August Clinic Dates- Financial & Estate Planning, Beginning Farmer Programs, Debtor/Creditor Law, Water Rights and Much More…

Farmers and ranchers are invited to attend a FREE clinic.  The clinics are one-on-one, not group sessions, and are confidential.  The Farm Finance clinic gives you a chance to meet with an experienced Ag law attorney and Ag financial counselor.  These clinic staff specialize in legal and financial issues related to farming and ranching, including financial planning, estate and transition planning, farm loan programs, debtor/creditor law, water rights, and other relevant matters.  Here is an opportunity to obtain an experienced outside opinion on issues that may be affecting your farm or ranch.  Bring your questions!

August Clinic Dates and Locations:

North Platte – Thursday, August 10, 2017

Fairbury – Wednesday, August 16, 2017

Lexington – Thursday, August 17, 2017

Norfolk – Thursday, August 24, 2017

Valentine – Friday, September 1, 2017

To register for a FREE clinic or to receive more information about our services, call Michelle and the Rural Response Hotline: 1-800-464-0258.

These clinics are sponsored by the Nebraska Department of Agriculture and Legal Aid of Nebraska.

Legal Aid of Nebraska      Farm mediation

September Clinic Dates

Free clinics are available through the Farm Mediation program and Legal Aid of Nebraska.   In these clinics, participants can get one-on-one advice from financial and legal professionals about farm transition and financial issues.  The dates for September 2016 are:

Grand Island – Thursday, Sept. 1st

Fairbury – Friday, Sept. 9th

North Platte – Thursday, Sept. 8th

Norfolk – Friday, Sept. 16th

Lexington – Thursday, Sept. 15th

Norfolk – Tuesday, Sept. 27th

Please call the Rural Response Hotline 1-800-464-0258.

Crowdfunding and Taxes

As today is tax day, it seems somewhat appropriate to discuss taxes.  But I want to discuss a little-known tax issue that may become a big issue, either currently or in the future, for some of our readers.

Crowdfunding is a growing funding resource for many farmers and ranchers just starting out.  Crowdfunding is when a person or organization makes a pitch for funding on an Internet platform such as Kickstarter, Barnraiser, or many others (see a comprehensive list here).  The general idea is to have a lot of small donations from your “crowd” to fund a project.

But is there a potential downside?  Yes, from a tax perspective there could be.  According to this New York Times article, IRS rules require companies that process payments for crowdfunding sites to send a 1099-K form to any customer for whom they register 200 annual transactions totaling at least $20,000.

As the Times points out, this a tax issue that could be compounded by timing.  If the crowdfunding occurs in a year with little to no business expenses to offset the generated income, there could be a greater than anticipated tax bill due.

But there is also the state tax angle, more specifically, sales tax.  Sales tax varies state-to-state and, in some cases, situation to situation.  Generally speaking, however, sales tax is due for anything sold to an in-state buyer.  Sales tax is applicable regardless of the number of donors or amount raised.

In sum?  Crowdfunding may be a wonderful opportunity for your farm.  But be aware of the potential tax implications before jumping straight into a fundraiser.

Charitable Giving in Succession Planning

We recently posted a series of articles on estate and succession planning.  We are going to highlight a few throughout the next few months through blog posts and today, we start with charitable giving.

Charitable giving is a portion of many estate plans, for many reasons.  For some, the sole purpose is charitable while for others, there may be both a charitable purposes and advantageous tax treatment.

For estate planning purposes, any amount given to a qualified charity is deductible.  Thus, a person with a $10 million estate could transfer $5.43 million to his or her heirs and the remainder to charity, thus avoiding the payment of estate taxes.  The charitable deduction for estate tax purposes is unlimited.

The charitable deduction for income tax purposes, however, is not unlimited.  Various rules apply and it is best to consult with your accountant to explore the scenarios.  This blog post is merely to discuss some of the legal rules and encourage you to read the entire charitable giving article!

Generally, (and again, speak with your accountant), the limitations depend upon: (1) whether the giving is to a public or private charity, (2) the type of property being given, and (3) whether or not the donor is an individual or corporation.  Again, generally, an individual may take a charitable deduction for income tax purposes of up to 50% of the donor’s adjusted gross income.

To determine if your selected charity is an eligible recipient, the IRS maintains a list.  There are some other requirements, found in Section 2055 of the Internal Revenue Code, but generally, if your charitable contribution is to a political entity (e.g. United States, a state, political subdivision), non-profit (including fraternal societies, orders, and lodge system), or veterans’ organization incorporated by Act of Congress, the charitable gift is to an eligible entity.

Charitable gifts may be outright, such as a contribution to an alumni fund or the collection plate at church, or a partial interest in property, such as retaining a life estate in donated agricultural land.  If you wish to retain a partial interest in the property, you will need to explore more sophisticated planning options such as charitable lead trusts, charitable remainder trusts, gift annuities, and in certain instances for farm land and residences, a life estate.

We encourage you to read the Charitable Giving article and contact us if you have any questions!


Nebraska Sales and Use Tax Exemption for Agricultural Repair and Replacement Parts

As the crop season gets underway, now is a good time to remind everyone of that the Nebraska, effective October 1, 2014, exempts sales and use tax when purchasing agricultural repair and/or replacement parts.

Per the Nebraska Department of Revenue’s Sales Tax Exemption Chart, (and based upon this Department of Revenue regulation) any repair or replacement parts for agricultural machinery and equipment used in commercial agriculture is exempt from sales and use tax.  Form 13 is required when using the exemption; specifically, you must fill out Section B of Form 13 and indicate that the exemption is for commercial agriculture.

