November Educational Activities. Don Nitchie Tonya Knorr Garen Paulson. Inside this newsletter:

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1 Don Nitchie Tonya Knorr Garen Paulson November 2016 Inside this newsletter: Educational Activities Supplemental Data Worksheet W-2 and 1099 Filing Deadline Changes for 2016 Tax Year 2016 Tax Return Due Dates for Partnerships, S Corporations and C Corporations Educational Activities U of M workshop opportunities on Fair Farmland Rental: December 9:30 a.m. in Pipestone December 1:30 p.m. in Mankato December 9:30 a.m. in Worthington Farm Transition and Estate Planning: Jan. 19, 2017 in Worthington. Registration information will be mailed in December. SWROC Winter Crops & Soils Day: Monday, January 30 in Fairmont Tuesday, January 31 in Luverne Wednesday, February 1 in Lamberton Thursday, February 2 in Montevideo & Olivia SW Farm Profitability Conference and SWMFBMA Annual Meeting March 22, 2017 at U of M SW Research and Outreach Center in Lamberton Social Security Wage Base November App of the Month How much grain do you have sold? Income Tax Management Considerations in Low Income Years Nitrogen Smart is a training program for producers that presents fundamentals for maximizing economic return on nitrogen investments while minimizing nitrogen losses. The workshops will deliver high-quality, research-based education so producers can learn: Sources of nitrogen (N) for crops How nitrogen is lost from soil and how you can reduce losses How to manage nitrogen in drainage systems What the new Nutrient Reduction Strategy and Nitrogen Fertilizer Management Plan mean for Minnesota producers Practices to refine nitrogen management, including split applications, alternative N fertilizers, soil and tissue testing and N models The Nitrogen Smart trainings are presented by University of Minnesota Extension, funded by Minnesota Corn Growers, and hosted by the Minnesota Agriculture Water Resource Center at several locations throughout Minnesota. 1

2 Pre-registration is not required and there is no registration fee: Slayton, MN Monday, Dec. 12, 1:00 4:00 p.m. 4-H Building, Murray County Fairgrounds 3048 S. Broadway Avenue New Ulm, MN Wednesday, Dec. 14, 9:00 a.m. 12:00 p.m. Best Western 2101 S. Broadway Hutchinson, MN Monday, Dec. 19, 1:00 4:00 p.m. McLeod County Extension Office 840 Century Avenue SW Faribault, MN Thursday, Dec. 22, 9:00 a.m. 12:00 p.m. Rice County 4-H Building 1900 Fairgrounds Drive Supplemental data worksheet Every year you are encouraged to fill out a supplemental data worksheet for the analysis session. These worksheets are designed to help you gather the data we need to help complete an accurate analysis and balance sheet. Over the years, we have found that people who take the time to fill out these worksheets are able to complete the analysis session much quicker and far more accurately than members who do not fill out these worksheets. A little preparation time goes a long way! In the last couple of years, we have begun sending these worksheets out to members in an Excel version that enables you to fill them out on your home computer or smartphone and print them out. Many members have reported liking this method. A print version of the worksheet is easier to read than a hand written one as well! You will find the different pages of the worksheet listed at the bottom of the Excel file. Simply click on the page you need and fill out your information. The totals will calculate using the formulas built into the Excel file. If you have any questions while doing this, please call Garen or any staff member. With the use of the Excel app on your smartphone, you can fill out these forms when you are down by the barn, at the grain bins, or anywhere at any time. If you want to receive the electronic version, please contact Gretchen at gthillen@umn.edu. She will send you a copy of the worksheets. W-2 and 1099 Filing Deadline Changes for 2016 Tax Year New DEADLINE for 2016 tax year reported in The deadlines for filing Form W-2 with the Social Security Administration and Form 1099-Misc with Internal Revenue Service are changing for the 2016 tax filing year. Starting in 2017 for the 2016 reporting year, both the W-2 and 1099-MISC recipient copies need to be submitted by January 31, which is the same as in the past, but the change is WHEN we need to submit them to the respective authorities. This is months earlier than previous years and promises to increase both the workload for you and for us. Historically, filers have been required to provide both W-2 and 1099-MiSC forms to their recipients by January 31, which again is the same for the upcoming year. However, in the past you were not required to submit the forms to the Social Security Administration or the IRS until February 28th for paper forms or March 31, for e-filing. Now with the new law everything has the January 31st deadline. With three months of work being condensed into 30 days, this will add additional stress to the January 31st due date. 2

3 Before the deadline change, you were able to file W-2 and 1099-MISC recipient copies first and then wait to learn if any changes are needed before filing with the Social Security Administration or the IRS, which reduced the risk for possible corrections. Unfortunately, with the earlier deadline this year, we will not have this additional time allotment. Consequently, it is extremely important to have information to us by the due date we specify. It would also be very helpful for you to start verifying names, addresses, amounts, and social security numbers now so we have accurate information, as you will not have the extra time for verification. Thank you in advance for your cooperation in completing the forms in a timely, efficient and correct manner. If something is wrong, we can file an amendment, but let s try to reduce this wasted time and additional cost to both you and SWFBMA. Information cited from accountingtoday.com September 23, Tax Return Due Dates for Partnerships, S Corporations and C Corporations In 2017, additional filing due date changes affect our business entity filers. This will add additional time constraints to the February and March filing deadlines. In preparation for making it a smooth tax year, we are letting you know up front the changes to the Partnership and C Corporation filing deadlines. Please note the S Corporation tax returns are staying the same. C Corporation Tax Returns: Effective with the 2016 tax year (filing in 2017), there are new deadlines for filing corporate tax returns on Form 1120, depending on the corporation's fiscal (tax) year. If fiscal year-end is December 31, the new deadline is April 17, This is a month later than previous years. Fiscal year end is other than December 31, it is the 15th day of the 4th month after year end. Subchapter S Corporation: (Stay the same as previous years which is March 15, 2017 for a 2016 December 31 tax year end.) Thank you in advance for your cooperation Social Security Wage Base In 2016 there is no hike in the Social Security wage base maximum it remains at $118,500. And the Social Security tax rate on employers and employees stays at 6.2%. Medicare is at 1.45% and employers and employees each pay this percentage with no maximum wage. However, employees also pay an additional 0.9% Medicare surtax on wages that exceed $200,000 for singles and $250,000 for married couples. This additional 0.9% surtax does not hit employers, however selfemployed are also subject to the 0.9% surtax on earnings above the thresholds. Partnership Tax Returns: Effective with the 2016 tax year (filing in 2017), partnership tax returns, filed on Form 1065, must be filed by the 15th day of the third month after the tax year end date. For most partnership returns, that's March 15. (The previous due date was April 15). This is a whole month earlier. 3

