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Starting a Food Business title with background of a baker, steak on a fork, granola
By: Peggy Kirk Hall, Tuesday, November 29th, 2022

Direct food marketing in Ohio is hot. The latest USDA survey identified 7,107 Ohio farms with direct food sales--third highest in the nation.  That might be why our program receives more legal inquiries about food sales than any other area of law.  And that is also why we’re hosting a three-part webinar series on “Starting a Food Business,” providing an introduction to what a producer needs to know about selling home-based and farm-raised foods directly to consumers and retailers.

The free webinar series will be from 7—9 p.m. on January 24, February 28, and March 28 in 2023, with these different topics each night:

  • January 24:  Start-Up Basics.  What do you want to sell?  We’ll review initial considerations for selling your food product.  We’ll cover food safety, licensing, legal, and economic considerations for starting up a food business.
  • February 28:  Selling Home-Based Foods.  Learn about food product development, Ohio’s Cottage Food and Home Bakery laws, and requirements for selling canned foods.
  • March 28:  Selling Meat and Poultry.  A look at the economics, processing options, and labeling and licensing requirements for selling meat and poultry.

Our teaching team for the webinar series includes:

  • Nicole Arnold, Asst. Professor and Food Safety Field Specialist for OSU Extension.  Nicole supports food handlers, consumers, and educators with food safety education and risk communication efforts.
  • Peggy Kirk Hall, Assoc. Professor and Agricultural Law Field Specialist for OSU Extension.  Peggy directs OSU Extension’s Agricultural & Resource Law Program and regularly teaches and writes on food laws.
  • Emily Marrison, OSU Extension Educator in Family and Consumer Sciences.  Emily’s food science background provides expertise and insight on food safety, product development, and selling home-based foods.
  • Garth Ruff, Beef Cattle Field Specialist for OSU Extension.  Garth has a background in animal science and specializes in livestock production and marketing, farm management, and meat science.

The webinar series is free, but registration is necessary.  Find details and the registration link at go.osu.edu/foodbusiness. 

Front page of Long-Term Care and the Farm guide
By: Peggy Kirk Hall, Tuesday, November 22nd, 2022

Long-term care costs are a threat to family farms.  In fact, we predict that long-term care costs are the biggest financial threat to farm families, even more so than federal estate taxes.  That’s because long-term care can affect every farm--and when cash or insurance runs out, farm assets may have to be sold to pay for long-term care.  With an increasing elderly population and rising health care costs, the financial pressure of long-term care on family farm succession will probably grow in future years.

What can farm families do to protect farm assets from the risk of long-term care?  Our latest publication by attorney Robert Moore, Long-Term Care and the Farm, addresses this question.  The publication begins with an important first step:  understanding long-term care risk.  What is the chance that a farmer will require long-term care, what kind of care is most common, and what how much will it cost?  Robert presents data and statistics that help us predict the expected type, length, and costs of long-term care services a farmer might require. 

Once we assess long-term care risk, the next important question is how to pay for long-term care while keeping farm assets secure.  Robert explains how Medicare and Medicaid programs can apply to long-term care costs.  He then presents several legal strategies to mitigate long-term care risk and protect farm assets. The guide wraps up with a process a farm family can follow to assess long-term care risk for their individual situation.

It's possible to keep family farmland and the family farm businesses safe from the risk of long-term care.  If long-term care is a concern for your farm family, be sure to read this important new publication and talk with an agricultural attorney about protection strategies. The publication is available at no cost through our funding partnership with the National Agricultural Law Center and the USDA National Agricultural Library.  Read Long-Term Care and the Farm here.

By: Robert Moore, Thursday, November 17th, 2022

Legal Groundwork

Sometimes, a business owner may find themselves in a position where they want to move from one business endeavor to another.  For example, the owner of XYZ Car Repair LLC decides to discontinue the car business and begin farming.  The owner would like to use their existing LLC to operate the new farming operation.  Is this possible?    

