February 4, 2025 • 35 mins
About the Guest: Kelly Bender
Kelly is a seasoned accountant with extensive expertise in agricultural taxation. She owns a thriving accounting practice based in Pennsylvania and is deeply embedded in the farming community both professionally and personally. Alongside her husband, Kelly manages a farm that raises various animals and crops, giving her first-hand experience with the unique financial intricacies faced by those in agriculture. Her diverse background combines a rich understanding of tax law with grassroots farming knowledge, making her a sought-after advisor for farm-related financial matters.
Episode Summary:
Join us for Episode 121 of the Teaching Tax Flow podcast, where hosts John and Chris explore the world of agricultural taxation with returning guest Kelly Bender. Known for her dual expertise in accounting and farming, Kelly sheds light on the complexities of farm taxes, offering insights and practical advice for those navigating this niche. With her unique background, Kelly delves into topics like income recognition, special rules for livestock, and deductions associated with farming, all while engaging in a fun and lively discussion.
In this episode, listeners can expect an in-depth look at what constitutes a farm, the distinct accounting methods applicable to agricultural businesses, and the difference between hobby farms and commercial farms. Kelly shares valuable knowledge about Schedule F filings, income averaging opportunities, and how cash basis accounting applies uniquely in the farming world. Moreover, the conversation touches on the broader economic implications of farming, such as local tax incentives, grants, and credits available to farmers. Throughout the discussion, the trio offers a blend of humor and expertise, ensuring an engaging and informative session on farm taxes.
Key Takeaways:
- Understanding Farming for Tax Purposes: Farming involves producing raw agricultural products without significant processing, disqualifying items like apple pies from being considered farm products for tax purposes.
- Income Recognition Special Rules: Kelly highlights the unique income recognition rules and opportunities for income averaging that give farmers flexibility, especially when dealing with the uncertainties of farming.
- Equipment and Livestock Depreciation: The conversation covers the significant tax implications of investing in farm equipment and livestock, including depreciation options and cash flow management.
- Eligibility and Benefits: Farmers can explore various benefits, such as estimated tax payment timing, qualifying deductions without rigorous substantiation, and special rules for livestock losses and spoilage.
- Farming Beyond Taxes: Beyond federal tax rules, local benefits such as property tax reductions and credits for beginning farmers play an essential role in supporting the agricultural economy.
Notable Quotes:
- "Farming takes a ton of time. It's not unusual for farmers to plant something and then wait years to see the income." - Kelly Bender
- "You grow some level of product that is raw and not manipulated for final consumption." - Kelly Bender
- "You can income average with farming, which is huge because of how variable it is year-to-year." - Kelly Bender
- "With farming, you don't have to keep track of inventory as you would with a regular business." - Kelly Bender
- "Farmers can deduct 75% of their vehicle expenses without the need for intense documentation." - Kelly Bender
Episode Sponsor:
Strategic Associates, LLC
Roger Roundy
www.linkedin.com/in/roger-roundy-86887b23
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
John Tripolsky (00:02):
Welcome back to the Teaching Tax Flow podcast,
everybody. Today, episode 121.As promised last episode, the
little teaser we gave you, weare gonna look at farm tax and
what that means for theagricultural business. So before
we do that with our great guestwho's joining us on this topic,
let's take a brief moment andthank our episode sponsor. This
(00:25):
podcast is brought to you byStrategic Associates.
Ad Read (00:28):
Are you a high income earner, real estate investor, or
successful entrepreneur who isfrustrated by having to pay
$75,000 or more of annual taxliability? If so, Strategic
Associates can help. Your firststep to saving 1,000, if not 100
of 1,000, is to contact RogerRoundy at roger@strategicag.net
(00:48):
or by calling 801-641-2956, andbe sure to tell them TTF sent
you. Alright, everybody. Welcomeback to the Teaching Tax Flow
podcast.
John Tripolsky (00:59):
Again, as you heard in the intro, you heard in
the last show. If you didn'tlisten to the last one, you
should. Go back after this one,of course. But I do have to give
a little disclaimer here. We'regonna drop a lot of f bombs.
We're talking about farms. Oh.So I had to I had to get catchy
with that one. But even really,why you're here. Right?
Why are you listening to thisshow? Kind of ask yourself that
(01:21):
question kinda deep down. Youknow, why am I here? Why do I
why am I listening to a a taxpodcast that's talking about
farms? Because you really wannabring home the bacon.
Sorry. I couldn't help myself.It it had to be cheesy. And this
may this episode may becompletely packed with the
cheesiest jokes. We're not gonnatalk about where cheese comes
(01:41):
from because it's so terrible.
Chris Picciurro (01:43):
Farmer in Wisconsin there?
John Tripolsky (01:45):
We're we're going Wisconsin maybe. But in
all seriousness, this topic issuper interesting to me, and, of
course, it's interesting toChris. And what really intrigues
me more about this one too is Ithink for once out of a 120 plus
episodes, I may may know moreabout this than Chris does. So
(02:06):
without further ado, let's jumpinto it. Chris Pacquero, welcome
back to the show, sir.
How are you doing today? Don'tget cheesy on me. I'm great. And
you know what? You havesomething in common with my dad.
Couple things.
Chris Picciurro (02:20):
1, you have the same name. 2, when you say a
joke, you're the only one thatlaughs at it.
John Tripolsky (02:26):
Just like your last joke.
Chris Picciurro (02:27):
And now I did. You know what?
John Tripolsky (02:29):
I can you know, you are you forgetting, though,
that I edit these things? I mayadd, like, a a Saturday
nightlife crowd just dyinglaughing at the end of this. But
even more than both of us puttogether, though, again, in all
seriousness, we have to bringpeople on the show that know way
more than we do. So who did youhow how in the world actually
did you find somebody, and thenyou can introduce them, that
(02:51):
knows a lot about this and withtaxes. Right?
Just not the operational side ofrunning a farm.
Chris Picciurro (02:56):
Well, John, it's, you know, it's a
prestigious honor to be on theteaching tax flow podcast, and
it's very rare someone comesback for a second round. And so
we had to ask Kelly Bender tocome back. She did an amazing
job in a previous episode. Sheis a colleague of mine, does an
amazing practice inPennsylvania. And also, not only
(03:22):
you know, we always say we haveto
John Tripolsky (03:23):
eat our own cooking which could be
Chris Picciurro (03:24):
a farm reference also. Another, you
know, another 4 letter f word,farm. But she and her husband
have a farm. But she also has ahas a ton of clients with farms.
There are a lot of peoplebecause, out there, and this has
been
John Tripolsky (03:40):
a topic that we've been wanting to touch on,
so we are very honored to haveher back
Chris Picciurro (03:44):
on the show. Kelly, welcome back.
Kelly Bender (03:49):
Thanks, guys. I'm I'm happy to have a little bit
of a moving conversation today.
Chris Picciurro (03:54):
Oh, I like it. I like it.
John Tripolsky (03:56):
It's always good when somebody else brings the
jokes, Chris. It's not just me.See, maybe the problem's you on
this. Maybe you just don't thinkthey're funny.
Kelly Bender (04:04):
But do they qualify as bad dad jokes if I
make them? You know?
John Tripolsky (04:07):
No. No. They just add credibility to this.
But and, Kelly, this is supercool. Right?
Then and I would say if I had Iin all transparency, I had no
idea that you even knew aboutthis. Let alone, you know I
mean, obviously, farming is abusiness. And with any business
comes tax obligations, right,and requirements, etcetera. So
(04:33):
and this is great because we canjust kinda shove Chris to the
side a little bit. Right?
Like, he didn't even need to behere. We can exit him off of
this. But, like, where where dowe even start this conversation?
I don't even know. Like, open upthe fences for us here.
Open up the
Chris Picciurro (04:45):
Yeah. What
John Tripolsky (04:45):
are the candidates? I
Kelly Bender (04:46):
mean Yeah.
Chris Picciurro (04:47):
What qualifies?
Kelly Bender (04:50):
You guys are really trying hard with these
with these jokes, so I love it.
Chris Picciurro (04:54):
We're scraping
John Tripolsky (04:54):
the bottom of the pen.
Kelly Bender (04:56):
That's it. Well, you know, sometimes you're gonna
scrape a little shit. So
John Tripolsky (05:01):
Exactly. It's true. It's true.
Kelly Bender (05:04):
So, yeah, I I am, weirdly I'm I'm a you know, my
husband's nickname is actuallyOnion. He's a man of many
layers, and so interestinglyenough, we have a couple layers
in that, yeah, we, you know, runthis, practice, and then, also,
we live on a farm, and we raise,all of our own meat. So we sort
(05:28):
of happened into the farmingcommunity, and then as we need
to, I had to learn all thethings about it. So, yeah,
that's how we ended up here. Andwhat the heck is a farm?
