Latest / AG Bull / Paul Neiffer & Davis Michaelsen Talk OBBBA Update

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Paul Neiffer & Davis Michaelsen Talk OBBBA Update · AG Bull

0:18
SPEAKER_01: Well, hello everyone.
0:19
SPEAKER_01: Glad you're here.
0:19
SPEAKER_01: Davis Michelson for Ag Bull Media and Ag Bull.com.
0:24
SPEAKER_01: Got something special for you today.
0:26
SPEAKER_01: I've got Paul Me for the Farm CPA.
0:29
SPEAKER_01: Now, just as an overview here, Paul will dig into the details for us, but a provision in the one big beautiful bill represents some significant changes on how USDA program payments are made, specifically who qualifies and for how much.
0:45
SPEAKER_01: The change said to modernize how FSA, that of course being the farm service agency, to modernize how they look at LLCs, S-Corps, uh partnerships and farm business, creates new opportunities, but also some new compliance requirements.
1:02
SPEAKER_01: Only for the farm CPA here to dig deep for us at Agbol.
1:05
SPEAKER_01: Make sure we are all up to speed.
1:07
SPEAKER_01: Spoiler alert, there is a deadline.
1:10
SPEAKER_01: Paul, make sure that I've got this right.
1:12
SPEAKER_01: September 15, 2026 is the deadline for this.
1:16
SPEAKER_01: Farmcpa Report.com, farmcpa report.com for more.
1:21
SPEAKER_01: We also feature Paul every chance we can right here at AgBull.com.
1:26
SPEAKER_01: We're glad to have everybody here with us.
1:28
SPEAKER_01: Let me bring in Paul.
1:29
SPEAKER_01: How are you, buddy?
1:30
SPEAKER_00: I'm doing great, especially now.
1:32
SPEAKER_00: I got some intro music.
1:33
SPEAKER_00: I was getting a little jealous when Jim Wiesmeyer had his own and I had nothing.
1:37
SPEAKER_00: So uh, you know, I'm I'm I'm uh definitely happier now.
1:40
SPEAKER_01: Well, we aim to please.
1:42
SPEAKER_01: And speaking of which, you know, uh just before we get going, I've been to Colorado in June.
1:48
SPEAKER_01: It's beautiful out there.
1:49
SPEAKER_01: The the flowers are blooming, birds are chirping.
1:52
SPEAKER_01: Uh you must be loving life right now, buddy.
1:55
SPEAKER_00: Actually, as we tape this, my wife is out mowing the lawn.
1:58
SPEAKER_00: That's her idea of therapy.
2:00
SPEAKER_00: When she gets to mow our four or five acres of lawn and pastures and so on, she just loves that.
2:05
SPEAKER_00: And you're right, it's 88 degrees and sunny, and I'm gonna go play golf with my son tomorrow.
2:11
SPEAKER_01: And I'm guessing no humidity, right?
2:13
SPEAKER_01: See, here in Kansas City, we do get the the aroma of brisket hanging in the air, but it only hangs so low because of the humidity here, man.
2:21
SPEAKER_00: Uh, I would say we're probably on the high side at about 20%.
2:25
SPEAKER_00: So uh, you know, that's that that that would be the high side for Colorado this time of year.
2:29
SPEAKER_00: So yeah, not too bad.
2:31
SPEAKER_01: Very good, very good.
2:33
SPEAKER_01: Well, just a quick overview from USDA's uh page on this quote.
2:37
SPEAKER_01: Starting with the 2026 crop year for payment eligibility purposes, FSA will treat applicable limited liability companies, that's LLCs and S-Corps and other similar entities as pass-through entities.
2:52
SPEAKER_01: Each member of the qualified pass-through entity who meets actively engaged in farming criteria will help qualify the entity for expanded payments.
3:02
SPEAKER_01: Uh, brother, I I needed my glossary for some of this pass-through entity, actively engaged.
3:07
SPEAKER_01: We got qualified pass-through entity.
3:09
SPEAKER_01: I don't know if you want to start with some glossary time or or if you just want to dive right in, but let's get started.
3:15
SPEAKER_01: Paul.
3:15
SPEAKER_00: I I I think we'll go ahead and dive in because uh I'll cover most of that as we go through the slides here.
3:21
SPEAKER_00: So uh, you know, if I did a glossary, we would end up going over it all over again.
3:25
SPEAKER_00: So let's go ahead and uh let's go to that.
3:27
SPEAKER_00: So so we have basically three changes that came out from this guidance, and this guidance was issued a couple of weeks ago.
3:35
SPEAKER_00: And under the old rules, if we were an LLC or an S corporation, whether you had one owner, five owners, 50 owners, you got one payment limit, and that was 125,000.
3:47
SPEAKER_00: OVA, the one big beautiful bill act, went ahead and changed it.
3:51
SPEAKER_00: Now we have, as you had mentioned, qualified pass-through entities, and that's an LLC, it's an S-corp, it's a anything that's treated as a partnership for federal income tax purposes will qualify now based on the number of owners.
4:06
SPEAKER_00: Now, if the owners are not equal, that may end up resulting in less than a full.