The answer is yes.  The same LLC (or any business entity) can be used to operate different businesses.  Using the example above, the owner could simply use XYZ Car Repair LLC for their farming operation.  While operating a farm under the name of a car repair business may be a bit odd, it is possible. Fortunately, the name of an entity can be changed.

An entity name can be changed by amending its Articles of Organization.  For an LLC, a Certificate of Amendment (Form 611) is filed with the Ohio Secretary of State requesting to change the name of the LLC.  If the new name is available and not in use by another entity, the request will be granted.  The name-change process involves filing a simple form online and paying a $50 fee. A similar method is used to change the name of other entity types.

If a name of an entity is changed, the IRS needs to be informed of the name change.  If the entity has not yet filed a tax return, a letter must be sent to the IRS informing it of the name change.  If the entity has already filed a tax return, the name change can be identified on the tax return.  Also, the bank that holds the entity’s bank account must be informed of the name change as well as all vendors.

In addition to changing the name, the purpose of the LLC may also need to be changed.  When an LLC is registered with the Ohio Secretary of State, a purpose may be included with the articles.  The purpose is sometimes used to limit the scope of the activities of the LLC.  If no purpose is identified, the LLC can engage in any lawful purpose.  Using the example above, assume the owners of the LLC included a purpose of “car repair and related business activity” for the LLC’s purpose.  Before the LLC is used for farming, the LLC’s purpose should be changed to “farming” or “any lawful” purpose.  The purpose identified on the articles of organization should match the actual operations of the LLC.  The purpose is found by searching the entity on the Ohio Secretary of State website.

There may be circumstances where it may be just as easy, or easier, to set up a new LLC rather than using the same LLC for a different purpose.  A new LLC can be registered with the Ohio Secretary of State for $99.  A new tax ID number can be obtained online for no cost.  It may be more convenient to establish a new entity rather than explaining to your bank and vendors that you have the same LLC with a different name.

To summarize the above discussion, it is possible to use an entity for a new business endeavor.  However, you may want to change the name and/or the purpose of the LLC, both of which can be done by filing an amendment to the Articles of Organization.  It is also worthwhile to explore establishing a new LLC for the new business as it may be easier than changing names and purpose.

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By: Peggy Kirk Hall, Tuesday, November 15th, 2022

Farmland can be a family's most important asset, recognized for both its heritage and financial value.  Here's some proof:  over 1,900 "Century Farms" in Ohio have been in the same family for over 100 years. And 130 of those farms have been in the same family for over two centuries -- testaments to the importance of farmland to Ohio families.

But there are threats that can cause farmland to leave a family despite its value to family members. Long-term care costs, divorce, debt, co- ownership rights, poor estate planning -- these are situations that can put family farmland at risk. The good news is that legal strategies can counter these threats. 

In our new publication, Keeping Farmland in the Family, we offer five legal tools that can help keep farmland in a family:

  • Agricultural or conservation easement
  • Right of First Refusal
  • Long-term lease
  • Limited Liability Company
  • Trust

These legal tools offer a range of protection for family farmland, allowing a family to use a highly restrictive strategy that protects land for many generations or a less restrictive approach that secures land only for a generation or two. Examples provided throughout the publication can help farm families see how different scenarios play out.  The guide does not intend to substitute for individual legal advice, but offers a family a starting point for discussion and decisionmaking with an agricultural attorney. 

Read Keeping Farmland in the Family here.  We were able to produce this publication with financial assistance from the National Agricultural Law Center and the USDA's National Agricultural Library.

 

By: Robert Moore, Friday, November 11th, 2022

Legal Groundwork

According to the last Census of Agriculture, about 87% of farms in Ohio are sole proprietorships.  This means that the vast majority of farms have no formal business structure.  However, we often hear of the need to have a business entity for liability protection, taxes or for a variety of other reasons.  So, how do you know if you need a business entity.