To just, like, break it down,Everybody kind of fits it into
whatever that box is. They say,okay. You grow something, and a
lot of people traditionallythink of farms as, you know, we
(05:50):
grow crops. Right? We grow hayand wheat, and you see the big
tractors on the sides and andbig farmland.
But in reality, a lot of peoplein the age of maybe homesteading
and even during COVID, a lot ofpeople wanted to be, like, you
know, kind of backyardgardeners, may have started
farms because a lot of peoplecan have sort of backyard or
(06:11):
urban farms, and those areactually really popular now. So
it's an increasingly populartopic to sort of talk about, and
the the word is broad. Sofarming basically is like having
a farm is growing some level ofpro of of a product that is not
this is like the caveat. That'snot then sort of manipulated for
(06:37):
final consumption. So apples,farm.
Apple pie, schedule c. That'sour big difference. Right? So,
we're growing let like, rawproduct of some kind. One weird
little exception is honey,because honey is like a product
and it's the final product, soit's like the same thing.
(07:00):
But, yeah, that's a farm. So youare growing some level of
product. We could be talkinganimals. We could be talking
flowers, herbs, fruit,obviously, crops. That's like
the big thing people think of.
Eggs. All of that would beconsidered a farm. Nice.
John Tripolsky (07:23):
And it is wild too, Kelly. Like, I've been you
know, being from Michigan andmoving back, so I live in a
small downtown but of a veryrural area. And I think it
shocks a lot of people how muchyou truly have to invest to have
a successful farm, let alone theequipment is you know, makes a
Lamborghini look cheap when itcomes to that. So it's, and I'm
(07:45):
not kidding. If anybody reallywants to look that up, if you're
not familiar with it, go try tobuy a combine and see how much
those are.
Kelly Bender (07:53):
Yeah. Big, big, big costs in in equipment.
Chris Picciurro (07:57):
We're yeah. Definitely, we wanna talk about
some special rules for farmers.You mentioned schedule c for and
so farmers in general, they'regonna file a schedule f, I
believe. And but do are somefarms? I know this sounds like
they're like, partnerships or scorps or c corps also?
Kelly Bender (08:18):
Yeah. The larger ones frequently are. Family
farms are a lot of times, youknow, partnerships in some way
because there might be multiplegenerations that may own it, and
so we do see a lot ofpartnerships in farms. And they
have schedule f's, and then, ityou know, you create that, and
it transfers through to theindividuals. So, yes, basically,
(08:40):
all the farming activities gettheir own little caveat because
of the schedule because there'ssome unique rules that sort of
break, all of the otheraccounting rules and tax rules
that we've come to know and lovebecause of the unique nature of
farming and anybody that spentany amount of time doing any
(09:02):
level of farming.
You mentioned expensive, but theother thing, which is just
farming we say farming is ananalogy to everything. Farming
takes a ton of time. And so it'snot unusual for farmers to, of
course, plant seeds in theground and then wait and wait a
long time, sometimes over yearsto, you know, generate. I mean,
(09:25):
the average fruit tree takes,like, 3 to 5 years to,
Chris Picciurro (09:29):
you
Kelly Bender (09:29):
know, bear fruit. So you have a lot of time
involved, heavy investments onthe beginning, time involved,
and so you get some specialrules because of that.
Chris Picciurro (09:38):
So let's talk about some of the rules. Let's
assume someone is filing on aschedule f. So it's a it's a
either a married couple or oneof the you know, someone could
be single. Let's start talkingabout, do they what's their
accounting method like? I mean,most people are what are called
cash basis taxpayers.
(09:58):
Can you talk a little bit aboutaccounting method? And I know
there are some special ruleswith income recognition.
Kelly Bender (10:05):
Yeah. So the unique thing about farms is
they're just definitelydefinitely generally cash basis
taxpayers. However, what happensa lot of times is you may have,
like, production of a, productthat you don't take possession
of the payment for for a periodof time because, again, with
(10:26):
farming, there's always some bigtime gaps. So with farming, you
really don't have to recognizethat income until you take
possession of it, even ifperhaps the crop was produced at
an earlier time, which is alittle bit different than income
recognitions that we normallylook at, for, you know, other
businesses. And then, you know,the other thing that comes into
(10:47):
play with income and timing andexpenses and revenue
recognitions is that when youhave, say, like fertilizer,
which is a common right, I mayput fertilizer in the ground,
but then I don't recognize thebenefit of that for, say, 2
years.
I can actually take the expensefor when I put it on the on the
production of the, you know, ofthe ground, even though I may
(11:11):
not take the income thing for 2more years. And so you can sort
of disconnect, which is just oneof those concepts that when
we're in, you know, normalbusiness world, we, of course,
kind of have to match thosethings together. And farming,
you don't because, again,there's this big time issue.
Chris Picciurro (11:29):
Now in in how about income? I I you know, a
lot of people have thrown aroundthe term that you can you can
income average. Obviously,farming is very dependent on
factors beyond our control,weather being one of them,
probably the biggest one. But,yeah, what, is there income
averaging available to farmers?
Kelly Bender (11:50):
Yeah. There is. Right? This is, like, a super
cool thing because we've neverreally get to do that with
normal businesses. So becausesometimes, yeah, weather plays a
factor, you know, droughts andfloods, and who knows?
Like, all the different thingsthat happen with farming, or
maybe just longevity, you canincome average over over
(12:12):
multiple years, 3 years usuallyhere. And so if you have, like,
a spike year, you can sort of goback and look and see, hey. If I
was in a 12% bracket for years12, and then in year 3, I bumped
up into 22%, I can go back andgrab the rest of that, 12%
bracket and, you know, kind ofaverage out the tax burden to
(12:38):
because because, again, it'ssort of like maybe was a timing
issue and you
Chris Picciurro (12:41):
Right. Had
Kelly Bender (12:42):
you know, it's just it's just really
disconnected. Now it's, ofcourse, exact much more complex
topic than that, but nobodywants to fall asleep on this.
But, yeah, the big thing is youcan income average with farms,
which is huge.
Chris Picciurro (12:55):
Let me ask this. Then if let's assume you
make an income averaging elect Iassume it's some type of
election. Do you have do you goback and amend your previous
returns, or do you take a lookat the AGIs on those years and
just kinda calculate? And almostlike in that situation where
someone gets a lump sum socialsecure social security amount
and you can look back atprevious years. So can someone
(13:16):
can ultimately look back in inin their last couple years and
and in other words, thatadjustment's made on the
John Tripolsky (13:25):
current year return. You don't have to go
back
Chris Picciurro (13:26):
and amend returns. That's that's
Kelly Bender (13:28):
correct. Yes. That's exactly correct. Yeah. So
we're not, like, going back andamending priors.
We're fixing that all year thisyear.
Chris Picciurro (13:34):
Oh, wow. Mhmm. Yeah. I mean, there's a lot of
planning opportunity there then,obviously.
Kelly Bender (13:38):
It can. Yeah. So couple things have to come into
play. You kinda have to, you youdo have to, you know, fall into
some certain categories. So mostof the time, this applies to
people who we qualify as, youknow, sort of true
John Tripolsky (13:53):
I I
Kelly Bender (13:53):
don't know if it's a technical term, but qualifying
farmers. And that generallymeans these are individuals who
greater than 2 thirds of theirincome is actually derived from
farming activities. And so itdoes prevent, you know, sort of
the hobby farmers, which do getsome of the benefits. But if,
you know, say, I have acorporate job and then I just
happen to have a little hobbyfarm, I'm probably not gonna be
(14:15):
able to take, advantage of that.So you do have to kinda meet
some standards to get that
Chris Picciurro (14:19):
qualification. Gotcha. And then, you know,
how's and is inventory handleddifferently than maybe, like, a
retail business at all, or is itsimilar?
Kelly Bender (14:30):
So, you know, inventory in a farm is a little
weird. Right? Like, I don'tknow. You don't you don't really
have to do it. Now as I alwayssay, just because you don't have
to do something, maybe doesn'tmean you shouldn't.
But you don't have to trackinventory. You can really go on
this real true sort of basiccash basis situation when you're
(14:51):
looking at farming for for mostaverage farms. And so you're not
really having to, like, track inor inventories. You don't have
to keep track of what's, youknow, sort of sitting on your
shelf. Essentially, if you buyit, it's an expense.
If you sell it, it's incomewhenever that is.
John Tripolsky (15:06):
They must have realized that if they did really
keep track of it, yourinventory, if you're in
livestock, could potentiallyjust get up and walk out of walk
out of dodge, then you got ashrinkage problem, I guess.
Right? Like, then well, anyways,I I I I couldn't help myself. I
I had to
Chris Picciurro (15:23):
I mean, what if you what if you are I mean, in
Michigan, it's well known forapple production. I know
Washington's probably number 1.But, you know, what happens if
you have a great crop of apples?But by January, it could be you
I mean, there's a lot ofspoilage. Right?
There's a lot of there's a lotof those type things and, but I
guess inventory, I get itdepends on, I guess, what you're
(15:45):
farming. You know, what theuseful life of the of the
product is. So Right.