4:12
SPEAKER_00: So if you had four equal owners, you get four payment limits.
4:15
SPEAKER_00: If one owner, let's say, owned 95% and the other three owners own 5% total, you're not going to get four payment limits.
4:22
SPEAKER_00: You're going to get an equivalent of about 1.1.
4:25
SPEAKER_00: So now, also under the old rules, if a farmer got paid for labor or management or both, typically both, then it was hard for them to meet that quote, actively engaged.
4:39
SPEAKER_00: And you have to be actively engaged in order to qualify for a payment limit.
4:43
SPEAKER_00: So now, and and I think uh FSA had to do it because under the tax rules, S corporation owners have to be paid a salary.
4:52
SPEAKER_00: You know, there's no getting around it.
4:54
SPEAKER_00: So uh FSA finally just said, hey, we don't care.
4:58
SPEAKER_00: You can get paid for labor, you can get paid for management.
5:01
SPEAKER_00: We don't care.
5:02
SPEAKER_00: So that that's actually very good news.
5:05
SPEAKER_00: And then for certain disaster and conservation programs, the$900,000 AGI cap, that's on your tax return, sort of your income after deductions, but before itemized deductions.
5:19
SPEAKER_00: So that income there, they're gonna waive that$900,000 limit if more than 75% of your average gross income, not adjusted gross income.
5:29
SPEAKER_00: So average gross income is income before expenses, they're gonna waive that cap, but only for certain disaster and conservation programs.
5:38
SPEAKER_00: I continue to get calls and emails from farmers.
5:42
SPEAKER_00: Hey, does that mean I don't have to worry about the$900,000 limit for ARC or PLC or for other programs?
5:49
SPEAKER_00: Yes, you still have to worry about that.
5:51
SPEAKER_00: So let's go on to the next slide.
5:53
SPEAKER_01: Before we do, can I just can I just ask right right near the beginning here?
5:57
SPEAKER_01: What what's the uh what's was it was there outcry about the old system?
6:03
SPEAKER_01: What what's the idea with changing the rule like this?
6:06
SPEAKER_00: Yeah, so what was happening uh larger farmers under the old rules were still able to qualify for multiple payment limits because they would structure their operation as a general partnership or a qualified joint venture.
6:20
SPEAKER_00: And then each of the owners, each of the members or owners of the partners in that partnership would have an LLC or an S-corp or a C corporation.
6:29
SPEAKER_00: So effectively you still got the same liability protection, but you had to file all these extra tax returns.
6:35
SPEAKER_00: I mean, uh now some people have claimed, hey, Paul, you want extra tax returns because then you can charge more fees.
6:42
SPEAKER_00: Well, the reality is we don't like having a bunch of extra entities because you can't get them reconciled anyway.
6:48
SPEAKER_00: So uh let's let's just have one entity, let's just make it easy.
6:52
SPEAKER_00: And and again, I think there's people out there thinking that this is really going to cost the government a lot of money.
6:59
SPEAKER_00: Let's let's bring up that slide there.
7:02
SPEAKER_00: So the reality is over a 10-year period, not one year, Davis, but over a 10-year period, the cost to the government, so to speak, is about$600 million.
7:13
SPEAKER_00: We're talking$60 million a year.
7:15
SPEAKER_00: That is basically a rounding error.
7:18
SPEAKER_00: I mean, that that that that won't even enter into a decimal point on the USDA's budget.
7:24
SPEAKER_00: And then on that new$900,000 AGI exception I talked about, that's like an extra$20,$27 million per year.
7:32
SPEAKER_00: So this is relatively minor when it comes to the overall uh USDA budget.
7:38
SPEAKER_00: So, and it just makes our lives as CPAs, our lives as attorneys, our lives as farmers a whole lot easier that we don't have to go through all these hoops for really no good reason, at least in my opinion.
7:50
SPEAKER_01: I like the sound of that.
7:51
SPEAKER_01: I'm all for that.
7:52
SPEAKER_00: Yeah.
7:53
SPEAKER_00: And then also, if if these changes had happened, all these great changes, but they'd kept the old limit at 125,000, then a lot of farmers would not have gotten any extra money at all.
8:06
SPEAKER_00: So they did boost up the payment limit from 125 up to 155.
8:11
SPEAKER_00: And then starting with 2025 proper, it's indexed to inflation.
8:16
SPEAKER_00: So we think we're fairly certain that the limit for 25 is 160,000.
8:21
SPEAKER_00: Then tentatively, and I think this number's gonna go up.
8:24
SPEAKER_00: They had thrown out 164, but the number wasn't final yet.
8:28
SPEAKER_00: And with the Iran situation increasing inflation, I think it's gonna be 165 or even 166.
8:34
SPEAKER_00: So that's good news.
8:37
SPEAKER_00: So let's go to the next slide.
8:40
SPEAKER_00: So again, who now we're getting into glossary time?
8:43
SPEAKER_00: Yeah, now we're digging into the glossary time.
8:46
SPEAKER_00: Uh hopefully your eyes don't start glazing over here, Davis.
8:49
SPEAKER_00: But what is a qualified pass-through entity?
8:53
SPEAKER_00: Well, it's any partnership under subchapter K of the tax code.
