Edition #22

December 9, 2023

Good morning and welcome to the Braintrust Ag newsletter. How many folks felt after their email inbox didn’t notify them of last week’s edition…no worries, we’re back this morning!

A few notes to begin:

• Most of us have dreamed of one day owning our own farm… Well, here’s a unique farm employee-to-ownership opportunity available for an ambitious young person(s) to capitalize on.

  • Incredible chance for someone to be mentored and earn their spot as a farm manager and owner in Oklahoma. Click the link above ⬆ to apply.

• Considering an “Ambassador Program” where folks can earn $$ by recruiting new members. If you have any experience with something like that or would like to get involved, just reply to this email.

  • I’d like to explore the pros/cons more thoroughly

• If you have any spreadsheets, calculators, checklists, guides, or other resources to share with the group, email [email protected] and I’ll get them posted.

Alright, let’s get to the topics that will help you build a strong, sustainable agri-business.

-Clint

Here’s what we have this week:

• 💲 Farming is a Business

• 📅 Upcoming Events

• 💵 Tax Law Changes

• 🏢 Value a 6-Plex

• 👥 Farm Business Advisory Board

• and more…

THE BIG IDEA:

Farming as a Business

Not sure how, but I came across this article from Clarence Carson (1926-2003) a historian and author on economics, which he wrote in 1986. Mind you this was written 37 years ago.

I thought it was a compelling thought process on how we often view and treat farms and ranches as lifestyles vs typical businesses. His angle was that of government assistance in agriculture being more common and accepted than other sectors. I’m not presenting this summary with any political motivations, rather as a summary of how we can view ag operations through a business lens. And, to let you formulate your own opinion on these matters.

Here’s my summary of Carson’s article:

Farming, often seen as a unique sector with its own set of challenges, is fundamentally a business, just like running a gas station or any other enterprise. This perspective is essential to understand the current state of agriculture and the debates surrounding it.

The Spotlight on Farming vs. Other Businesses

Unlike the struggles of gas station operators, which have largely remained out of the public eye, farming has consistently attracted significant attention and sympathy. Historically, farming has been a focal point for government intervention, with numerous policies and programs aimed at supporting farmers through various means like loan programs, subsidies, and market regulations. This contrast highlights a peculiar situation where farming, although a business, has been treated differently from other sectors.

The Evolution of Farming

Farming has evolved significantly over the years. The nostalgic image of the small, diverse family farm has largely given way to more commercialized, specialized operations. This change challenges the notion that farming is distinct from other businesses. Like other entrepreneurs, farmers deal with risks, market fluctuations, and the need for efficient production, aiming for profit.

The Misconception of Farming as a Unique Sector

The article argues that the perception of farming as a unique sector needing special government support is based on a faulty premise. Farmers, like other business people, compete in the market. Government interventions, often aimed at manipulating prices or production, can lead to market distortions and are not necessarily beneficial in the long run.

The Real Solution for Farming

The author suggests that the solution for farming lies not in short-term government fixes but in treating it as a business. This approach involves reducing government burdens and allowing farmers to compete freely in the market. By acknowledging farming as a business and treating it accordingly, we can address the real challenges faced by farmers and help the sector thrive.

Conclusion

It's time to view farming through the lens of business principles. This approach not only aligns farming with other sectors but also opens up possibilities for more sustainable and effective solutions, grounded in economic realities rather than sentimental views of agriculture.

UPCOMING EVENTS

There’s a few things happening in the next week that I wanted to draw your attention to:

1. Our December Expert Q&A exploring Farmland Expansion

2. SOIL Gathering on the topic of: Year-End Planning. Learn and share with other members specific strategies to plan for managing your operation in 2024.

3. If you’re near Lubbock, Texas, I’m presenting (virtually) at the Red Dirt Precision Ag winter meeting. Click the image below to join us!

Become a member today for lifetime access to everything.

FEDERAL TAX LAW CHANGES

Each year the IRS publishes Publication 225, A Farmer’s Tax Guide

This guide explains how the federal tax laws apply to farming and can be used to help figure your taxes and complete your farm tax return.