Kelly Bender (15:49):
So for that reason, we just kinda throw it
all out the door with farming.
Chris Picciurro (15:53):
Yeah. No. That's that's that's good.
That's real I mean, it makes itmakes life a little easier. And
I'm sure with farmers, there aresome special rules with, you
know, home office deduction, andalso deductions associated with,
you know, with with their land.
Right? I mean, if if you've gotI imagine there's a there could
(16:16):
be a primary home on a propertyand then acres of of farmland.
That's gotta you know, what whatkinda because because you really
don't have that, you know, thethe home office of the 8829. I
don't know. I shouldn't try tomemorize this.
Typically, if you have a homeoffice deduction in your
schedule c filer, that just getsattached to your to your return.
(16:38):
But if you're a farmer, you'vegotta kinda figure out figure
that out. What are some tips youcan give someone?
Kelly Bender (16:44):
Yeah. You know, so the cool thing is if you're a
farmer, you can still take thehome office deduction, and I
always encourage them to dothat. So it's there. It's still
available as a home op you canstill take the home office, and
a lot of farmers really do havevery legitimate home offices.
Sometimes they, you know, havepeople come right to the house
(17:06):
to buy the products.
They might have a farm stand onthe corner of the property,
things like that. So theydefinitely have a lot of
legitimacy for home office. Itdoesn't, you get the deduction,
but usually, it's gonna be, Ithink, in, like, an other
expense section, and then youjust say kind of add it add a
statement for see statement forhome office. But, yes, you do
(17:27):
get a home office deduction fora farm, so that's kinda cool.
Mentioning you kinda mentioned,like, we were talking about
inventories and livestock.
So there's some unique rules forlivestock loss as well because
if you think about it, there's acouple different ways that you
can look at what happens. Sothere's, like, different there's
this whole and same thing. Idon't have all these memorized,
(17:48):
but, like, there's all theserules for, you know, whether the
animal was, like, born on farmor whether you brought it in,
but then what happens if itdies? And, you know, so, again,
you have to think about all ofthose things. And so that it
just, you know, kind of adds up,and believe it or not, there's a
lot of keeping track.
Like, my husband does all thecalculations for everything. He
(18:10):
now, of course, he's anaccountant, so he does think
like 1. But, I mean, he hasspreadsheets for, like, every,
you know, date that an animal isborn, and so then we, you know,
have it tracked and numbers sothat you kind of know how many
you should have. And then ifsomebody dies and because it's
like, unfortunately, that's justwhat way of life in farming is
that, not everybody makes it.And so, yeah, like, the all of
(18:32):
these different things, you dohave to kinda keep track of that
in order to make sure that youget all the deductions.
Chris Picciurro (18:37):
That's a great so, Mike, yeah, here's here's a
so as far as livestock. Right?It it's obviously, if it's born
on your property, that's onething. But if you were to
acquire it, are there rules forthe appreciation, you know, any
special considerations for thattoo?
Kelly Bender (18:55):
Yeah. There are. So right? Because, like, you're
right. If it's born on yourfarm, there's no there's no cost
basis in it.
You're like, you got a freebie.Right?
Chris Picciurro (19:02):
Yep.
Kelly Bender (19:03):
But yeah. So it's whether or not you can write it
off, like, when you if youbrought him in Lynn, whether
you're gonna hold it then forproduction, and things like
that, or whether, you know, itwas born on farm. It doesn't
have any cost basis, and thosekinds of things. So, yeah, it's
it's definitely, right, unique,super unique because it's not
like you're just you know, youhave to think about everything a
(19:24):
little bit a little bitdifferently.
Chris Picciurro (19:26):
Right. So if you're if you bring in a cow, I
mean, that's a fixed asset. Imean, this might sound like a
really stupid question. So so,you know, if you bring in a do,
like, do the do the do the deminimis safe harbor rules apply
to to I wonder I wonder if theydo. So think about but no a cow
(19:47):
is gonna be more than $25100, Iassume.
Kelly Bender (19:50):
Yeah.
Chris Picciurro (19:52):
I'm trying to think.
John Tripolsky (19:53):
It's a
Kelly Bender (19:54):
good question. Crap. Chris, you stumped me. I
don't know if it fall I don't
Chris Picciurro (20:01):
No. Okay. I it's a
John Tripolsky (20:03):
I can't even think of a joke around this one.
I was trying
Kelly Bender (20:05):
to think of some I don't know.
Chris Picciurro (20:07):
Don't have a cow over it. No. I mean, I'm
just thinking, so you've got youbring in these in livestock. If
they're for production, they'redepreciable, but that also gives
farmers a lot of opportunity topotentially use bonus
depreciation, elect out a bonusdepreciation. There's a lot of
and when we think about, youknow, about our practices in
high end having a real estate,but the tax cuts and jobs act,
(20:30):
it's really gonna affectfarmers' bonus depreciation.
Kelly Bender (20:33):
Yeah. So one one big thing outside of animals,
but the biggest reason forfarmers that has, like, a bunch,
you know, of kind of realbenefits for a lot of people is
really in and, John, youmentioned earlier. This
equipment is monstrouslyexpensive. And so and, you know,
a tractor or even a base leveltractor, every stinking
(20:54):
implement, you gotta add add onthe back on the, you know,
hitches, and everything has apretty big cost because it has
to be usually much heavier dutyand all of that. So depreciation
is a really big factor forfarmers, and, of course, we can
utilize all the traditionalthings.
So we can utilize, you know, 179or bonus, but there's a unique
(21:16):
situation, and I wanna make sureI say it right. So if you have
the if you've got yeah. So whenyou have business use of a farm
vehicle, okay, so it's likeanother unique one. So, you
know, when we talk about cars,we're always like documentation,
documentation. You have to haveit.
(21:39):
Farmers can deduct 75% of theirfarm vehicle expenses as
qualified business expenseswithout business record
substantiation.
Chris Picciurro (21:49):
Nice.
Kelly Bender (21:50):
I know.
Chris Picciurro (21:51):
I have a question. You've that that's a
good no. That's a really nicebenefit.
Kelly Bender (21:56):
Mhmm.
Chris Picciurro (21:57):
Wow. And then and, you know, it's interesting
though because you're thinkingof schedule c, schedule f. Well,
the advantage of schedule f issomething like that and some of
the unique rules, right, thatthat you're getting on a
schedule f instead of a schedulec. And now our farmers in
general I mean, most I haven'tseen too many schedule offs, and
(22:20):
I haven't seen too many scheduleoffs with a net profit. So let's
put it that way.
But let's say and they could bemaking money, but they just have
deduction. I mean, they haveequipment. They have livestock.
Is that something to selfemployment tax, like, if you're
if you're activelyparticipating?
Kelly Bender (22:35):
It generally is. But one of the other cool things
about farmers is that if you're,where I said that qualifying
farmer. Right? So if you have 2thirds of your income generated
from farming activities, thenyou can actually take advantage
of a super unique estimated taxsituation that is going to allow
(22:57):
you to not have to make all ofyour estimated taxes. So, you
know, everybody is selfemployed.
We all have to make 4 a year,and, you know, we love that,
right, 4 times a year. You get aspecial rule with, if 2 thirds
of your income is coming fromfarming, you can make 1.
Chris Picciurro (23:15):
Oh, that's nice.
Kelly Bender (23:16):
So that's kinda cool. And it's either 15 days
after the close of the year foran estimate or all of the tax
by, I wanna say I wanna say it'sMarch 1st Mhmm. For the whole
year prior. Wow. So it's sort ofa helpful thing also for going
(23:36):
back to where you know, farmingrequires a lot of cash, and
there's a frequently really bigtime lags between production and
realizing the income and thingslike that.
So this is just another way thathelps, like, smooth the
situation where instead ofhaving to, like, part with 4
payments a year where you mightonly be producing a crop that
(23:57):
harvests once a year, you canjust figure it out and pay your
task once Right. If you qualifyas a in that in that role. So
that's kinda cool.
Chris Picciurro (24:05):
Wow. Now do the typical hobby loss rules apply
to farming? Or because, youknow, because it seems like
there's so much time goes intofarming and it seems like losses
you know, it's very common for afarmer to have a loss even if
it's making money due to thecapital the the intense cash
intensive nature of it.
Kelly Bender (24:28):
Yeah. So, I mean, it kinda falls into production.
You know, if you're endeavoringin a business producing
situation, you know, you'regoing after income, then even
though you might have losses,you're not gonna get hung up,
yeah, in, like, in losssituations out there. So that is
super common to see. You know,you have to be actively trying
(24:48):
to produce income, which, again,with farming activities, you're
usually looking at this over along term.
So I, you know, I mentionedfruit trees. Mhmm. Tree tree
farming is gonna take a longtime to produce a crop. Right?
Just because the nature oftrees, you know, like, they
don't grow overnight.
So
Chris Picciurro (25:08):
Right.