8:57
SPEAKER_00: Well, what does that mean?
8:58
SPEAKER_00: Subchapter K is the part of the tax code that talks about partnerships.
9:02
SPEAKER_00: So if you qualify to file your tax return as a partnership, which means you could be a corporation, you could be an LLC, you could be an LLP, you could be any L, any entity can elect to be taxed as a partnership, that's one entity.
9:17
SPEAKER_00: Then any S corporation qualifies, any LLC that's not electing to be taxed as a regular corporation, and then we have the old what's called a joint venture or general partnership.
9:29
SPEAKER_00: So so under the old rules, that that one in the bottom right-hand corner was the only one that qualified.
9:35
SPEAKER_00: Under the new rules, the other three now come into play.
9:38
SPEAKER_00: So this makes it a lot easier for farmers to qualify for additional payments if they have more than one owner.
9:45
SPEAKER_01: So well, and each of those owners now qualifies as one limit.
9:49
SPEAKER_01: I mean, that's a that's a pretty big change, isn't it?
9:51
SPEAKER_00: Yep, exactly.
9:53
SPEAKER_00: So if you had four four owners in an LLC and they're equal owners under the old rules, you were limited to 125,000.
10:00
SPEAKER_00: If these new rules have been applied, you were limited to 500,000.
10:04
SPEAKER_00: So that's the that's the key difference.
10:06
SPEAKER_00: So let's go to the next slide.
10:10
SPEAKER_00: So again, if we have an S Corp with two owners, and this is for 2026, we jumped from 164,000 under the old rules of 328,000.
10:20
SPEAKER_00: Now, if we have a family LLC that's got four equal owners, we're up to uh 656,000.
10:26
SPEAKER_00: And then we have an LLC via two general partners.
10:30
SPEAKER_00: So there's two general partnerships that are owners of the LLC under the old rules, again 164,000, now 656,000.
10:39
SPEAKER_00: Now that doesn't mean they're gonna collect that.
10:41
SPEAKER_00: You have to have a certain number of acres in order to collect that.
10:44
SPEAKER_00: You're gonna be a six to 10,000 acre farm operation in the Midwest in order to hit that that amount of limit of the 656,000.
10:53
SPEAKER_00: But it's a dramatic.
10:55
SPEAKER_00: I mean, I've seen operations where there's 10 owners, family members, they're all actively engaged.
11:00
SPEAKER_00: Under the old rules, they might have been stuck with 164,000.
11:04
SPEAKER_00: Now they might have a million six potential payments.
11:07
SPEAKER_00: So it's it's pretty pretty big difference.
11:09
SPEAKER_00: Yeah, pretty simple.
11:11
SPEAKER_00: Let's go to the next slide.
11:13
SPEAKER_01: Yeah, I see you've got an example here for us.
11:15
SPEAKER_01: Kind of walk us through what this might look like on the ground.
11:18
SPEAKER_00: Yeah, so here we got Johnson Family Farms LLC with dad, mom, and two adult children.
11:24
SPEAKER_00: This is very, very common.
11:26
SPEAKER_00: Very common in the farm arena.
11:28
SPEAKER_00: Usually it's mom and dad, and then it's son and his wife or daughter and her husband.
11:34
SPEAKER_00: That that's very, very common.
11:37
SPEAKER_00: Under the old rules, they were stuck with one$164,000 payment now for 2026, if the old rules applied.
11:44
SPEAKER_00: New one, they can go all the way up to$656,000.
11:47
SPEAKER_00: So that's an extra basically, you know, we got another$500.
11:52
SPEAKER_00: I think this math, you know, that this is what happens sometimes when you use AI.
11:56
SPEAKER_00: I forgot to clean it up.
11:57
SPEAKER_00: They they they don't always know how to do math.
12:00
SPEAKER_00: They can do very nice slides, but they don't always know math.
12:03
SPEAKER_00: So we're talking about an extra, well, almost$500,000 extra, about$488,000.
12:10
SPEAKER_00: I think if my math is right.
12:11
SPEAKER_00: So let's go to the next slide.
12:15
SPEAKER_01: Now, this looks like a little more definition for us, actively engaged.
12:21
SPEAKER_01: Actively engaged a couple of times and stood before the preacher and took care of that.
12:25
SPEAKER_00: Yeah, well, that's uh we're not really talking about that, Davis.
12:28
SPEAKER_00: You know, that's that's for another show.
12:31
SPEAKER_00: When we're talking about actively engaged, we have what's called left hand and right hand.
12:36
SPEAKER_00: Left hand is where the farmer is contributing capital, equipment, and land.
12:41
SPEAKER_00: So they have to contribute some combination of that.
12:44
SPEAKER_00: And then on the right hand is where they're contributing their labor or their management.
12:49
SPEAKER_00: And remember, under the old rules, if you got paid for doing that labor or management, you didn't qualify as an actively engaged farmer, so you didn't get a payment limit.
12:59
SPEAKER_00: You know, so that's pretty draconian.
13:01
SPEAKER_00: And so what the new rule says, and here we got a dad and a daughter.
13:06
SPEAKER_00: You know, the daughter was getting a$90,000 salary under the old is getting a$90,000 salary for her labor and management.
