As we prepare for a new administration and a new Congress to be seated, agriculture business owners should position their companies for anticipated regulatory and tax changes in the new year. Knowing that President-elect Joe Biden is keenly focused on addressing climate change and enforcing clean energy initiatives, this should be top-of-mind for farmers and agribusinesses. Key developments in technology, supply chain as well as government policy will play a significant role in shaping the industry going forward, too. We outlined the following items for your consideration as it relates to the above topics:
- In terms of innovation, Sikich’s Agribusiness newsletter includes an article written by some old and new friends at Lewis and Clark Food, an agriculture private equity fund based in St. Louis. This organization is a food and ag focused fund that is making strategic investments in technology to improve the industry. Read more about this here.
- Another article in our newsletter analyzes a tax strategy called the Monetized Installment Sale that can be effective with the sale of farm assets, such as productive farmland or timberland. While the strategy is not necessarily limited to these assets, it is most commonly used by large companies where land is the asset being sold. We partnered with legal and financial advisors to highlight this strategy in our article, found here. While sellers of land enjoy significant tax savings when employing this strategy, the method is complex and difficult to understand, requiring competent professionals to aid you throughout the process.
- Further, President-elect Biden and his administration have made climate change one of their top priorities. For agriculture, this means reducing our carbon footprint and using more green energy to power our operations. It also means that our most precious natural resource, productive land, will be better protected for future generations. We expect an innovative opportunity for the future of agriculture will arise from this and that the focus on renewable fuels may pivot from ethanol to advanced biofuels.
- Looking towards our virtual Agribusiness Update on December 11, we will highlight business expansion opportunities for the Inland Port in Decatur, Illinois and an up-to-the-minute post-election review of current and future tax and stimulus opportunities. Click here to register and learn about our Annual Agribusiness Update.
Agriculture producers - harvest season and outlook on 2021
Harvest season has passed for the most part, and as we start looking back on 2020 and start planning for 2021, it goes without saying that 2020 will be a year not forgotten any time soon. Going into the planting season in March and April, the country was faced with challenges that many Americans had never experienced. As we continue to navigate through the uncertainty that we are presented with (and there were and are many uncertainties), we are reminded of the important things that are all too easy to take for granted. When America quarantined with our families and headed to our local supermarkets, we were reminded just how important America’s farmers are to everyday life in our country.
As the dust continues to settle on 2020, it appears that from an economic standpoint, the year hasn’t been nearly as bad as we may have anticipated in the spring. Farmland values are up two percent for the third quarter, and demand is expected to be higher as we close out the year. Earnings are also higher than a year ago, even when considering lower performance levels in the dairy, hog and cattle industries. Though credit conditions are mixed, we do have a higher availability for credit as interest rates continue to decrease, providing growth opportunities throughout the industry.
Demand for U.S. corn and soybeans is brisk as China’s demand for U.S. commodities remains active while the country rebuilds its hog herd, which was decimated a year ago from the swine flu. China is also currently committed to buy $36.6 billion of U.S. food, agriculture and seafood products this year, and it appears that this demand has been showing up in our commodity markets. Given all of these factors, confidence in the agriculture industry is high, as more producers are saying operations are in better financial condition than they were a year ago.
While this is great news for our industry, it doesn’t come without some uncertainty. Many are wondering what is going to happen when the CFAP funds run out. With the election continuing through December and senate control still up in the air, a post-election lame duck session may be a short one. Emotions from the elections are still very high, so it is uncertain whether a deal will be struck on another round of aid. The already struggling livestock industry is seeing feed prices rise, which will put pressure on meat prices at the supermarket as well as potential decreases in cash earnings on these industries.
2020 year-end tax planning
For year-end tax planning purposes, many producers may see a situation emerge where cash receipts are at higher levels than originally anticipated. Grain prices this fall have led many producers to forego the storage fee on the 2020 crop, opting instead to be paid now rather than wait. As this occurs, we are faced with a year where the 2019 and 2020 crop fall into the same tax period. To make matters more interesting, all the agribusiness subsidies that came this summer and fall will create additional taxable income.
The silver lining to all of this is that we are still in a very positive income tax rate environment, given the lower brackets from the Tax Cuts and Jobs Act as well as the extremely beneficial QBI deduction that came out of the same bill. That being said, this year will be a very important year to meet with your tax advisor to explore options to lessen the tax burden to a more reasonable level.
Speak with a Sikich professional and register for our upcoming Agribusiness Update today.
About our Authors
Tom Bayer
Thomas E. Bayer, CPA, CExP, has more than 25 years of experience providing a broad range of accounting, tax, and business advisory services to commercial clients across various industries and Sikich offices. Tom has specialized expertise in the areas of business succession planning, tax planning and compliance, and business advisory. He puts his business succession planning abilities and knowledge to work firm-wide, serving clients in advisory services across the country.
Drew Long
Drew Long, CPA, is a partner in tax services with nearly 20 years of experience. He specializes in providing income tax planning and consulting solutions to individuals and closely held businesses and their related owners. Drew helps his clients identify tax saving strategies and stay abreast of tax regulations affecting their businesses. He serves a wide variety of clients in public accounting, with concentrations in the construction, manufacturing, agriculture and healthcare industries.