Kelly Bender (25:09):
You're not gonna run into those same situations
because you are doing somethingin that pursuit, and you may
just not be able to harvest fora very long period time.
Chris Picciurro (25:17):
Right. It could be years years that you're
putting into the into that, andit's just gonna take a and it's
that's it could be there's noguarantees.
Kelly Bender (25:27):
Yeah. So I mean, the average cow for us, because
we raise grass fed, is two and ahalf years to slaughter.
Chris Picciurro (25:33):
Wow. So then for you guys like, in your farm,
you are producing a cow, andthen are you selling the meat,
obviously? Are you selling,like, whole cows, half cows to
families and and that sort of
Kelly Bender (25:45):
stuff? Yeah. So we sell like, we raise cows and
pigs and chickens and eggs and,yeah, then we have some other,
like, smaller stuff, but, someflowers, herbs, things like
that. So, yeah, like, aninstance of a cow, we would sell
either, like, a half cow to afamily, or we take it to a
(26:06):
processor that will, cut it intosmaller cuts, and then we
actually sell it to, like, anonline farmers or we do through
to customers through an onlinefarmers market.
Chris Picciurro (26:16):
Wow. Well, that's cool.
Kelly Bender (26:19):
Yeah. Buy the cut, but that's real specific. So in
our state, like, you have totake it. You can't produce the
or you can't, kill the animal onfarm. You have to take it to, a
USDA, like, observed facilityand have it packaged and, like,
it has to fall into certainkinda weird rules.
But, yeah,
John Tripolsky (26:40):
that depends. You'll you'll have to give us
any links too where you guyssell product at. We'll put it in
the show notes if you guys ship.
Kelly Bender (26:47):
Yeah. So you put it, you know, online. But, yeah,
there's so there's, like, athere's just a lot when you
think about it that's withthat's super different about
farms and, know, but it's funbecause a lot of people who are
doing farming are usually notdoing it for the money. They
enjoy the, freedom and, youknow, adventure of, figuring out
where the food came from. And,it's hard work, but it's very
(27:11):
rewarding.
Chris Picciurro (27:12):
Final question, I promise. So so, obviously, we
talked about schedule f, some ofthe unique income recognition
rules and expenses and estimatedtax payments. Are there any
other tax benefits that aren'tincome tax related that farmers
might enjoy? For instance, isthere is there typically, are
you gonna see lower propertytaxes or capped property taxes,
(27:35):
agricultural, exemption fromsales tax, or any other things
that you've seen that, farmersenjoy a benefit of?
Kelly Bender (27:44):
Sometimes. Yeah. Depending on the localities, you
definitely can have some, youknow, kind of homestead or
farmstead exclusions on their,you know, on their property
taxes. Depending on certainstates, they're gonna be
obviously more favorable to eventhe tax structures in state tax
law, depending on whetherthey're trying to incentivize
(28:05):
farmers. There's the farmingworld runs into there's actually
a lot of things with, like,grants and tax credits, like, at
the state level.
So, like, our state, forinstance, has, like, a beginning
farmer credit that incentivizesthe selling farmer, selling to a
new beginning farmer andincentivizes them by reducing
(28:28):
the tax that they pay on thatsale by selling it to a
beginning farmer. So
Chris Picciurro (28:34):
Oh, nice.
Kelly Bender (28:34):
You know, there's some, like, unique you have to,
like you know, and there'sprograms you can apply to, but
there's a lot of programs. Iwill say the most daunting part
that we've encountered from afarm perspective is that there's
so much that it's like, it couldbe a full time job learning it.
So, you know, local USDA, like,resource centers, they're
(28:55):
they're in every community, area great place to start. Like, we
that's where we kinda went andjust started asking a bunch of
questions because we were like,what do we not know?
Chris Picciurro (29:04):
Right. Right. And and I know there's right.
From what I recall is is in mylimited CPE in learning about
farming is that there's alsosome subsidies available.
Because a farmer, a lot oftimes, they they have to rotate
crops along their line, or theywould have to, like, let a
certain piece of their propertyrest, for lack of better term,
and not farm on it.
(29:24):
And there are some subsidiesavailable for that as well. So
Kelly Bender (29:30):
Mhmm. And then there's, like, things like crop
insurance
Chris Picciurro (29:33):
Oh.
Kelly Bender (29:33):
Which is, like, a real unique thing. And so you
have crop insurance. So you alot of farmers who do a lot of
crops, they'll take cropinsurance out, and then they
they get paid, though, cropinsurance, but that's another
one. It's actually a tax like,if you received it, then it's a
taxable income.
John Tripolsky (29:49):
Right.
Kelly Bender (29:50):
Wow.
John Tripolsky (29:51):
So, you
Kelly Bender (29:51):
know, it's it's like there's a lot of different,
moving parts that happen withthe farms.
John Tripolsky (29:58):
Wow. Well well, Chris, how do you feel about
this? Do you feel like you got alike, you went back to school
Chris Picciurro (30:04):
today? Absolutely.
John Tripolsky (30:06):
I feel good.
Kelly Bender (30:07):
Are you moving to a farm?
Chris Picciurro (30:09):
No. No. I would it would be an urban farm. No.
But, you know, I I have I'm I'mvery intrigued by it.
I do have a friend that owns afarm, and he he had a barn on
it. And he ended up building aindoor pickleball court on the
in the in the barn. So
Kelly Bender (30:28):
Oh, good grief.
Chris Picciurro (30:30):
That farm I visit a a decent amount of
times.
John Tripolsky (30:33):
He always finds a way to bring pickleball into
this.
Kelly Bender (30:35):
I was just gonna say that, John, only because I
know him. I'm like, I can'tbelieve that you just took a
farm, a podcast about farmingand found a way to bring in
pickleball.
Chris Picciurro (30:46):
You know what? Shock you. It had to happen.
But, no, this has been amazing.And and if you, you know, if
you're a if you are a farmer andhave questions about your tax
return or any, I woulddefinitely reach out to Kelly.
I know that I've I've meant tosay this in the beginning.
Congratulations to you and yourteam. You just opened up a brand
new office, and can you tell usa little bit about that? And and
(31:12):
I'm sure I know you guys are allexcited.
Kelly Bender (31:14):
Yeah. I mean, it's pretty cool. We did. We about a
year ago, we've been outgrowingour space for a couple years.
About a year ago, we found anamazing, old church that is
literally about a quarter milefrom our old, from our old, very
traditional accounting officeoffice location.
And so I saw a real cool vision,when I walked into it, and we
(31:37):
just had a big grand opening. Werenovated the whole thing,
turned into this crazy, unique,open air office space with
original stained glass windowsthat are a 100 years old and
original pinewood floors andjust, like, a super cool cool
vibe, and we kicked off with ourgrand opening, like, literally
just last night. So, yeah, just,jokingly like the church of
(32:00):
money. So
John Tripolsky (32:02):
Oh, I was gonna call it
Chris Picciurro (32:03):
the holy grail attacks, but I I like the I like
your your name for it.
John Tripolsky (32:10):
And so here here's a question for you before
we completely wrap this up, andI'll pose it to either one of
you. Right? Let's see if youknow the answer to this one. So
how do dairy farmers do theirtaxes? Any ideas?
It's not a serious question, bythe way. There's a discla Who do
(32:30):
they go to?
Kelly Bender (32:34):
There's a pun somewhere in here, and I don't
Chris Picciurro (32:36):
know what they say. Dairy ball, it's gotta be
either somewhat they they theysomething about counting their
cheese. I don't know. Or theircheddar.
Kelly Bender (32:42):
Get out of them.
Chris Picciurro (32:43):
Or they yeah. They milk out as many deductions
as possible.
John Tripolsky (32:46):
You know what? That's actually better than the
one so I was gonna say theyliterally just go to an account
tint. Right? But I like themilking out the deductions. Yep.
What? See?
Chris Picciurro (32:59):
Counting their cheddar, baby.
John Tripolsky (33:00):
It's time to time to retire. It's time to go
into improv, buddy. Let's do it.But, anyways, well, Kelly, we
will release you from this, penof torture probably for for
joining us. Oh, yeah.
The slaughterhouse on here.
Chris Picciurro (33:16):
Podcast here.
John Tripolsky (33:16):
There you go. And, Chris, I think we've yeah.
I think we may have literallyjust, like, pun intended. Kinda
slaughtered our chances ofhaving her back for a third
time. So, you know, we'll, we'lljust take advantage of this
while we can.
But, honestly, Kelly, thank youthank you for joining us on
this, but thanks for having somefun with us too. This was
awesome.
Kelly Bender (33:34):
We didn't drop nearly as many f bombs as I
thought we would.
John Tripolsky (33:37):
No. You know what? I'll I'll go through the
transcript. I bet you I can finda lot of them hidden in there.
But this this was really cool.
