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Honored Advisor

CFAP questions

FSA offices are going to be over whelmed Tuesday morning, I think we all need to get our ducks in a row BEFORE we make the call to get an appointment to sign up for the program.   I have a fair amount of corn on hand for feed, it was produced in 2019, unpriced, unhedged would that be eligible for CFAP? I would think it would but haven`t heard a thing about that...if not, I`ll sell the livestock to get the payment, heck with it   Smiley Happy

The program doesn`t seem fair in a few ways, not to criticize a program that may very well cover my 2020 chemical bill.  But it just so happens I stored cash corn to sell this spring to cover my income tax bill, instead of scrambling like normal, I sold a slug of corn in March for probably my top market price, just before it dropped like a stone, now I`ll get 67¢ on top of that?....Thank you sweet Jesus!!   Whadda country!

I can see many will be happy, many sad or angry about the program, the guy that just finished selling $2.80 corn will say "whoopty-doo 67¢ on top of that?  Well, it`s better than a kick in the shins".  But finally for me in this instance, I zigged when I shoulda zigged and zagged when I shoulda zagged, I just should`ve sold all my 2019 corn in early March this year...now don`t git greedy...don`t git greedy   Smiley Happy

But just wait, they`ll come with a juicey MFP payment later and "those that recieved CFAP money don`t git any!"    Smiley Happy

 

https://www.agriculture.com/news/crops/eligible-bushels-for-coronavirus-payment-remain-unclear-econo...

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26 Replies
Highlighted
Honored Advisor

Re: CFAP questions

If they really wanted to help the farmers, they would make these payments tax free. As it is, many farmers will be paying about half of it back in taxes.

Highlighted
Veteran Advisor

Re: Half of it back in taxes? Maybe you need....

 Pay half of it back in taxes? No offense, but maybe you need a different tax accountant.

 That said, no amount of MFP or CFAP or any other boondoggle payments they come up with will even begin to compensate me for the market losses from the past three & half years.  And that's not even counting the loss of markets going forward.

  Practically the only thing we've got going for us now is the fact that Brazil's mishandling of the coronavirus just might be so much worse than our own that Brazil's agriculture might be crippled and unable to supply.

  "Ducks in a row", F... that!

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Honored Advisor

Re: Half of it back in taxes? Maybe you need....

Rick wrote:" Pay half of it back in taxes? No offense, but maybe you need a different tax accountant."   What the heckin` Rick???  I go in with all my grain & livestock sales and deduct my expenses and get screwed with income taxes EVERY year.  yeah yeah yeah I deduct cat food for "rodent control" and all the tricks, if you make the money, you end up sending in half of it state and federal and that`s not mentioning property tax, of which I shouldn`t complain the way Nebraska is.  

I just take one day at a time and savor these payments now and pull my hair out next February worrying about the taxes then.  But borrowing money to buy machinery to minimize taxes is what I did in the early 2010s and am just getting dug out from that mistake now.  Any tax expert will tell you, you can delay the tax ax, but you can`t legally avoid it.

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Honored Advisor

Re: Half of it back in taxes? Maybe you need....

Sorry Rick, I don't know what state you live in.   But here's a breakdown for you.   It's eye opening, so get ready for the stark reality.

For many farms it doesn't take many acres to reach a high amount of net income to reach a lot of tax owed. I do realize that you are paying lower rates up to certain dollar figures.  However, once you've reached that level of income, you'll be paying the higher rates.  

Federal tax  - 24-37%

Self-employment tax  - 15.3%

State income tax  - 3%-10% (cornbelt states)

Local tax (school district)  1-2%

Add it up my friend.   43%-64%      

So a $50,000 government check could turn into $21,500 -$32,000 paid back in taxes at the high end of ones income.  

 

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Senior Advisor

Re: Half of it back in taxes? Maybe you need....

Lol. I'm going broke but I pay too much in taxes!!!

Although there is a phenomenon where farmers used every method to defer taxation during the good years and now have tax liability when they aren't really making money. Although that should be at a lower marginal rate in most cases- actually the rational purpose behind that.

That money should be buried somewhere in the balance sheet, though.

If not, then, yeah, not good.

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Senior Advisor

Re: Half of it back in taxes? Maybe you need....

For people going broke, the Feds let a significant portion flow through untaxed and quite a lot more at low rates.

If you're in a 24-27% bracket (and that's only the portion over the top) then you are doing pretty well.

BTW, did you push as much income through at those low rates as you could during the preceding good and so-so years?

My friend who is an accountant for a lot of farms says that he loves them but farmers just drive him crazy.

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Senior Advisor

Re: Half of it back in taxes? Maybe you need....

Quick calc says that if you made $200K (taxable, after personal exemptions) and filed jointly you paid about 18%.

At $80K about 8%, again, after exemptions.

 

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Senior Advisor

Re: Half of it back in taxes? Maybe you need....

Also, the good news would be if you're in the 24-27% bracket you're above the SS cap.

BTW, as a general rule of thumb, if you're making good money farming over time, the ups and downs not withstanding, you should always try to push some income though at those exempt and low rates every year.

That would be about $100K/yr for people filing jointly.

 

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Veteran Contributor

Re: Half of it back in taxes? Maybe you need....

That would be about $100K/yr for people filing jointly.

 

Very good point, and I try to use depreciation and/or SEP contributions to get there, but I calculate that it's about 85K AGI, not 100k, because I have to take into account the ObamaCare cliff.  If I make $85K, I get about 85% of my outrageous health insurance bill covered by the tax credits, but if I make $86K, I lose about $18K in tax credits (we're in our late 50's, so a silver policy for two is over $20K/yr).

At $85K, I pay about $12K in income/self employment taxes, and on my half section I pay about $6500/yr (and always rising) in property taxes. I live in SD, so no state income tax. State sales tax is 4.5%, but many cities add on 2cents so the 4,5% rate is for equipment and cars, and 6.5% for everything else.

 

Bottom line - I have no problem with the government handouts being taxable. 

Also not mentioned was that half the self employment taxes are deductible, and we also get the QBI deduction. It all adds up (or down, as the case may be).

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