Like most legal answers, it depends.  LLCs and corporations can help with liability protection. These entities prevent the owners from having personal liability for the acts of the entity or anyone acting on behalf of the entity.  For example, if an employee of an LLC causes an accident driving equipment on a roadway, the owners of the LLC will not usually be personally liable.  The assets in the LLC are at risk but not the other assets outside of the LLC.

While LLCs do provide liability protection, they are no substitute for liability insurance.  The most important liability risk management strategy should always be a good liability insurance policy.  LLCs and corporations are good backup plans if the insurance policy does not cover the liability in some way.  Therefore, business entities can help with liability protection, but they are not a necessity like insurance.  Generally, the more owners and employees a business has, the more liability protection benefit an LLC or corporation will provide.

Business entities are often more valuable as a succession planning tool than they are for liability protection.  For example, land that is or will be owned by multiple family members is subject to the risks of partition.  Partition is the process where a co-owner of land forces the land to be sold as a way of “cashing out” their ownership in the land.  Land held in business entities is not subject to partition.  Those who own land with other people should strongly consider an LLC or other entity to protect against partition.

Business entities can be tax management tools as well.  For example, a sole proprietorship can only file taxes as a sole proprietor on a Schedule F or Schedule C.  That same sole proprietorship can convert to an S-Corp which often reduces self-employment tax liability.  Farm and business owners who seek the best fringe benefits such as health insurance and retirement benefits may want to be taxed as a C-Corp.  As these examples illustrate, business entities can provide tax management options that sole proprietorships do not.

Business entities do have several disadvantages.  One is the cost of establishing the entity.  The cost depends on the number of owners, the assets that will be put into the LLC and the terms of the governing document.  Establishing an entity can cost several thousand dollars or more in legal fees. Another disadvantage is managing the entity.  Each entity will need its own bank account, accounting, and tax return.  If an entity is not properly managed, it may not provide the expected liability protection or tax structure.

Liability management, succession planning and tax management are just a few of the many factors that should be considered when deciding if a business entity is worthwhile.  The best course of action is to meet with your attorney and accountant to assess the benefit that a business entity may have for your farm or business.  If the benefits outweigh the disadvantages, then you should strongly consider establishing a business entity.  If benefits do not outweigh the disadvantages, you may not need an entity and that is OK.  Many successful businesses are sole proprietorships and yours can be as well.

By: Robert Moore, Thursday, October 06th, 2022

Legal Groundwork

Business entity discounts can be a valuable tool in farm succession planning.  This strategy provides a method of reducing the values of assets that will be in an estate without the need for gifting.   Discounting can be used with any kind of entity; the key is to draft the entity’s controlling agreement to maximize the discount.

Discounting is based on two important factors: lack of marketability and lack of control.  Lack of marketability reflects the disinterest that an outside buyer would have in buying into a closely held entity.  Lack of control reflects the inability of an owner to singularly control the entity.  These two factors overlap somewhat but they essentially measure the discount that would be needed to make an arms-length buyer interested in buying an ownership interest in the entity.

The amount of discount is scrutinized by the IRS.  Owners of entitles have abused the discounting strategy in the past as a scheme to transfer ownership without incurring gift taxes or estate taxes.  A typical discount for an ownership interest that is fully subject to lack of marketability and lack of control may be around 35%.  Discounts in excess of 35% may be challenged by the IRS as excessive.  The discount is usually determined by an accountant or other financial professional that has expertise in determining business entity discounts.

Discounting can best be explained using examples.  Let’s say Mom and Dad own 400 acres of farmland valued at $3 million.  If Mom and Dad were to die with the land titled in their names, the land would be valued at $3 million in their estates.  The land is valued at its full value because either Mom or Dad can cause the land to be sold at any time through partition and they would presumably receive full, fair market value.