It was, honestly, it was it wasgreat to, you know, all comedy
aside, to really dive into thisand see. Because it is really,
at the end of the day, right, itis a business, and it's one that
you know, unless you're in it,you probably don't know exactly
all that goes into it. And Ialmost guarantee that some
(33:59):
people that I'm thinking of, notnecessarily in the town that I
live in, but they do have farms,and they probably don't even
know all this. So, you know,maybe they don't take advantage
of all this stuff. So we weappreciate the insight.
Kelly Bender (34:11):
Thanks, guys. It was fun.
John Tripolsky (34:13):
Alrighty. Well, go go enjoy the new church slash
office that you have there. Andfor anybody that's listening or
watching this, we are going toembark on a 3 part series
starting next week. I won't tellyou everything about it, but
we're calling it our ACE series.So ACE, it's an acronym for
something somewhat, but you'llfind out pretty soon.
Chris Picciurro (34:32):
So as
John Tripolsky (34:33):
we always close out with, we'll see everybody
back here again next week,roughly different time,
completely different topic onthe Teaching Tax Flow podcast.
Disclaimer (34:43):
The content provided is for educational purposes
only. We encourage you to seekpersonalized investment advice
from your financialprofessional. For all tax and
legal advice, please consultyour CPA or attorney. Investment
advisory services are offeredthrough cabin advisors, a
registered investment advisor.Securities are offered through
cabin securities, a registeredbroker dealer.
The content of this podcast doesnot constitute an offer of
(35:03):
securities. Offerings can onlybe made through an offering
memorandum, and you shouldcarefully examine the risk
factors and other informationcontained in the memorandum.
Welcome back to the Teaching Tax Flow podcast,
everybody. Today, episode 121.As promised last episode, the
little teaser we gave you, weare gonna look at farm tax and
what that means for theagricultural business. So before
we do that with our great guestwho's joining us on this topic,
let's take a brief moment andthank our episode sponsor. This
(00:25):
podcast is brought to you byStrategic Associates.
Ad Read (00:28):
Are you a high income earner, real estate investor, or
successful entrepreneur who isfrustrated by having to pay
$75,000 or more of annual taxliability? If so, Strategic
Associates can help. Your firststep to saving 1,000, if not 100
of 1,000, is to contact RogerRoundy at roger@strategicag.net
(00:48):
or by calling 801-641-2956, andbe sure to tell them TTF sent
you. Alright, everybody. Welcomeback to the Teaching Tax Flow
podcast.
John Tripolsky (00:59):
Again, as you heard in the intro, you heard in
the last show. If you didn'tlisten to the last one, you
should. Go back after this one,of course. But I do have to give
a little disclaimer here. We'regonna drop a lot of f bombs.
We're talking about farms. Oh.So I had to I had to get catchy
with that one. But even really,why you're here. Right?
Why are you listening to thisshow? Kind of ask yourself that
(01:21):
question kinda deep down. Youknow, why am I here? Why do I
why am I listening to a a taxpodcast that's talking about
farms? Because you really wannabring home the bacon.
Sorry. I couldn't help myself.It it had to be cheesy. And this
may this episode may becompletely packed with the
cheesiest jokes. We're not gonnatalk about where cheese comes
(01:41):
from because it's so terrible.
Chris Picciurro (01:43):
Farmer in Wisconsin there?
John Tripolsky (01:45):
We're we're going Wisconsin maybe. But in
all seriousness, this topic issuper interesting to me, and, of
course, it's interesting toChris. And what really intrigues
me more about this one too is Ithink for once out of a 120 plus
episodes, I may may know moreabout this than Chris does. So
(02:06):
without further ado, let's jumpinto it. Chris Pacquero, welcome
back to the show, sir.
How are you doing today? Don'tget cheesy on me. I'm great. And
you know what? You havesomething in common with my dad.
Couple things.
Chris Picciurro (02:20):
1, you have the same name. 2, when you say a
joke, you're the only one thatlaughs at it.
John Tripolsky (02:26):
Just like your last joke.
Chris Picciurro (02:27):
And now I did. You know what?
John Tripolsky (02:29):
I can you know, you are you forgetting, though,
that I edit these things? I mayadd, like, a a Saturday
nightlife crowd just dyinglaughing at the end of this. But
even more than both of us puttogether, though, again, in all
seriousness, we have to bringpeople on the show that know way
more than we do. So who did youhow how in the world actually
did you find somebody, and thenyou can introduce them, that
(02:51):
knows a lot about this and withtaxes. Right?
Just not the operational side ofrunning a farm.
Chris Picciurro (02:56):
Well, John, it's, you know, it's a
prestigious honor to be on theteaching tax flow podcast, and
it's very rare someone comesback for a second round. And so
we had to ask Kelly Bender tocome back. She did an amazing
job in a previous episode. Sheis a colleague of mine, does an
amazing practice inPennsylvania. And also, not only
(03:22):
you know, we always say we haveto
John Tripolsky (03:23):
eat our own cooking which could be
Chris Picciurro (03:24):
a farm reference also. Another, you
know, another 4 letter f word,farm. But she and her husband
have a farm. But she also has ahas a ton of clients with farms.
There are a lot of peoplebecause, out there, and this has
been
John Tripolsky (03:40):
a topic that we've been wanting to touch on,
so we are very honored to haveher back
Chris Picciurro (03:44):
on the show. Kelly, welcome back.
Kelly Bender (03:49):
Thanks, guys. I'm I'm happy to have a little bit
of a moving conversation today.
Chris Picciurro (03:54):
Oh, I like it. I like it.
John Tripolsky (03:56):
It's always good when somebody else brings the
jokes, Chris. It's not just me.See, maybe the problem's you on
this. Maybe you just don't thinkthey're funny.
Kelly Bender (04:04):
But do they qualify as bad dad jokes if I
make them? You know?
John Tripolsky (04:07):
No. No. They just add credibility to this.
But and, Kelly, this is supercool. Right?
Then and I would say if I had Iin all transparency, I had no
idea that you even knew aboutthis. Let alone, you know I
mean, obviously, farming is abusiness. And with any business
comes tax obligations, right,and requirements, etcetera. So
(04:33):
and this is great because we canjust kinda shove Chris to the
side a little bit. Right?
Like, he didn't even need to behere. We can exit him off of
this. But, like, where where dowe even start this conversation?
I don't even know. Like, open upthe fences for us here.
Open up the
Chris Picciurro (04:45):
Yeah. What
John Tripolsky (04:45):
are the candidates? I
Kelly Bender (04:46):
mean Yeah.
Chris Picciurro (04:47):
What qualifies?
Kelly Bender (04:50):
You guys are really trying hard with these
with these jokes, so I love it.
Chris Picciurro (04:54):
We're scraping
John Tripolsky (04:54):
the bottom of the pen.
Kelly Bender (04:56):
That's it. Well, you know, sometimes you're gonna
scrape a little shit. So
John Tripolsky (05:01):
Exactly. It's true. It's true.
Kelly Bender (05:04):
So, yeah, I I am, weirdly I'm I'm a you know, my
husband's nickname is actuallyOnion. He's a man of many
layers, and so interestinglyenough, we have a couple layers
in that, yeah, we, you know, runthis, practice, and then, also,
we live on a farm, and we raise,all of our own meat. So we sort
(05:28):
of happened into the farmingcommunity, and then as we need
to, I had to learn all thethings about it. So, yeah,
that's how we ended up here. Andwhat the heck is a farm?
To just, like, break it down,Everybody kind of fits it into
whatever that box is. They say,okay. You grow something, and a
lot of people traditionallythink of farms as, you know, we
(05:50):
grow crops. Right? We grow hayand wheat, and you see the big
tractors on the sides and andbig farmland.
But in reality, a lot of peoplein the age of maybe homesteading
and even during COVID, a lot ofpeople wanted to be, like, you
know, kind of backyardgardeners, may have started
farms because a lot of peoplecan have sort of backyard or
(06:11):
urban farms, and those areactually really popular now. So
it's an increasingly populartopic to sort of talk about, and
the the word is broad. Sofarming basically is like having
a farm is growing some level ofpro of of a product that is not
this is like the caveat. That'snot then sort of manipulated for
(06:37):
final consumption. So apples,farm.
Apple pie, schedule c. That'sour big difference. Right? So,
we're growing let like, rawproduct of some kind. One weird
little exception is honey,because honey is like a product
and it's the final product, soit's like the same thing.
(07:00):
But, yeah, that's a farm. So youare growing some level of
product. We could be talkinganimals. We could be talking
flowers, herbs, fruit,obviously, crops. That's like
the big thing people think of.
Eggs. All of that would beconsidered a farm. Nice.
John Tripolsky (07:23):
And it is wild too, Kelly. Like, I've been you
know, being from Michigan andmoving back, so I live in a
small downtown but of a veryrural area. And I think it
shocks a lot of people how muchyou truly have to invest to have
a successful farm, let alone theequipment is you know, makes a
Lamborghini look cheap when itcomes to that. So it's, and I'm
(07:45):
not kidding. If anybody reallywants to look that up, if you're
not familiar with it, go try tobuy a combine and see how much
those are.