Here’s a summary of the changes seen in 2023 and the upcoming changes for 2024:

For Tax Year 2023

1. Standard Mileage Rate: The business standard mileage rate has increased to 65.5 cents per business mile.

2. Section 179 Expense Deduction: The maximum deduction for most section 179 property is $1,160,000. This limit reduces if the cost of property placed in service exceeds $2,890,000. For sport utility vehicles, the limit is $28,900.

3. Special Depreciation Allowance: The allowance is 80% for certain qualified property acquired after September 27, 2017, and placed in service after December 31, 2022, and before January 1, 2024. This includes specified plants bearing fruits and nuts.

4. Maximum Net Earnings: The maximum net self-employment earnings subject to the social security part of the tax is $160,200.

5. 2023 Withholding Tables: These are now included in Pub. 15-T.

6. Business Meals Deduction: The 100% deduction for food or beverages provided by a restaurant expired, reverting to 50% starting January 1, 2023.

7. Qualified Small Business Payroll Tax Credit for Increasing Research Activities: Increased to $500,000 for tax years beginning after December 31, 2022.

8. Credit for COBRA Premium Assistance Payments: Lines for this credit on Form 943 have been reserved for future use, as the eligible period ended on September 30, 2021.

9. Publication 51 Discontinued: Information specific to agricultural employers will be in Pub. 15 from 2024.

10. Social Security and Medicare Tax: The social security tax rate and Medicare tax rate remain unchanged, with the social security wage base limit at $160,200.

For Tax Year 2024

1. Phase Down of Special Depreciation Allowance: The allowance is reduced to 60% for certain qualified property (80% for property with a long production period and certain aircraft).

2. Social Security and Medicare Tax for 2024: Details will be provided in Pub. 15 for use in 2024.

These changes reflect adjustments in tax rates, allowances, and deductions, aimed at adapting to economic conditions and policy shifts. It's important for farmers to be aware of these changes to ensure compliance and optimal tax planning.

INVESTMENTS

Many ag folks are looking for “passive income streams.” Whether residential rental properties are passive or not, I’ll leave that up to your opinion.

A friend’s family member is selling their 6-plex and asked if I’d do a quick back-of-the-envelope valuation to see what they should list it for.

There’s generally three methods of valuation:

1. Comparable Sales: where you research what similar properties sold for.

2. Replacement Value: where you calculate what it would cost to replace the property, and discount it for age & condition.

3. Income Capitalization Approach: where you determine future profit potential and apply a prevailing capitalization rate.

I used the third method, and the key to placing a value on income-producing rental real estate is finding Net Operating Income (NOI) and then dividing that by comparable Capitalization Rates.

As you can see, the big variables in determining the value are the Operating Expense Ratio and the Cap Rate used.

If you’d like a copy of this quick spreadsheet, reply to this email. I’ll also upload it to the Resources Library in the Braintrust Ag Community.

POLL

FARM BUSINESS ADVISORY BOARD

I recently spoke with three farmers who wished they had a formal group of advisors to help guide their decision making. They’d be tasked with providing advice, but not authorized to make any final decisions or have any control over the farm business.

I put this together as an initial concept… curious to hear your feedback on a program like this:

NO HANDSHAKE DEALS

An ounce of prevention is worth a pound of cure.

I recently spoke with a farmer who insisted on a written lease, when landlord was good with a handshake.

Two years into a five year lease, and after starting the transition to organic, Farmer got a certified letter to vacate from Landlord.

Farmer said "no thanks."

He even offered Landlord to buy out the lease for $250,000 (his future profit potential from the remaining 3 yrs).

Seems the Landlord was misinformed about the terms of the lease, and upon actually reading the lease he’d signed, he changed his tune.

The result: Landlord backed off & Farmer's able to farm through the lease term.

Good reminder to memorialize your contracts in a signed writing.

MEME OF THE WEEK

That’s a wrap, folks.

Until next week, thank you to everyone involved in ag. Come engage on the new platform & let’s grow profitable ag businesses together.

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DISCLAIMER: All content, communications, and resources provided by Braintrust Ag, its principals, operators, or members is intended to merely be educational and entertaining. Nothing published by Braintrust Ag should be relied on as legal, financial, investment, or other professional advice. Investments and legal matters involve substantial risk and are not suitable for all individuals. It is recommended to enter into a client relationship with an ESP for obtaining professional advice.