13:14
SPEAKER_00: Well, under the old rules, the LLC would only qualify$164,000 payment.
13:20
SPEAKER_00: Now it qualifies for twice that amount.
13:23
SPEAKER_00: So same people, same salary, we have a double of the payment limit.
13:28
SPEAKER_00: So now again, doesn't mean they're going to qualify for that, but it allows them to at least collect that.
13:33
SPEAKER_00: And that's good because what was happening under the old rules, we were going through, we might set up a separate entity to pay them, which was really defeating the purpose.
13:43
SPEAKER_00: I mean, you like I say, for an S Corp now, we have to pay a salary to anybody that's working in the farm operation.
13:49
SPEAKER_00: So I think FSA finally realized, hey, we need to get rid of this rule.
13:54
SPEAKER_01: Now, you say anyone who's who's working in the farming industry, does it somebody who has to have 100% of their income coming out off of that farming operation there, or is there a sort of a cutoff?
14:07
SPEAKER_00: No, they can have other income, they can have social security income, they could have interest, dividends, capital gains, etc.
14:15
SPEAKER_00: It's just that they have to be actively engaged, they have to be working in that farm operation.
14:20
SPEAKER_01: Very good.
14:21
SPEAKER_00: Let's go to the next slide.
14:25
SPEAKER_00: And I apologize, I'm I'm recovering from a little bit of, I think, allergies, so my voice is gonna go a little bit.
14:32
SPEAKER_00: But you know, again, I was mentioning that starting with the 2026 program, if you are going to qualify for these disaster programs, and I've listed some of them the livestock forage program, the livestock indemnity program, the tree assistance program, the NAP is where you don't do crop insurance, but I forget the too many acronyms, and then you got Equip and CRP and CSP.
14:58
SPEAKER_00: Many farmers want to put some land into CSP.
15:02
SPEAKER_00: You know, they have conservation as sort of a core belief, but their AGI, their taxable income basically, is too high.
15:11
SPEAKER_00: Well, this says if you truly are a farmer, at least 75% of your gross income, you know, it's adjusted gross income, then you'll you don't have to worry, you could have$2 million of AGI and you'd still be okay.
15:24
SPEAKER_00: And also they did now allow enrolled agents to sign off in the letter.
15:29
SPEAKER_00: We as CPAs have always had to do a letter to sort of verify or certify that they meet this rule.
15:37
SPEAKER_00: Well, now enrolled agents are allowed to do the same along with attorneys and CPAs.
15:42
SPEAKER_00: So this is a pretty good deal.
15:44
SPEAKER_00: Now that's averages based on your average from 22, 23, and 24.
15:48
SPEAKER_00: So, and and then in 27, it'll be 23, 24, and 25.
15:53
SPEAKER_00: So let's go to the next slide.
15:56
SPEAKER_00: Oh, I I have a feeling.
15:59
SPEAKER_00: Did did our friend Tommy throw that in there on us, or did he do that, Davis?
16:04
SPEAKER_01: So I think the robots did that one to us.
16:07
SPEAKER_01: They're taking over already.
16:09
SPEAKER_00: They've gotten better at math, but they're still not very good.
16:12
SPEAKER_01: So I would think they'd be really good at math.
16:15
SPEAKER_01: Like if I was gonna get a robot, it would have to be able to do math.
16:18
SPEAKER_01: I mean, I could do about everything else, you know.
16:21
SPEAKER_00: You gotta remember that it is called a large language model, it's not called a large mathematical model, it's called a large language model.
16:30
SPEAKER_00: So uh, so let's let's skip over uh oh yeah, so again, for the SDRP, for ARC, for PLC, all of this is still based on adjusted gross income after your expenses.
16:48
SPEAKER_00: Now, for this new test that I was just talking about, this is now based on gross income, your receipts before any expenses.
16:57
SPEAKER_00: It's gonna be much easier for a farmer to meet that definition than the other definition.
17:03
SPEAKER_00: So this is this is pretty good news.
17:05
SPEAKER_00: It's gonna be easier for farmers to participate in conservation programs to get disaster aid when they truly need disaster aid, even though their AGI might be high.
17:15
SPEAKER_00: You know, if they have a disaster, they shouldn't be penalized just because their AGI is higher.
17:19
SPEAKER_00: So let's go to the next slide.
17:21
SPEAKER_00: Yeah, so we got a yeah, we got a rancher.
17:25
SPEAKER_00: He he or she happens to be over the$900,000 cap.
17:29
SPEAKER_00: They have a drought year, they're we're counting on that forage payment, you know, that LFP payment.
17:35
SPEAKER_00: Their average adjusted gross income is$1.1 million, so they're over the cap, but their average total gross income from all sources is$4.2 million, and their average gross income from farming is$3.5 million.
17:49
SPEAKER_00: So that's 83%.
17:51
SPEAKER_00: That's higher than 75%.
17:53
SPEAKER_00: So they're gonna qualify for that forage payment that they were counting on.
17:57
SPEAKER_00: So that's that's that's good news.
17:59
SPEAKER_00: Now, again, I was saying ARC and PLC are not part of this, they're still stuck with the old 900,000 cap.
