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Showing posts from December, 2020

New COVID-19 relief passes Congress, includes PPP, EIDL and CFAP changes

by Megan Roberts, Extension educator After months and months of negotiations, Congress passed a new COVID-19 relief bill as part of a larger end-of-year federal appropriations bill. The bill,  H.R. 133 , known as the Consolidated Appropriations Act, 2021, was passed in a late night legislative session on December 21, 2020. The president then signed the bill into law on December 28, 2020. The law notably changes the tax treatment of the Paycheck Protection Program (PPP) with just a few days left in the calendar year. Other parameters of the law of importance to farmers and other small business owners include a second round of PPP loans, new funding for targeted Economic Injury Disaster Loan (EIDL) advances, an infusion of new dollars to the United States Department of Agriculture (USDA), and continuation of several COVID-19 related employee tax credits. Not connected directly to business finances, but likely relevant to many reading this post, the law also includes a second round of E

Tax impacts of the Consolidated Appropriations Act, 2021

By C. Robert Holcomb, EA, Extension educator With passage of the COVID-19 relief package by Congress, hereafter known as the Consolidated Appropriations Act (CAA), 2021, many new tax changes go into effect. This mammoth piece of legislation in written bill form is over 5,500 pages long. The new legislation extends many COVID-19 provisions, provides an extension of unemployment benefits, an additional round of stimulus checks, and funds the government through next September. In addition to funding the government, the CAC also contains multiple tax law changes. The contents of this blog post are not intended to include all the tax changes in the CAA, but the author will attempt to hit some of the most impactful issues. A more in-depth analysis will unfold in the coming weeks. Please see the post from Megan Roberts for an in-depth discussion on changes the CAA makes to PPP and EIDL loans. Extension of COVID-19 credits The CAA extends the refundable payroll tax credits for paid sick and f

Minnesota requires adjustments to state tax returns for COVID-19 financial relief via M1NC

by Rob Holcomb and Megan Roberts, Extension Educators If a taxpayer secured a Paycheck Protection Program (PPP) loan in 2020, the forgiveness or potential forgiveness will need to be reported on the 2020 Minnesota income tax return.  This reporting will be done on the 2020 Minnesota Schedule M1NC (Federal Adjustments) . The form adjusts for any non-conformity with federal tax law at the Minnesota state level. The Minnesota Department of Revenue M1NC directs taxpayers under their adjustment directions for the CARES Act Section 1106 Loan Forgiveness: “If you (the taxpayer) claimed Payroll Protection Program loan forgiveness on your federal return, take the amount that was excluded from the gross income for federal purposes and subtract the amount that would have been deductible if you had not claimed the loan forgiveness treatment. Include that amount as a positive number.” With the passage of new COVID-19 relief legislation on December 21, also known as H.R.133 or the Consolidated Appr

Clarification to changes of deductibility of business meals

by C. Robert Holcomb, EA, Extension Educator In earlier summaries of the Consolidated Appropriations Act, 2021 (CAC), it was incorrectly reported that all business meal expenses would now be 100% deductible beginning in calendar year 2021.   That was incorrect .  The 100% deductibility for meals is attributable only to meals provided by a restaurant.  This change is temporary for amounts paid or incurred after December 31, 2020, and before January 1, 2023.  The Tax Cuts and Jobs Act limited the deductibility of business meals. In 2020, the IRS issued both proposed and final regulations addressing the deductibility of business meals. As part of this guidance, in most cases, business meals were limited to 50 percent deductibility until 2025, when the business meal deduction will go away. CLARIFICATION (Dec. 27, 2020)  Under the CAC, the new legislation provides that the exceptions to the 50% limit will only affect expenses for food or beverage provided by a restaurant that are paid or in

Section 179 Minnesota Conformity

by Rob Holcomb and Megan Roberts, Extension Educators Governor Walz signed the Minnesota Bonding Bill into law on October 21, 2020 . In addition to addressing capital expenditures for the state, the law also includes several retroactive tax law changes. Minnesota is no longer decoupled from federal treatment of Section 179 expenses. Moving forward, no addbacks are needed when electing to take a Section 179 deduction on a federal tax return. This change is also retroactive back to 2017. Thus, taxpayers have the option to go back and amend 2017, 2018, and 2019 Minnesota tax returns and take the allowable section 179 deduction on the Minnesota return for each of those respective tax years. Of course, if taxpayers do amend, the addback carryforwards will change accordingly. PLEASE NOTE: These changes to Section 179 do not affect the current or past treatment of bonus depreciation. Use of bonus depreciation on the federal return still requires an addback on the state of Minnesota retu