Kelly Bender (07:53):
Yeah. Big, big, big costs in in equipment.
Chris Picciurro (07:57):
We're yeah. Definitely, we wanna talk about
some special rules for farmers.You mentioned schedule c for and
so farmers in general, they'regonna file a schedule f, I
believe. And but do are somefarms? I know this sounds like
they're like, partnerships or scorps or c corps also?
Kelly Bender (08:18):
Yeah. The larger ones frequently are. Family
farms are a lot of times, youknow, partnerships in some way
because there might be multiplegenerations that may own it, and
so we do see a lot ofpartnerships in farms. And they
have schedule f's, and then, ityou know, you create that, and
it transfers through to theindividuals. So, yes, basically,
(08:40):
all the farming activities gettheir own little caveat because
of the schedule because there'ssome unique rules that sort of
break, all of the otheraccounting rules and tax rules
that we've come to know and lovebecause of the unique nature of
farming and anybody that spentany amount of time doing any
(09:02):
level of farming.
You mentioned expensive, but theother thing, which is just
farming we say farming is ananalogy to everything. Farming
takes a ton of time. And so it'snot unusual for farmers to, of
course, plant seeds in theground and then wait and wait a
long time, sometimes over yearsto, you know, generate. I mean,
(09:25):
the average fruit tree takes,like, 3 to 5 years to,
Chris Picciurro (09:29):
you
Kelly Bender (09:29):
know, bear fruit. So you have a lot of time
involved, heavy investments onthe beginning, time involved,
and so you get some specialrules because of that.
Chris Picciurro (09:38):
So let's talk about some of the rules. Let's
assume someone is filing on aschedule f. So it's a it's a
either a married couple or oneof the you know, someone could
be single. Let's start talkingabout, do they what's their
accounting method like? I mean,most people are what are called
cash basis taxpayers.
(09:58):
Can you talk a little bit aboutaccounting method? And I know
there are some special ruleswith income recognition.
Kelly Bender (10:05):
Yeah. So the unique thing about farms is
they're just definitelydefinitely generally cash basis
taxpayers. However, what happensa lot of times is you may have,
like, production of a, productthat you don't take possession
of the payment for for a periodof time because, again, with
(10:26):
farming, there's always some bigtime gaps. So with farming, you
really don't have to recognizethat income until you take
possession of it, even ifperhaps the crop was produced at
an earlier time, which is alittle bit different than income
recognitions that we normallylook at, for, you know, other
businesses. And then, you know,the other thing that comes into
(10:47):
play with income and timing andexpenses and revenue
recognitions is that when youhave, say, like fertilizer,
which is a common right, I mayput fertilizer in the ground,
but then I don't recognize thebenefit of that for, say, 2
years.
I can actually take the expensefor when I put it on the on the
production of the, you know, ofthe ground, even though I may
(11:11):
not take the income thing for 2more years. And so you can sort
of disconnect, which is just oneof those concepts that when
we're in, you know, normalbusiness world, we, of course,
kind of have to match thosethings together. And farming,
you don't because, again,there's this big time issue.
Chris Picciurro (11:29):
Now in in how about income? I I you know, a
lot of people have thrown aroundthe term that you can you can
income average. Obviously,farming is very dependent on
factors beyond our control,weather being one of them,
probably the biggest one. But,yeah, what, is there income
averaging available to farmers?
Kelly Bender (11:50):
Yeah. There is. Right? This is, like, a super
cool thing because we've neverreally get to do that with
normal businesses. So becausesometimes, yeah, weather plays a
factor, you know, droughts andfloods, and who knows?
Like, all the different thingsthat happen with farming, or
maybe just longevity, you canincome average over over
(12:12):
multiple years, 3 years usuallyhere. And so if you have, like,
a spike year, you can sort of goback and look and see, hey. If I
was in a 12% bracket for years12, and then in year 3, I bumped
up into 22%, I can go back andgrab the rest of that, 12%
bracket and, you know, kind ofaverage out the tax burden to
(12:38):
because because, again, it'ssort of like maybe was a timing
issue and you
Chris Picciurro (12:41):
Right. Had
Kelly Bender (12:42):
you know, it's just it's just really
disconnected. Now it's, ofcourse, exact much more complex
topic than that, but nobodywants to fall asleep on this.
But, yeah, the big thing is youcan income average with farms,
which is huge.
Chris Picciurro (12:55):
Let me ask this. Then if let's assume you
make an income averaging elect Iassume it's some type of
election. Do you have do you goback and amend your previous
returns, or do you take a lookat the AGIs on those years and
just kinda calculate? And almostlike in that situation where
someone gets a lump sum socialsecure social security amount
and you can look back atprevious years. So can someone
(13:16):
can ultimately look back in inin their last couple years and
and in other words, thatadjustment's made on the
John Tripolsky (13:25):
current year return. You don't have to go
back
Chris Picciurro (13:26):
and amend returns. That's that's
Kelly Bender (13:28):
correct. Yes. That's exactly correct. Yeah. So
we're not, like, going back andamending priors.
We're fixing that all year thisyear.
Chris Picciurro (13:34):
Oh, wow. Mhmm. Yeah. I mean, there's a lot of
planning opportunity there then,obviously.
Kelly Bender (13:38):
It can. Yeah. So couple things have to come into
play. You kinda have to, you youdo have to, you know, fall into
some certain categories. So mostof the time, this applies to
people who we qualify as, youknow, sort of true
John Tripolsky (13:53):
I I
Kelly Bender (13:53):
don't know if it's a technical term, but qualifying
farmers. And that generallymeans these are individuals who
greater than 2 thirds of theirincome is actually derived from
farming activities. And so itdoes prevent, you know, sort of
the hobby farmers, which do getsome of the benefits. But if,
you know, say, I have acorporate job and then I just
happen to have a little hobbyfarm, I'm probably not gonna be
(14:15):
able to take, advantage of that.So you do have to kinda meet
some standards to get that
Chris Picciurro (14:19):
qualification. Gotcha. And then, you know,
how's and is inventory handleddifferently than maybe, like, a
retail business at all, or is itsimilar?
Kelly Bender (14:30):
So, you know, inventory in a farm is a little
weird. Right? Like, I don'tknow. You don't you don't really
have to do it. Now as I alwayssay, just because you don't have
to do something, maybe doesn'tmean you shouldn't.
But you don't have to trackinventory. You can really go on
this real true sort of basiccash basis situation when you're
(14:51):
looking at farming for for mostaverage farms. And so you're not
really having to, like, track inor inventories. You don't have
to keep track of what's, youknow, sort of sitting on your
shelf. Essentially, if you buyit, it's an expense.
If you sell it, it's incomewhenever that is.
John Tripolsky (15:06):
They must have realized that if they did really
keep track of it, yourinventory, if you're in
livestock, could potentiallyjust get up and walk out of walk
out of dodge, then you got ashrinkage problem, I guess.
Right? Like, then well, anyways,I I I I couldn't help myself. I
I had to
Chris Picciurro (15:23):
I mean, what if you what if you are I mean, in
Michigan, it's well known forapple production. I know
Washington's probably number 1.But, you know, what happens if
you have a great crop of apples?But by January, it could be you
I mean, there's a lot ofspoilage. Right?
There's a lot of there's a lotof those type things and, but I
guess inventory, I get itdepends on, I guess, what you're
(15:45):
farming. You know, what theuseful life of the of the
product is. So Right.
Kelly Bender (15:49):
So for that reason, we just kinda throw it
all out the door with farming.
Chris Picciurro (15:53):
Yeah. No. That's that's that's good.
That's real I mean, it makes itmakes life a little easier. And
I'm sure with farmers, there aresome special rules with, you
know, home office deduction, andalso deductions associated with,
you know, with with their land.
Right? I mean, if if you've gotI imagine there's a there could
(16:16):
be a primary home on a propertyand then acres of of farmland.
That's gotta you know, what whatkinda because because you really
don't have that, you know, thethe home office of the 8829. I
don't know. I shouldn't try tomemorize this.
Typically, if you have a homeoffice deduction in your
schedule c filer, that just getsattached to your to your return.
(16:38):
But if you're a farmer, you'vegotta kinda figure out figure
that out. What are some tips youcan give someone?
Kelly Bender (16:44):
Yeah. You know, so the cool thing is if you're a
farmer, you can still take thehome office deduction, and I
always encourage them to dothat. So it's there. It's still
available as a home op you canstill take the home office, and
a lot of farmers really do havevery legitimate home offices.
Sometimes they, you know, havepeople come right to the house
(17:06):
to buy the products.
They might have a farm stand onthe corner of the property,
things like that. So theydefinitely have a lot of
legitimacy for home office. Itdoesn't, you get the deduction,
but usually, it's gonna be, Ithink, in, like, an other
expense section, and then youjust say kind of add it add a
statement for see statement forhome office. But, yes, you do
(17:27):
get a home office deduction fora farm, so that's kinda cool.