18:07
SPEAKER_00: If you're over that, you get no ARC or PLC.
18:10
SPEAKER_00: So you still have to worry about that.
18:12
SPEAKER_00: Let's go to the next slide.
18:14
SPEAKER_00: This is this is good news.
18:16
SPEAKER_00: Now we are hoping this was going to be effective with the 2025 tax or crop year, but it's not.
18:24
SPEAKER_00: It's with the 2026 crop year.
18:27
SPEAKER_00: So the the the one that probably doesn't qualify uh apply to too many farmers, but some farmers.
18:33
SPEAKER_00: So any farmer that has agritourism, like my cousin, he they have a corn maze that they do in the fall.
18:40
SPEAKER_00: That now automatically all that income qualifies as farm income.
18:43
SPEAKER_00: Also, if you sell farm products direct to consumers, that now counts.
18:48
SPEAKER_00: So, like a farmer's market, uh UPIC, that type of situation, that automatically is going to count.
18:54
SPEAKER_00: But the one that's the bigger news for all of our farmers out there ever since they can no longer defer the gain on trading in farm equipment.
19:02
SPEAKER_00: So spring back to the slide, is that equipment gains, equipment sales, gains from selling your trading equipment.
19:11
SPEAKER_00: Under the old rules, you had to look at your other farm income, net net income, and it had to be more than two-thirds of your total income.
19:19
SPEAKER_00: Well, that was difficult.
19:20
SPEAKER_00: Typically, the farmers are reporting a lot of gain on what we call 447.97, and they actually had a loss on Schedule F, but if you net it together, they actually had income.
19:31
SPEAKER_00: Well, under the old rules, that was difficult to count as farm income.
19:36
SPEAKER_00: The good news is OBA says starting in 2026, automatically farm income.
19:42
SPEAKER_00: Don't have to worry about that.
19:44
SPEAKER_00: So that's that's really good news.
19:46
SPEAKER_00: Uh now for those that are trying to get an additional payment under SDRP for 23 and 24, still under the old rules.
19:54
SPEAKER_00: So we're still sort of stuck with those old rules.
19:57
SPEAKER_00: This is for the new rules going forward.
19:59
SPEAKER_00: So, just as a quick example, we have a hundred and eighty thousand dollar combine sale that's all gain.
20:04
SPEAKER_00: We have$120,000 tractor trade that's all gain, and then we got$150,000 of agritourism.
20:11
SPEAKER_00: This is now$450,000 of automatic farm income that will make it much easier for the farmer to qualify, get over that 75% hurdle.
20:22
SPEAKER_00: So this is really good news.
20:24
SPEAKER_01: When I was reading up on this on USDA's uh website, they used a phrase that really got my attention: mandatory entity structure reporting deadline.
20:35
SPEAKER_00: Yep, yep.
20:36
SPEAKER_01: Wow, that's that's an absolute mouthful.
20:39
SPEAKER_01: Mandatory entity structure reporting deadline, September 15, 2026.
20:44
SPEAKER_01: Talk to us about that.
20:46
SPEAKER_01: Yeah, Paul.
20:48
SPEAKER_00: And that's actually good news because farmers now have to file a new Form 902E for their entities like an LLC under the old rules.
20:58
SPEAKER_00: If you're an LLC, you just had one box for LLC.
21:02
SPEAKER_00: If you're a corporation, you just had one box for a corporation.
21:05
SPEAKER_00: Well, now the new form, and I think that's going to be available maybe next week, it's going to have a box for an S corporation, it's going to have a box for a C corporation, it's going to have a box for an LLC, not taxes a corporation, et cetera, et cetera.
21:18
SPEAKER_00: So they're going to have to provide more boxes that the uh farmer can go ahead and check the box.
21:26
SPEAKER_00: So again, remember we also have the increase in base acres.
21:30
SPEAKER_00: Another 30 million base acres are going to go into effect, and that gets done as of August 31st.
21:36
SPEAKER_00: So what USDA is saying, hey, we want to get the base acre update done first, and then we're going to have a deadline of September 15th.
21:44
SPEAKER_00: And I think this deadline, if the local office is not up to speed, so to speak, I think this deadline could get pushed out.
21:52
SPEAKER_00: Now, don't count on that.
21:54
SPEAKER_00: Don't be showing up at the local office on September 14th thinking you're going to get this done.
22:00
SPEAKER_00: But I would be not going, don't call the local office yet.
22:04
SPEAKER_00: They don't even have the form.
22:05
SPEAKER_00: They haven't been trained on the new rules.
22:08
SPEAKER_00: I think.
22:08
SPEAKER_00: I think we're probably going to be in July before we can really, you know, go to that local office and get this done.
22:15
SPEAKER_01: But this sign up is something that we need to do.
22:17
SPEAKER_01: We can't just kind of hope to roll into it or maybe something our accountant can fix on the backside.
22:23
SPEAKER_01: We have to be on the front end of this to check one of those boxes, correct?
22:27
SPEAKER_00: Exactly.
22:28
SPEAKER_00: And I posted on this a couple weeks.