Now, let’s say Mom and Dad transfer the land into an LLC.  The LLC’s operating agreement includes the following provisions:

  • Land may not be sold without majority consent of ownership
  • Money cannot be distributed out of the LLC without majority consent
  • The LLC cannot be dissolved without majority consent
  • Ownership may only be transferred to the descendants of Mom and Dad

Additionally, Mom and Dad gift a 0.5% ownership interest to each Son and Daughter.  After the gift, Mom and Dad are each 49.5% owners of the LLC.   Now, neither Mom nor Dad can singularly control anything that happens with the LLC.  Due to the lack of marketability and lack of control created by the terms of the LLC operating agreement and the minority ownership (49.5%), Mom and Dad can expect to receive around a 35% discount on their ownership.

Using discounting, Mom and Dad have reduced the value of their estate by over $1 million by setting up an LLC and transferring their land to the LLC.  At a 40% estate tax rate, Mom and Dad have potentially saved Son and Daughter over $400,000 in estate taxes.  Entity discounts can same many thousands, if not millions, of dollars in estate taxes for some farm families.

The primary downside of using a business entity for discounts is the cost of establishing and maintaining the LLC.  An LLC will need to be established, an operating agreement drafted and deeds executed to transfer the land to the LLC.  Perhaps the initial startup and deed expense will be around $5,000.  The LLC will need to maintain a bank account to collect rent and pay expenses such as real estate taxes.  Additionally, the LLC will be required to file a tax return each year.  While there are startup and maintenance costs for the LLC, the savings in estate taxes usually makes establishing business entity discounts and easy decision.

It should be noted that some presidential administrations have sought to eliminate the entity discounts for family-held businesses.  So, the business entity discount can be abolished with a stroke of a pen at any time.  However,  as long as discounts are available, they can be a very valuable tool in farm transition planning.

For those farmers and landowners who may be concerned about estate taxes, a business entity may be a relatively simple but effective tool to reduce the value of the estate.  An attorney should be included in the process of establishing the LLC to be sure that the necessary provisions are included in the operating agreement to maximize the discount.  Also, a tax advisor should be consulted to ensure a thorough understanding of the tax ramifications of establishing an LLC. 

Picture of a tax return form.
By: Jeffrey K. Lewis, Esq., Thursday, August 18th, 2022

OSU Income Tax Schools 2022
Two-Day Tax Schools for Tax Practitioners &
Agricultural & Natural Resources Income Tax Issues Webinar 
Barry Ward & Jeff Lewis, OSU Income Tax Schools

Tax provisions related to new legislation as well as continued discussion related to COVID-related legislation for both individuals and businesses are among the topics to be discussed during the upcoming OSU Income Tax Schools offered throughout Ohio in October, November, and December. 

The annual series is designed to help tax preparers learn about federal tax law changes and updates for this year as well as learn more about issues they may encounter when filing individual and small business 2022 tax returns.

OSU Income Tax Schools are intermediate-level courses that focus on interpreting tax regulations and changes in tax law to help tax preparers, accountants, financial planners, and attorneys advise their clients. The schools offer continuing education credit for certified public accountants, enrolled agents, attorneys, annual filing season preparers and certified financial planners.

Attendees also receive a class workbook that alone is an extremely valuable reference as it offers over 600 pages of material including helpful tables and examples that will be valuable to practitioners. Summaries of the chapters in this year’s workbook can be viewed at this site:
https://farmoffice.osu.edu/tax/2022-tax-school-chapters

A sample chapter from a past workbook can be found at: 
https://taxworkbook.com/about-the-tax-workbook/

This year, OSU Income Tax Schools will offer both in-person schools and an online virtual school presented over the course of four afternoons.

In-person schools:

October 27-28, Ole Zim’s Wagon Shed, Gibsonburg/Fremont

October 31-November 1, Presidential Banquet Center, Kettering/Dayton

November 3-4, Old Barn Restaurant & Grill, Lima

November 8-9, Muskingum County Conference and Welcome Center, Zanesville

November 21-22, Ashland University, John C. Meyers Convocation Center, Ashland

November 29-30, Nationwide & Ohio Farm Bureau 4-H Center, Columbus

December 5-6, Hartville Kitchen, Hartville

Virtual On-Line School presented via Zoom:

November 7, 10, 14 & 18, 12:30 – 4:45 p.m.