Mentioning you kinda mentioned,like, we were talking about
inventories and livestock.
So there's some unique rules forlivestock loss as well because
if you think about it, there's acouple different ways that you
can look at what happens. Sothere's, like, different there's
this whole and same thing. Idon't have all these memorized,
(17:48):
but, like, there's all theserules for, you know, whether the
animal was, like, born on farmor whether you brought it in,
but then what happens if itdies? And, you know, so, again,
you have to think about all ofthose things. And so that it
just, you know, kind of adds up,and believe it or not, there's a
lot of keeping track.
Like, my husband does all thecalculations for everything. He
(18:10):
now, of course, he's anaccountant, so he does think
like 1. But, I mean, he hasspreadsheets for, like, every,
you know, date that an animal isborn, and so then we, you know,
have it tracked and numbers sothat you kind of know how many
you should have. And then ifsomebody dies and because it's
like, unfortunately, that's justwhat way of life in farming is
that, not everybody makes it.And so, yeah, like, the all of
(18:32):
these different things, you dohave to kinda keep track of that
in order to make sure that youget all the deductions.
Chris Picciurro (18:37):
That's a great so, Mike, yeah, here's here's a
so as far as livestock. Right?It it's obviously, if it's born
on your property, that's onething. But if you were to
acquire it, are there rules forthe appreciation, you know, any
special considerations for thattoo?
Kelly Bender (18:55):
Yeah. There are. So right? Because, like, you're
right. If it's born on yourfarm, there's no there's no cost
basis in it.
You're like, you got a freebie.Right?
Chris Picciurro (19:02):
Yep.
Kelly Bender (19:03):
But yeah. So it's whether or not you can write it
off, like, when you if youbrought him in Lynn, whether
you're gonna hold it then forproduction, and things like
that, or whether, you know, itwas born on farm. It doesn't
have any cost basis, and thosekinds of things. So, yeah, it's
it's definitely, right, unique,super unique because it's not
like you're just you know, youhave to think about everything a
(19:24):
little bit a little bitdifferently.
Chris Picciurro (19:26):
Right. So if you're if you bring in a cow, I
mean, that's a fixed asset. Imean, this might sound like a
really stupid question. So so,you know, if you bring in a do,
like, do the do the do the deminimis safe harbor rules apply
to to I wonder I wonder if theydo. So think about but no a cow
(19:47):
is gonna be more than $25100, Iassume.
Kelly Bender (19:50):
Yeah.
Chris Picciurro (19:52):
I'm trying to think.
John Tripolsky (19:53):
It's a
Kelly Bender (19:54):
good question. Crap. Chris, you stumped me. I
don't know if it fall I don't
Chris Picciurro (20:01):
No. Okay. I it's a
John Tripolsky (20:03):
I can't even think of a joke around this one.
I was trying
Kelly Bender (20:05):
to think of some I don't know.
Chris Picciurro (20:07):
Don't have a cow over it. No. I mean, I'm
just thinking, so you've got youbring in these in livestock. If
they're for production, they'redepreciable, but that also gives
farmers a lot of opportunity topotentially use bonus
depreciation, elect out a bonusdepreciation. There's a lot of
and when we think about, youknow, about our practices in
high end having a real estate,but the tax cuts and jobs act,
(20:30):
it's really gonna affectfarmers' bonus depreciation.
Kelly Bender (20:33):
Yeah. So one one big thing outside of animals,
but the biggest reason forfarmers that has, like, a bunch,
you know, of kind of realbenefits for a lot of people is
really in and, John, youmentioned earlier. This
equipment is monstrouslyexpensive. And so and, you know,
a tractor or even a base leveltractor, every stinking
(20:54):
implement, you gotta add add onthe back on the, you know,
hitches, and everything has apretty big cost because it has
to be usually much heavier dutyand all of that. So depreciation
is a really big factor forfarmers, and, of course, we can
utilize all the traditionalthings.
So we can utilize, you know, 179or bonus, but there's a unique
(21:16):
situation, and I wanna make sureI say it right. So if you have
the if you've got yeah. So whenyou have business use of a farm
vehicle, okay, so it's likeanother unique one. So, you
know, when we talk about cars,we're always like documentation,
documentation. You have to haveit.
(21:39):
Farmers can deduct 75% of theirfarm vehicle expenses as
qualified business expenseswithout business record
substantiation.
Chris Picciurro (21:49):
Nice.
Kelly Bender (21:50):
I know.
Chris Picciurro (21:51):
I have a question. You've that that's a
good no. That's a really nicebenefit.
Kelly Bender (21:56):
Mhmm.
Chris Picciurro (21:57):
Wow. And then and, you know, it's interesting
though because you're thinkingof schedule c, schedule f. Well,
the advantage of schedule f issomething like that and some of
the unique rules, right, thatthat you're getting on a
schedule f instead of a schedulec. And now our farmers in
general I mean, most I haven'tseen too many schedule offs, and
(22:20):
I haven't seen too many scheduleoffs with a net profit. So let's
put it that way.
But let's say and they could bemaking money, but they just have
deduction. I mean, they haveequipment. They have livestock.
Is that something to selfemployment tax, like, if you're
if you're activelyparticipating?
Kelly Bender (22:35):
It generally is. But one of the other cool things
about farmers is that if you're,where I said that qualifying
farmer. Right? So if you have 2thirds of your income generated
from farming activities, thenyou can actually take advantage
of a super unique estimated taxsituation that is going to allow
(22:57):
you to not have to make all ofyour estimated taxes. So, you
know, everybody is selfemployed.
We all have to make 4 a year,and, you know, we love that,
right, 4 times a year. You get aspecial rule with, if 2 thirds
of your income is coming fromfarming, you can make 1.
Chris Picciurro (23:15):
Oh, that's nice.
Kelly Bender (23:16):
So that's kinda cool. And it's either 15 days
after the close of the year foran estimate or all of the tax
by, I wanna say I wanna say it'sMarch 1st Mhmm. For the whole
year prior. Wow. So it's sort ofa helpful thing also for going
(23:36):
back to where you know, farmingrequires a lot of cash, and
there's a frequently really bigtime lags between production and
realizing the income and thingslike that.
So this is just another way thathelps, like, smooth the
situation where instead ofhaving to, like, part with 4
payments a year where you mightonly be producing a crop that
(23:57):
harvests once a year, you canjust figure it out and pay your
task once Right. If you qualifyas a in that in that role. So
that's kinda cool.
Chris Picciurro (24:05):
Wow. Now do the typical hobby loss rules apply
to farming? Or because, youknow, because it seems like
there's so much time goes intofarming and it seems like losses
you know, it's very common for afarmer to have a loss even if
it's making money due to thecapital the the intense cash
intensive nature of it.
Kelly Bender (24:28):
Yeah. So, I mean, it kinda falls into production.
You know, if you're endeavoringin a business producing
situation, you know, you'regoing after income, then even
though you might have losses,you're not gonna get hung up,
yeah, in, like, in losssituations out there. So that is
super common to see. You know,you have to be actively trying
(24:48):
to produce income, which, again,with farming activities, you're
usually looking at this over along term.
So I, you know, I mentionedfruit trees. Mhmm. Tree tree
farming is gonna take a longtime to produce a crop. Right?
Just because the nature oftrees, you know, like, they
don't grow overnight.
So
Chris Picciurro (25:08):
Right.
Kelly Bender (25:09):
You're not gonna run into those same situations
because you are doing somethingin that pursuit, and you may
just not be able to harvest fora very long period time.
Chris Picciurro (25:17):
Right. It could be years years that you're
putting into the into that, andit's just gonna take a and it's
that's it could be there's noguarantees.
Kelly Bender (25:27):
Yeah. So I mean, the average cow for us, because
we raise grass fed, is two and ahalf years to slaughter.
Chris Picciurro (25:33):
Wow. So then for you guys like, in your farm,
you are producing a cow, andthen are you selling the meat,
obviously? Are you selling,like, whole cows, half cows to
families and and that sort of
Kelly Bender (25:45):
stuff? Yeah. So we sell like, we raise cows and
pigs and chickens and eggs and,yeah, then we have some other,
like, smaller stuff, but, someflowers, herbs, things like
that. So, yeah, like, aninstance of a cow, we would sell
either, like, a half cow to afamily, or we take it to a
(26:06):
processor that will, cut it intosmaller cuts, and then we
actually sell it to, like, anonline farmers or we do through
to customers through an onlinefarmers market.
Chris Picciurro (26:16):
Wow. Well, that's cool.
Kelly Bender (26:19):
Yeah. Buy the cut, but that's real specific. So in
our state, like, you have totake it. You can't produce the
or you can't, kill the animal onfarm. You have to take it to, a
USDA, like, observed facilityand have it packaged and, like,
it has to fall into certainkinda weird rules.
