerly AKT) at 503-620-4489 if you’d like to review these opportunities or discuss other options for tax savings.

Tis the Season to Start Tax Planning

By Curtis Sawyer, CPA and Eric Groves, CPA

As another year draws near to a close, we reflect on things that transpired in 2015 as we begin to plan for a full and prosperous new year. An important element of planning is a forward look at the coming tax season. To jumpstart a conversation with your tax professionals, here is a brief look at a few opportunities for tax savings.

Income Averaging for Federal Returns

Federal statutes allow farmers to spread a portion of their current year farming income equally over the three previous tax years. This treatment can make sense for any of the following reasons:

  • Your current year taxable income places you in a higher marginal tax bracket than prior years. Income earned at the higher rate can be applied retroactively to prior years with lower rates.
  • The farm income averaging election has not been utilized in earlier years. The IRS will let you amend prior years’ filings to capture those benefits.
  • Starting in 2013, high-income farmers saw an increase from 35 percent to 39.6 percent in the top tier of federal taxes. By averaging income back to 2012, you can take advantage of a 35 percent marginal rate on some of your earnings.
  • You anticipate higher income or higher tax rates in the future. Applying income averaging for 2012-2015 sets you up for profitable use of this treatment in future years.

IRS Schedule J captures the farm income averaging calculation. Your tax professionals can help you assess the benefits and provide the proper reporting.

Favorable Tax Treatment for Oregon Farmers

In a special election at the close of its 2013 session, the Oregon legislature granted a tax break for individuals who receive flow-through income from an active trade or business. Such flow-through income typically originates from an S-corporation or a multi-member limited liability company (LLC).

 

Amount of Pass-Through Income New Applicable Tax Rate Old Rate
Less than $250,000 7.00% 9.00%
$250,001 – $500,000 7.20%
$500,001 – $1,000,000 7.60%
$1,000,001 – $2,500,000 8.00%
$2,500,001 to $5,000,000 9.00%
More than $5,000,000 9.90% 9.90%

 

If your Oregon-based farm has already been organized as an S-corporation or a multi-member LLC, then you’ll enjoy lower Oregon tax rates in 2015. If not, you should consider whether the tax benefits offset the incremental effort to restructure your business. Your tax professionals can provide estimates of savings as well as ballpark figures for one-time and recurring costs.

Net Investment Income Tax

In the wake of the Affordable Care Act, Congress authorized the imposition of a 3.8 percent net investment income tax on individuals with significant modified adjusted gross income (AGI). In particular, once a married couple filing jointly reports AGI in excess of $250,000, a 3.8 percent incremental tax applies to all passive income beyond that threshold. Individuals cross the mark at $200,000.

If you are active in your farm business, there are two sources of investment income that can bypass this incremental tax. If you or an LLC in which you hold an interest owns the land and buildings on which the farm operates, then your “self-rental” income will not be subject to the 3.8 percent tax. In like fashion, if you serve as the farm’s creditor, then the interest income earned through this arrangement is not subject to the 3.8 percent tax. In both cases, the word ACTIVE plays a significant role in determining tax treatment. Your tax professionals can review the qualifications and help you assemble appropriate documentation to support your case. At a minimum, the following actions should be taken:

  • Prepare and execute an appropriate rental agreement between the property owner(s) and the farming business. Make sure that all rents align with fair market values.
  • Prepare and execute lending agreements to address monies loaned by individuals to the farming business. Use interest rates consistent with other creditors in the marketplace based on the type of loan, the duration, and risk assessment.
  • Where possible, incorporate a description of the role the property owner (or lender) plays in the ongoing management of the farm. This documentation strengthens the case for “active” participation.

Planning Ahead

We’ve highlighted just a few of the items that should be on your radar as you sit at the planning table with your tax professionals. Please contact us at (503)-620-4489 if you’d like to review these opportunities or discuss other options for tax savings.

 

Sawyer, Curtis 2015 Curtis Sawyer, CPA, has been providing tax compliance, planning and consulting services to his clients for nearly 10 years. He works closely with businesses across several industries with an emphasis on agriculture, farming, cooperatives, manufacturing and their owners. He also presents on topics including regulatory reform, the Affordable Care Acts, and tax savings strategies such as IC-DISCs.

 

AKT Lake Oswego Eric Groves, CPA, provides assurance services including audits, reviews and compilations to agriculture and farming, food processing, and manufacturing companies to help them achieve their goals. He also specializes in financial consulting and employee benefit plan audits for the firm.

 

 

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