22:30
SPEAKER_00: I said uh every farmer out there that farms as an entity, LLC, S Corp, C Corp, whatever it might be, they need to go ahead and and and do a new Form 902E.
22:42
SPEAKER_00: Now, a lot of the information may be exactly the same.
22:45
SPEAKER_00: They just have to check a new box.
22:47
SPEAKER_00: So it may not be that difficult for most farmers, but the the old system where USDA sort of just automatically rolled rolled the 902 forward.
22:58
SPEAKER_00: If you didn't have any changes, you didn't have to file a new one.
23:01
SPEAKER_00: Well, for this year, you're gonna have to file a new one no matter what.
23:04
SPEAKER_01: We uh we popped up the screen there really quick.
23:06
SPEAKER_01: Our producer was on the ball.
23:08
SPEAKER_01: The farm CPA report.
23:10
SPEAKER_01: Can you just just give us a little elevator speech, a snapshot?
23:13
SPEAKER_01: What can people find there?
23:14
SPEAKER_00: Yeah, so I I typically post every workday, and then sometimes I post two or three times, especially when Oba was going on and other things.
23:23
SPEAKER_00: I think I I never post as many times as Jim Weespire, but I get close once in a while.
23:28
SPEAKER_00: But uh I I typically I'm gonna be posting on there's there's our friend Jim.
23:34
SPEAKER_00: I'm gonna post on the you know the items related to farm programs, I post on farm taxes.
23:40
SPEAKER_00: Matter of fact, I had a couple weeks ago, I had a three-part series on how to defer livestock sales when you have drought or other weather issues that will require you to uh sell excess uh livestock.
23:52
SPEAKER_00: You know, that was a three-part series.
23:54
SPEAKER_00: It is subscription based.
23:55
SPEAKER_00: There is a fair amount of free stuff on there, but uh for the good stuff, so to speak, Davis, you do have to pay uh either an annual fee or a monthly fee of it averages out about a little bit over 500 bucks a year.
24:07
SPEAKER_01: Worth every penny, gang.
24:08
SPEAKER_01: Farmcpa report.com.
24:11
SPEAKER_01: All right, let's get back to it.
24:12
SPEAKER_01: I got you a little distracted there for a second.
24:14
SPEAKER_00: That's okay.
24:15
SPEAKER_00: That's the good stuff.
24:16
SPEAKER_00: So let's see.
24:17
SPEAKER_00: I'm not sure.
24:17
SPEAKER_00: Do we have a couple?
24:19
SPEAKER_00: Yeah, so you talked about the dates.
24:21
SPEAKER_00: So typically June 1st is when you're supposed to update the information with USDA.
24:27
SPEAKER_00: Uh, technically, that's sort of not accurate.
24:30
SPEAKER_00: You have, I believe you have two years from the date of ARC and PLC sign-up.
24:38
SPEAKER_00: So if that's let's say March 15th of 27, you have till March 15th of 29th.
24:43
SPEAKER_00: But typically USDA wants it in their system by that June 1st date.
24:48
SPEAKER_00: And really, what that June 1st deadline is if you're going to switch from a C corporation to an S corporation, that has to be done by June 1st, typically.
24:59
SPEAKER_00: Well, this year it has to be done by September 15th.
25:02
SPEAKER_01: Okay.
25:03
SPEAKER_01: Very good.
25:04
SPEAKER_01: Let's uh let's go on to this final slide here, and then I've got a couple of follow-up questions for you, Paul.
25:09
SPEAKER_00: Yeah.
25:10
SPEAKER_00: So, you know, I think a lot of people think, hey, I got two two owners here.
25:16
SPEAKER_00: I'm automatically going to qualify for two payments, or I have three or four entities.
25:22
SPEAKER_00: And if one is so let's take this one here.
25:25
SPEAKER_00: We got we got a we have a daughter.
25:27
SPEAKER_00: In this case, we had a daughter, or excuse me, a wife.
25:31
SPEAKER_00: We have a wife.
25:32
SPEAKER_00: She had some of her land in her own name.
25:35
SPEAKER_00: She was doing a 30% crop share.
25:38
SPEAKER_00: So she qualified for$50,000 payment.
25:42
SPEAKER_00: And then they had an LLC between her and her husband.
25:45
SPEAKER_00: She was an 85% limited partner.
25:48
SPEAKER_00: Husband was a 15% manager, so that's$150,000.
25:52
SPEAKER_00: And then the husband had a C corporation with 200,000 sole owners.
25:57
SPEAKER_00: So if you add those numbers up, it's$400,000.
26:01
SPEAKER_00: But really, how much does the husband and wife get to keep?
26:05
SPEAKER_00: So I think we have one more slide.
26:07
SPEAKER_00: If not, I can do this off the top of my head.
26:09
SPEAKER_00: So yeah, so here we allocate we got$50,000 for the crop share going to the wife.
26:16
SPEAKER_00: We got the LLC$127,500 going to the wife,$22,500 going to the husband.
26:23
SPEAKER_00: And then we have a C corporation where nothing's going to the wife, but we got$200,000 going to the wife.
26:30
SPEAKER_00: So again, we always come down to individuals.
26:34
SPEAKER_00: And that's also very good news that I forgot to mention.