But, yeah,
John Tripolsky (26:40):
that depends. You'll you'll have to give us
any links too where you guyssell product at. We'll put it in
the show notes if you guys ship.
Kelly Bender (26:47):
Yeah. So you put it, you know, online. But, yeah,
there's so there's, like, athere's just a lot when you
think about it that's withthat's super different about
farms and, know, but it's funbecause a lot of people who are
doing farming are usually notdoing it for the money. They
enjoy the, freedom and, youknow, adventure of, figuring out
where the food came from. And,it's hard work, but it's very
(27:11):
rewarding.
Chris Picciurro (27:12):
Final question, I promise. So so, obviously, we
talked about schedule f, some ofthe unique income recognition
rules and expenses and estimatedtax payments. Are there any
other tax benefits that aren'tincome tax related that farmers
might enjoy? For instance, isthere is there typically, are
you gonna see lower propertytaxes or capped property taxes,
(27:35):
agricultural, exemption fromsales tax, or any other things
that you've seen that, farmersenjoy a benefit of?
Kelly Bender (27:44):
Sometimes. Yeah. Depending on the localities, you
definitely can have some, youknow, kind of homestead or
farmstead exclusions on their,you know, on their property
taxes. Depending on certainstates, they're gonna be
obviously more favorable to eventhe tax structures in state tax
law, depending on whetherthey're trying to incentivize
(28:05):
farmers. There's the farmingworld runs into there's actually
a lot of things with, like,grants and tax credits, like, at
the state level.
So, like, our state, forinstance, has, like, a beginning
farmer credit that incentivizesthe selling farmer, selling to a
new beginning farmer andincentivizes them by reducing
(28:28):
the tax that they pay on thatsale by selling it to a
beginning farmer. So
Chris Picciurro (28:34):
Oh, nice.
Kelly Bender (28:34):
You know, there's some, like, unique you have to,
like you know, and there'sprograms you can apply to, but
there's a lot of programs. Iwill say the most daunting part
that we've encountered from afarm perspective is that there's
so much that it's like, it couldbe a full time job learning it.
So, you know, local USDA, like,resource centers, they're
(28:55):
they're in every community, area great place to start. Like, we
that's where we kinda went andjust started asking a bunch of
questions because we were like,what do we not know?
Chris Picciurro (29:04):
Right. Right. And and I know there's right.
From what I recall is is in mylimited CPE in learning about
farming is that there's alsosome subsidies available.
Because a farmer, a lot oftimes, they they have to rotate
crops along their line, or theywould have to, like, let a
certain piece of their propertyrest, for lack of better term,
and not farm on it.
(29:24):
And there are some subsidiesavailable for that as well. So
Kelly Bender (29:30):
Mhmm. And then there's, like, things like crop
insurance
Chris Picciurro (29:33):
Oh.
Kelly Bender (29:33):
Which is, like, a real unique thing. And so you
have crop insurance. So you alot of farmers who do a lot of
crops, they'll take cropinsurance out, and then they
they get paid, though, cropinsurance, but that's another
one. It's actually a tax like,if you received it, then it's a
taxable income.
John Tripolsky (29:49):
Right.
Kelly Bender (29:50):
Wow.
John Tripolsky (29:51):
So, you
Kelly Bender (29:51):
know, it's it's like there's a lot of different,
moving parts that happen withthe farms.
John Tripolsky (29:58):
Wow. Well well, Chris, how do you feel about
this? Do you feel like you got alike, you went back to school
Chris Picciurro (30:04):
today? Absolutely.
John Tripolsky (30:06):
I feel good.
Kelly Bender (30:07):
Are you moving to a farm?
Chris Picciurro (30:09):
No. No. I would it would be an urban farm. No.
But, you know, I I have I'm I'mvery intrigued by it.
I do have a friend that owns afarm, and he he had a barn on
it. And he ended up building aindoor pickleball court on the
in the in the barn. So
Kelly Bender (30:28):
Oh, good grief.
Chris Picciurro (30:30):
That farm I visit a a decent amount of
times.
John Tripolsky (30:33):
He always finds a way to bring pickleball into
this.
Kelly Bender (30:35):
I was just gonna say that, John, only because I
know him. I'm like, I can'tbelieve that you just took a
farm, a podcast about farmingand found a way to bring in
pickleball.
Chris Picciurro (30:46):
You know what? Shock you. It had to happen.
But, no, this has been amazing.And and if you, you know, if
you're a if you are a farmer andhave questions about your tax
return or any, I woulddefinitely reach out to Kelly.
I know that I've I've meant tosay this in the beginning.
Congratulations to you and yourteam. You just opened up a brand
new office, and can you tell usa little bit about that? And and
(31:12):
I'm sure I know you guys are allexcited.
Kelly Bender (31:14):
Yeah. I mean, it's pretty cool. We did. We about a
year ago, we've been outgrowingour space for a couple years.
About a year ago, we found anamazing, old church that is
literally about a quarter milefrom our old, from our old, very
traditional accounting officeoffice location.
And so I saw a real cool vision,when I walked into it, and we
(31:37):
just had a big grand opening. Werenovated the whole thing,
turned into this crazy, unique,open air office space with
original stained glass windowsthat are a 100 years old and
original pinewood floors andjust, like, a super cool cool
vibe, and we kicked off with ourgrand opening, like, literally
just last night. So, yeah, just,jokingly like the church of
(32:00):
money. So
John Tripolsky (32:02):
Oh, I was gonna call it
Chris Picciurro (32:03):
the holy grail attacks, but I I like the I like
your your name for it.
John Tripolsky (32:10):
And so here here's a question for you before
we completely wrap this up, andI'll pose it to either one of
you. Right? Let's see if youknow the answer to this one. So
how do dairy farmers do theirtaxes? Any ideas?
It's not a serious question, bythe way. There's a discla Who do
(32:30):
they go to?
Kelly Bender (32:34):
There's a pun somewhere in here, and I don't
Chris Picciurro (32:36):
know what they say. Dairy ball, it's gotta be
either somewhat they they theysomething about counting their
cheese. I don't know. Or theircheddar.
Kelly Bender (32:42):
Get out of them.
Chris Picciurro (32:43):
Or they yeah. They milk out as many deductions
as possible.
John Tripolsky (32:46):
You know what? That's actually better than the
one so I was gonna say theyliterally just go to an account
tint. Right? But I like themilking out the deductions. Yep.
What? See?
Chris Picciurro (32:59):
Counting their cheddar, baby.
John Tripolsky (33:00):
It's time to time to retire. It's time to go
into improv, buddy. Let's do it.But, anyways, well, Kelly, we
will release you from this, penof torture probably for for
joining us. Oh, yeah.
The slaughterhouse on here.
Chris Picciurro (33:16):
Podcast here.
John Tripolsky (33:16):
There you go. And, Chris, I think we've yeah.
I think we may have literallyjust, like, pun intended. Kinda
slaughtered our chances ofhaving her back for a third
time. So, you know, we'll, we'lljust take advantage of this
while we can.
But, honestly, Kelly, thank youthank you for joining us on
this, but thanks for having somefun with us too. This was
awesome.
Kelly Bender (33:34):
We didn't drop nearly as many f bombs as I
thought we would.
John Tripolsky (33:37):
No. You know what? I'll I'll go through the
transcript. I bet you I can finda lot of them hidden in there.
But this this was really cool.
It was, honestly, it was it wasgreat to, you know, all comedy
aside, to really dive into thisand see. Because it is really,
at the end of the day, right, itis a business, and it's one that
you know, unless you're in it,you probably don't know exactly
all that goes into it. And Ialmost guarantee that some
(33:59):
people that I'm thinking of, notnecessarily in the town that I
live in, but they do have farms,and they probably don't even
know all this. So, you know,maybe they don't take advantage
of all this stuff. So we weappreciate the insight.
Kelly Bender (34:11):
Thanks, guys. It was fun.
John Tripolsky (34:13):
Alrighty. Well, go go enjoy the new church slash
office that you have there. Andfor anybody that's listening or
watching this, we are going toembark on a 3 part series
starting next week. I won't tellyou everything about it, but
we're calling it our ACE series.So ACE, it's an acronym for
something somewhat, but you'llfind out pretty soon.
Chris Picciurro (34:32):
So as
John Tripolsky (34:33):
we always close out with, we'll see everybody
back here again next week,roughly different time,
completely different topic onthe Teaching Tax Flow podcast.
Disclaimer (34:43):
The content provided is for educational purposes
only. We encourage you to seekpersonalized investment advice
from your financialprofessional. For all tax and
legal advice, please consultyour CPA or attorney. Investment
advisory services are offeredthrough cabin advisors, a
registered investment advisor.Securities are offered through
cabin securities, a registeredbroker dealer.
The content of this podcast doesnot constitute an offer of
(35:03):
securities. Offerings can onlybe made through an offering
memorandum, and you shouldcarefully examine the risk
factors and other informationcontained in the memorandum.
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