4 There s an App for That! This month s app is Excel. This is the same Excel program many of us use daily on our home computers; the only difference is that this version is enabled for your smart phone. If you keep your Excel data on cloud type storage like OneDrive, you can access your files anywhere you have cell/internet access. Download Excel for free in the App Store. If you have an app you find helpful, please let me know. Maybe your app can be the App of the Month. How much grain to you have sold? A very common recommendation is to sell grain in many small increments. While this is wise advice, one needs to keep a record of sales to help decide how much to sell. I use an Excel spreadsheet to help me keep track of where I am in the grain sales process. At the top of page, I list the amount of grain I have to sell. Then, as I make sales, I record the bushels, price, and when to make the delivery. The spreadsheet subtracts each sale from the total and calculates how much I have left to sell. This way, I can easily see where I am with my grain sales. Each week I update a value for the unsold bushels and the spreadsheet calculates an average selling price if I were to sell out that day. I find this very helpful as I try to sell each crop. I keep two spreadsheets active simultaneously, one for new and old crop, until the crop is completely sold. I generally start a new spreadsheet on January 1 st for the crop I will plant in the spring. For instance, on January 1 st I will start the spreadsheet for the 2017 crop that I will plant in the coming spring and harvest next fall. I will start making sales this spring with a goal to finish sales by July of I also have a worksheet that I started in January of 2016 for the crop I harvested in the fall of I have made some sales this year with a goal of finishing sales by July of Making many small sales throughout the marketing year has helped me pull the marketing trigger. Keeping track of these sales is vital to help me know where I stand. Income Tax Management Considerations in Low Income Years By Don Nitchie 2016 is likely to be another year where some individuals will experience low or negative Schedule F Net income. This situation may present some opportunities as well as some infrequent decisions that could impact subsequent years and for which you should be prepared. This could be a year where you are able to reduce the amount of pre-paid expenses you had been paying during higher price years. It is true that there was really only an advantage the first year you did this. Granted, suppliers often offer discounts for purchasing next year s needs before January 1, but it is important to track prices available in the spring if purchased on an as needed basis to verify if there really was an advantage. Reducing prepaids could also reduce the need for end-of-year borrowing for prepaid expenses - if that would be desirable for you. Should you take more income this year? This may be a consideration if your net cash income appears to be substantially lower than the last several years and you have grain, milk, crop insurance income or other income you have usually been selling through deferred payment contracts. Maybe you would have room in the lower part of tax rate table, to pull part of that income into 2016, completing its declaration as income without having it taxed at higher rates in some other year. You would need to declare an entire deferred contract on your return 4

5 and remember to not claim again next year. If you have your grain or milk split into several contracts, you may just select a few to pull forward and declare the income to be taxed. You still would not be paid by the purchaser until later as per the terms of the contract. This could also be done if you have taken out a CCC loan on 2016 grain. The loan amount could be declared as income and taxed on your 2016 tax return. When you sell the sealed grain and repay the loan, you are taxed that year only on the amount of sale above and beyond the loan repaid. Effectively, you are utilizing as much of the lower tax bracket as possible in a lower income year. What if I have a Net Operating Loss (NOL) from farming? First remember that you cannot cause a loss on your schedule F by using bonus or Sec. 179 accelerated depreciation (even if you could, it would be unwise). Your adjusted gross income (AGI) minus your standard or itemized deductions must be less than zero to have a potential NOL. To determine an NOL, non-business income and deductions must be separated from business or trade income and deductions. An NOL can only be caused by deductions (expenses) on your business exceeding income not by non-business activities. Generally, an NOL can be carried back 2 years or forward 20 years. In the SWFBMA and among many other tax practitioners, we generally advise electing to carry forward an unused NOL from a current year. For example, if you had a Net Operating Loss of $100,000 in 2016 and $45,000 of it was used in 2016 and reduced your taxable income to $0, you would have $55,000 of NOL remaining and carried forward that could be used anytime in the future up to 20 years later. Check with your field staff person or discuss these possibilities during tax planning before making decisions or making too many assumptions. Fortunately, our tax software does an excellent job of calculating these alternatives as well as tracking carry forwards. If you review the IRS forms and calculations for an NOL for example, there are numerous criteria against which calculations must be checked. There are some tax management opportunities that arise from low income years. Although, we would all still prefer more profitable years, even if it generates more taxable income. Sources; IRS Publication 225 and Thomson Reuters Quickfinder Contact Information Don Nitchie SW Research & Outreach Center th Street Phone: Fax: dnitchie@umn.edu Tonya Knorr Co Hwy 6 Phone: tonyaknorr@gmail.com Garen Paulson US Hwy 71 Jackson, MN Phone: gkpaulson90@gmail.com Gretchen Thillen SW Research & Outreach Center th Street Phone: gthillen@umn.edu 5