Transition Thursdays Webinar: Estate Planning - Selling and Gifting Assets

  by Amber Roberts, Extension educator   Estate planning is an essential component of the transition process. While no family faces the same set of circumstances  when planning for the future, there are some basic estate plans that most people follow. In this recording, Extension Educator Dave Bau discusses selling and gifting assets. Selling an asset leads to tax implications that the seller must pay taxes on the difference between the selling price and adjusted basis.  Gifting assets can be used to reduce your taxable asset and transfer your tax obligation to the recipient who might be in a lower tax bracket. However, it is important to gift only excess assets so you don't impoverish yourself.  Resources Tax Issues for Estate Planning:  Some of the most costly mistakes in estate planning occur when tax aspects are ignored. Learn about the major income tax provisions to examine as you plan your estate.   Learn more about tax issues for estate planning . Timber Basis for Woodland O

Time is running short to utilize tax planning strategies in 2020

 by Rob Holcomb, EA, and Megan Roberts, Extension educators Earlier this month, the Extension Ag Business Management team presented a tax planning webinar addressing major financial and tax policy updates from 2020. Our webinar concluded with tax planning strategies for the end of the year. With average farm incomes predicted to be up in 2020, tax planning takes on additional importance this year. You can watch our webinar here for a detailed discussion or continue reading this post for a brief tax planning summary. Please note this webinar was recording December 3, 2020 and new legislation from Congress significantly effects some of our CARES Act analysis. As we move into the final days of 2020, now is the time to complete your tax planning decisions by analyzing final income projections and making expensing decisions before December 31. Your effective tax rate is an important consideration in these decisions. The primary strategies for end of year tax planning are:  Accelerated de

Looking at 2021: How does risk management factor into your dairy farm’s financial analysis?

by Megan Roberts and Nathan Hulinsky, Extension educators As 2020 draws to a close, many dairy farmers are looking ahead to 2021. For farmers in the process of renewing operating loans, now is the time to reflect on milk pricing lessons learned in 2020 as you prepare to meet with your lender regarding 2021. Communicate early and often with your lender Provide accurate information on your farm’s participation in risk management Remember 2020 showed unexpected events can rattle cash flows Communicate early and often with your lender This suggestion may seem too obvious, but no one likes surprises, especially ag lenders. Be proactive in preparing for your winter lending meeting. Update your financial statements with enough advance time to critically evaluate each statement. What went right financially in 2020 and what went wrong? What questions and concerns do you anticipate from your lender? Keeping communication lines open with your lender allows you to recognize potential financial con

Transition Thursdays Webinar: Estate Planning - Wills and Trusts

     by Amber Roberts, Extension educator   Estate planning is an essential component of the transition process. While no family faces the same set of circumstances  when planning for the future, there are some basic estate plans that most people follow. In this recording, Extension Educator Dave Bau discusses the basics of wills and trusts.  A will is a legal document that lists instructions regarding the distribution and management of your assets.  Much like a bucket where you can place your assets, a  trust can provide a means to hold and manage your property. You can read more about the use of wills and trust in the transition process. There is also a more detailed analysis of wills and trusts.

Minnesota USDA Farm Service Agency, University of Minnesota Extension to Host Agriculture Risk Coverage and Price Loss Coverage Webinar on Jan. 12

The U.S. Department of Agriculture’s (USDA) Farm Service Agency (FSA) in Minnesota is holding a public Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) webinar with the University of Minnesota Extension at 2 p.m. on Jan. 12, 2021. Farmers and others involved in agriculture will have an opportunity to learn more about the ARC/PLC programs and factors to consider when making elections for the 2021 crop year. The ARC and PLC programs provide financial protections to farmers from substantial drops in crop prices or revenues and are vital economic safety-nets for most American farms. Producers can elect coverage and enroll in crop-by-crop ARC-County or PLC, or ARC-Individual for the entire farm, for the 2021 crop year. Although election changes for 2021 are optional, enrollment (signed contract) is required for each year of the program. If a producer has a multi-year contract on the farm and makes an election change for 2021, it will be necessary to sign a new contract. The web

Transition Thursdays Webinar: Business Structure and Land Ownership

   by Amber Roberts, Extension educator   Transferring the farm business or woodland property to the next generation can be a daunting task. However, there are strategies and methods that can help simplify the process. When operating as a sole proprietorship, it can be challenging to establish a transition plan. There are many individual assets that need to be accounted for such as machinery, equipment, livestock, and land. It is difficult and time consuming to transfer separate, individual assets. One possible solution is to establish a business entity such as a partnership or a corporation to accomplish the business transition. As members and owners of the entity, the parents are issued ownership shares or shares of stock in the entity. These shares can be sold, gifted or passed through an estate to the entering generation, over time, as a method of transferring the business. This does away with the need to transfer separate, individual assets. This also spreads out the parent