26:37
SPEAKER_00: I'll mention it now.
26:39
SPEAKER_00: Under the old rules, if you were an S corporation or an LLC, you were subject to AGI testing.
26:45
SPEAKER_00: So if your AGI was over that$900,000 limit, you got no payment, even though you thought you're going to get one payment or three payments or five payments, you got no payment.
26:54
SPEAKER_00: Well, the good news is USDA has eliminated AGI testing for LLCs, S corporations, qualified passer entities.
27:04
SPEAKER_00: We simply drop down to the owner, or really, we drop down to an individual.
27:09
SPEAKER_00: We drop all the way down to the individual.
27:11
SPEAKER_00: And that's what that little chart there I was showing there.
27:14
SPEAKER_00: If you bring that back up there, it shows how we simply drop down.
27:20
SPEAKER_00: We we attribute those payments based on the ownership percentages to the wife, to the husband.
27:26
SPEAKER_00: We add them up.
27:27
SPEAKER_00: If it's over 164,000, then we round it down to 164,000.
27:32
SPEAKER_00: If it's under 164,000, then they keep that amount for both the husband and wife.
27:37
SPEAKER_00: So you can set up 10 entities thinking you're going to get 10 payment limits.
27:41
SPEAKER_00: The reality is one Social Security number, one payment limit based on, and that goes down to four layers of ownership.
27:49
SPEAKER_00: So your LLC and then another layer, another layer, and another layer.
27:54
SPEAKER_00: So and again, if we it looks like three buckets, but we leave some money on the table.
28:01
SPEAKER_00: So I I think I can skip over this slide, Davis.
28:04
SPEAKER_00: And I think that's is that all I have, I think, as far as slides.
28:09
SPEAKER_00: Yep.
28:10
SPEAKER_00: That's all.
28:11
SPEAKER_01: That's over there.
28:11
SPEAKER_01: Okay.
28:12
SPEAKER_01: So the ownership rules have changed.
28:15
SPEAKER_01: And you know, just the last thing that you said there, leave money on the table.
28:19
SPEAKER_01: That's the last thing that we want to do.
28:21
SPEAKER_01: I I don't know if you feel like answering this question or not, but are most ag accountants up on this?
28:28
SPEAKER_01: Do they I feel like people really need guidance to to walk through this properly?
28:34
SPEAKER_00: I'm going to tell you a lot of ag CPAs out there get my get the blog, farmcpa report.com, and many of them I think have learned a fair amount, but I still continue to get quite a few emails or calls from various CPAs that work with farmers asking this.
28:53
SPEAKER_00: You know, there are some attorneys, there's some other CPA firms out there that that have specialists on staff, so to speak, to work through this.
29:02
SPEAKER_00: I actually consult with some of those firms.
29:05
SPEAKER_00: So uh, you know, it's sort of because I didn't work at FSA.
29:09
SPEAKER_00: I mean, I know the rules, I know the law, but sometimes a little quirky nuances, it's good to actually talk to somebody that actually works at FSA.
29:18
SPEAKER_00: And again, I have farms in three states.
29:21
SPEAKER_00: I have three different FSA offices that I can deal with.
29:24
SPEAKER_00: And although I have one quote recording office, that's my one in Washington State.
29:29
SPEAKER_00: But believe me, they're swamped right now.
29:31
SPEAKER_00: So uh, you know, I'm I'm holding off.
29:33
SPEAKER_00: I'm I'm holding off uh reaching out to them.
29:36
SPEAKER_00: I need to reach out to them on a couple things, but I'm holding off for a while.
29:39
SPEAKER_01: Well, you're kind of a nerd for this stuff, though.
29:41
SPEAKER_01: You I mean you you really, really love digging in with both hands on some extremely technical and sometimes confusing issues.
29:50
SPEAKER_01: I think that's terrific, Paul.
29:51
SPEAKER_00: I'm either called a nerd or I had a partner say, Paul, you have ADHD.
29:56
SPEAKER_00: So I'm not sure.
29:57
SPEAKER_00: Yeah, I think those are probably synonymous.
30:00
SPEAKER_00: I I do like to read.
30:01
SPEAKER_00: I uh matter of fact, I think uh I just hit a hundred I read a book on the plane this morning.
30:07
SPEAKER_00: I think I'm approaching 120 books I've read this year.
30:09
SPEAKER_00: So yeah, so I I enjoy reading.
30:12
SPEAKER_00: I did 14 books over Memorial Day weekend, so uh but uh that that that just means I don't have a life, I think is what some people would say.
30:21
SPEAKER_01: So I don't know, it's the inner life that counts, Paul.
30:24
SPEAKER_00: Exactly.
30:25
SPEAKER_01: I'm lamenting because I used to have I do all kinds of stuff and wind up with a lot of 1099 type income and things, and I don't I can't make heads or tails of it.
30:33
SPEAKER_01: And I had an accounting nerd of my very own who's retiring this year.
30:38
SPEAKER_01: I don't know what I'm gonna do.
30:39
SPEAKER_01: I guess I'm just gonna have to there's plenty of nerds out there.
30:42
SPEAKER_00: There's plenty of nerds, you'll find a nerd.