The exemption for repair and replacement parts is separate from the Nebraska Personal Property Tax Exemption for beginning farmers.  The Personal Property Tax Exemption requires an application to the Nebraska Department of Agriculture, as well as supporting documentation.  The exemption for repair and replacement parts does not require such steps.

If you have any questions, please feel free to contact us!  We’re always here to help.

2015 Unified Credit and Annual Gift Tax Limits Raised

The IRS recently released the 2015 tax year exclusion amounts for the unified credit (or basic exclusion) and the annual gift tax exclusion.

For the 2015 tax year, the unified credit exclusion is $5.43 million per taxpayer.  The annual gift tax exclusion remains at $14,000.

The unified credit is the combination of the lifetime gift tax exclusion and estate tax exclusion.  If your lifetime gifts and taxable estate exceed $5.43 million in 2015, you will then owe up to 40% tax to the federal government.

A good overview of the implications of the unified credit and annual gift tax exclusion is here.

Portability Deadline Upcoming

As you may or may not know, the IRS is permitting tax filers to elect portability for the estate of taxpayers who passed away in the previous three years (or 2011, 2012, and 2013).  Typically, a portability election would only be available with a properly and timely filed federal estate tax return.

The deadline to make the portability election is December 31, 2014.

As a quick reminder, portability allows a surviving spouse to elect to use any unused portion of the deceased spouse’s estate tax exemption.  As a result, a married couple may exempt upwards of $10 million in assets regardless of which spouse passes first.

Updates on federal estate and gift tax issues

This post is long overdue but, as we know, there has been a lot of activity in the past few months for farmers and ranchers.  But now that we have a Farm Bill, it is time to look at what 2014 holds for federal estate and gift tax issues.

First, the annual gift tax exclusion:

We’ve previously discussed the annual gift tax exclusion.  For 2014, the annual gift tax exclusion remains $14,000.  What this means is that an individual can gift up to $14,000 per year to as many individuals as you’d like without tax implications.    In other words, you can gift up to $14,000 per year to each of your children, each of your grandchildren, or any other individual you’d like.

Second, the unified credit:

There is another gift tax issue beside the annual gift tax exclusion — for gifts over $14,000 to an individual in a year.  This is the estate and gift tax, or more commonly known as the unified credit.  For 2014, the estate and gift tax exclusion is $5.34 million.

But what does that mean?  It means an individual can gift up to $5.34 million dollars before any gift tax will be assessed.  It also means an individual can transfer $5.34 million at death before any estate tax will be assessed.  It also means that the gift tax and estate tax are unified, meaning an individual can only gift or transfer $5.34 million before the tax is assessed.  In other words, an individual can gift $2 million and transfer $3.34 million and no tax will be assessed.  Alternatively, if an individual gifts $3 million and transfers $3.34 million, tax will be assessed on $1 million ($3 million + $3.34 million – $5.34 million = $1 million).

Even if your assets and/or net worth does not approach $5.34 million (or $10.68 million if married), estate planning is well worth your time.  You will still want to consider who will inherit your assets, how you want those assets inherited (e.g. will, trust, shares of a business), and, if you have minor children, guardianship.  You will also want to consider the costs of probate versus the costs of trusts, powers of attorney and health care, and end-of-life care.

Estate planning is for everyone, not just those who may have assets that go above the federal estate and gift tax exemption of $5.34 million.  It is worth the time to consider what you need and want and then take the necessary steps to ensure those needs and wants can and will occur.

Some basics about the federal estate and gift tax

As discussed previously, the 2014 unified credit for federal estate and gift tax has been raised to $5.34 million per person.  But what does that all mean?

The unified credit is the term given to the total amount a person may exclude from federal estate and gift tax.  In other words, a person may transfer assets during their lifetime (i.e. gifts) or after (i.e. estates).  The amount a person may transfer via only gifts, only estates, or a combination of the two is the unified credit.  It is only when the credit is exceeded that federal estate and gift tax is owed.  In other words, if the combination of your gifts and estate totals $6.34 million, federal estate and gift tax will be owed on $1 million ($6.34 million minus $5.34 million 2014 unified credit).

Portability remains a possibility with spouses.  Remember that portability requires the estate of the deceased spouse to file an estate tax return, even if no tax is owed.  The estate tax return is due nine months after the death, with a six month extension permitted.

Also remember that the annual gift tax exclusion is different than the unified credit.  You can gift up to $14,000 per person without encroaching upon the unified credit.

A good article that goes over the above and a few other details is here.  If you are a Nebraska or South Dakota farmer or rancher considering business transition, feel free to contact us with any questions you may have about the federal estate and gift tax.

2014 Tax Exclusions, Exemptions Limits Released

The IRS has released the 2014 tax exclusions, exemptions, and other information.  Of interest to this audience:

  • The unified credit (estate and gift tax, or basic exclusion) is $5.34 million in 2014.  Portability remains and the spouses can transfer up to $10.68 million tax free.
  • For an estate of a decedent dying in 2014, if special use valuation under section 2032A is used, the aggregate decrease in the value of the qualified property resulting from the use of section 2032A cannot exceed $1.09 million.
  • The annual gift tax exclusion remains $14,000 in 2014.
  • The loan limit for agricultural bonds for first-time farmers (“aggie bonds”) is $509,600.

Also included in the IRS notification are the 2014 tax brackets.  You may find this information useful as you begin tax planning for 2014.  (The information is on pages 5 – 7 of the notification.)

What does it all mean?  It means that there were no substantive changes to estate and gift tax in 2014 (as of this writing) and aggie bonds are available to first-time farmers.  Later this week we’ll go into further detail about estate and gift tax issues but for now, know that an individual will not pay federal estate taxes for a taxable estate under $5.34 million (or, if married, under $10.68 million).

In the meantime, should you have any questions, you are welcome to contact us!