30:44
SPEAKER_01: I'm glad to hear that.
30:45
SPEAKER_01: I'm absolutely glad to hear that.
30:47
SPEAKER_01: Okay, so let's just go lightning round and and just bullet point some of the some of the items here that we've discussed before I let you go.
30:55
SPEAKER_01: Yep.
30:55
SPEAKER_01: Talk to me about the biggest opportunity involved in this rule change.
31:00
SPEAKER_00: I I think the biggest opportunity is if uh a farmer is farming as a C corporation and they're farming more than 3,000 acres, 4,000 acres, they need to be talking with their CPA to decide whether they want to switch to an S-corp.
31:15
SPEAKER_00: They're not going to be able to switch to a general partnership.
31:18
SPEAKER_00: That's gonna cost them way too much taxes, but they need to be looking at possibly switching over to an S-corporation.
31:24
SPEAKER_00: If you were farming as a general partnership, now we've got good news.
31:29
SPEAKER_00: You can automatically switch over to an LLC.
31:32
SPEAKER_00: However, I just want to reinforce that if you have a bunch of liabilities and your allocated liabilities to your members are going to be different than you it was as a partnership, then that can create a taxable event.
31:48
SPEAKER_00: And I did a blog post on that last week.
31:50
SPEAKER_00: So you still have to be careful to discuss this.
31:53
SPEAKER_00: Make sure you discuss this with your tax advisor, your CPA to make sure it's done right.
31:59
SPEAKER_00: The other good news is you can start paying salaries.
32:02
SPEAKER_00: You know, you can start paying salaries or a guaranteed payment for the partnership.
32:06
SPEAKER_00: You know, that's good news.
32:07
SPEAKER_00: We don't have to worry about AGI limits for LLCs and S corporations.
32:12
SPEAKER_00: That's good news.
32:13
SPEAKER_00: You know, I I was on Agri-Talk, I was on, I think a couple other things, and this is the first time I've given guidance that came out from USDA an A or an A plus.
32:23
SPEAKER_00: And to me, it's an A or an A plus.
32:25
SPEAKER_00: So it's really, really good.
32:26
SPEAKER_00: I mean, I think the highest grade I gave them before was a B or B plus.
32:30
SPEAKER_00: Now, now it can't go much higher than an A plus.
32:33
SPEAKER_00: So I I I think they really came out on the side of farmers and on the side of CPAs and attorneys and others that help advise farmers because it's going to make all of our lives easier.
32:45
SPEAKER_01: Okay.
32:46
SPEAKER_01: Big opportunity, but also there are some pretty serious compliance issues here.
32:51
SPEAKER_01: Give us give us a little bit on that before we go.
32:54
SPEAKER_00: Yeah, so you make sure if you've made a change in your structure, make sure you get that new 902 form, E902E entity form filed with the local office by September 15th, or at least be in community, give me wait until you hear the forms available, you know, and and if you follow my blog, I'll let you know when the form's available.
33:17
SPEAKER_00: When I find out, you'll find out.
33:18
SPEAKER_00: That's that's probably and again, if you're switching any of your entities from one entity to another, even if you're thinking, hey, going from a general partnership to an LLC is easy, you better be talking that over with your with your farm CPA or EA or an attorney because you may find out, oops, now I have a million dollar of taxable gain that I wasn't counting on, and we've seen that.
33:45
SPEAKER_00: So just be careful.
33:47
SPEAKER_01: All right, very good.
33:48
SPEAKER_01: Farmcpa report.com.
33:50
SPEAKER_01: Paul Nefer with the farmcpa report.com.
33:54
SPEAKER_01: And you're all you know, you you hang around from time to time over here with us at IGB.com.
33:59
SPEAKER_01: We sure appreciate your insights there.
34:00
SPEAKER_01: I don't hear the lawnmower going in the background.
34:03
SPEAKER_01: Is is she done or is it this quiet though?
34:05
SPEAKER_00: Yeah, she's either done or she ran out of gas.
34:08
SPEAKER_00: I'm not sure which.
34:09
SPEAKER_00: So that uh I saw her, I saw her drive by here a few minutes ago, but uh, but uh no, like I say, my idea of therapy is getting on the combine, especially out in the Washington State, where I can get on a 40 or 50 percent slope and slide down the hill.
34:23
SPEAKER_00: That's my idea of combine therapy.
34:25
SPEAKER_00: You know, the stuff in the Midwest, it's a little too boring for me.
34:28
SPEAKER_01: So yeah, very good.
34:30
SPEAKER_01: Well, Paul, thanks for making sure that we are informed.
34:34
SPEAKER_01: And we'll look forward to our next conversation on AgBull.com or wherever that may be.
34:39
SPEAKER_01: Thanks for being here, Paul.
34:40
SPEAKER_01: We really appreciate it.
34:42
SPEAKER_00: You're welcome.
34:43
SPEAKER_01: All right, and that's gonna wrap it up for today's conversation for Agbol Media and AgBull.com.
34:50
SPEAKER_01: I'm Davis Michelson saying thanks for sticking around.
34:52
SPEAKER_01: Thanks for watching all me for the Farm CPA.