Register two weeks prior to the school date for the two-day tax school early-bird registration fee of $400.  This includes all materials, lunches, and refreshments. The deadline to enroll is 10 business days prior to the date of each school. After the early-bird deadline, the fee increases to $450. 

Additionally, the 2022 Checkpoint Federal Tax Handbook is available to purchase by participants for a discounted fee of $60 each. Registration information and the online registration portal can be found online at:
http://go.osu.edu/2022tax

In addition to the tax schools, the program offers a separate, two-hour ethics webinar that will broadcast Thursday, Dec. 8 at 1 p.m. The webinar is $25 for school attendees and $50 for non-attendees and is approved by the IRS and the Ohio Accountancy Board for continuing education credit.

A webinar on Ag Tax Issues will be held Tuesday, Dec. 13 from 8:45 a.m. to 3:20 p.m.

If you are a tax practitioner that represents farmers or rural landowners or are a farmer or farmland owner that prepares your own taxes, this five-hour webinar is for you. It will focus on key topics and new legislation related specifically to those income tax returns.

Registration, which includes the Ag Tax Issues workbook, is $160 if registered at least two weeks prior to the webinar. After November 29, registration is $210. Register by mail or on-line at https://go.osu.edu/agissues2022.   

Participants may contact Ward at 614-688-3959, ward.8@osu.edu or Jeff Lewis at 614-247-1720, lewis.1459@osu.edu for more information.

By: Barry Ward, Wednesday, August 10th, 2022

High crop prices and COVID era legislative ad-hoc government payments coupled with lower interest rates (among other factors) over the last 2 and half years have given strength to farmland markets. Higher input costs over the last year and half together with rising interest rates have offset some of this strength but farmland values continue to increase. Many of these same factors have given strength to the farmland rental markets which have also seen increases this last year and will likely see additional increases in 2022.

According to the Western Ohio Cropland Values and Cash Rents Survey, cropland values in western Ohio are expected to increase in 2022 by 8.0 to 11.3 percent depending on the region and land class. This is on top of increases from 2020 to 2021 of 7.2 to 26.6 percent depending on region and productivity class.

Cash rents are expected to increase from 5.8 to 6.8 percent depending on the region and land class. This is on top of rental increases of 1.5 to 7.7 percent from 2020 to 2021.

Ohio Cropland Values and Cash Rent

Ohio cropland varies significantly in its production capabilities and, consequently, cropland values and cash rents vary widely throughout the state. Generally, western Ohio cropland values and cash rents differ from much of southern and eastern Ohio cropland values and cash rents. The primary factors affecting these values and rents are land productivity and potential crop return, and the variability of those crop returns. Soils, fertility and drainage/irrigation capabilities are primary factors that most influence land productivity, crop return and variability of those crop returns.

Other factors impacting land values and cash rents may include field size and shape, field accessibility, market access, local market prices, field perimeter characteristics and potential for wildlife damage, buildings and grain storage, previous tillage system and crops, tolerant/resistant weed populations, USDA Program Yields, population density, and competition for the cropland in a region. Factors specific to cash rental rates may include services provided by the operator and specific conditions of the lease. This fact sheet summarizes data collected for western Ohio cropland values and cash rents.

Study Results 

The Western Ohio Cropland Values and Cash Rents study was conducted from January through April in 2022. The opinion-based study surveyed professionals with a knowledge of Ohio’s cropland values and rental rates. Professionals surveyed were rural appraisers, agricultural lenders, professional farm managers, ag business professionals, OSU Extension educators, farmers, landowners, and Farm Service Agency personnel.

Respondents were asked to group their estimates based on three land quality classes: average, top, and poor. Within each land-quality class, respondents were asked to estimate average corn and soybean yields for a five-year period based on typical farming practices. Survey respondents were also asked to estimate current bare cropland values and cash rents negotiated in the current or recent year for each land-quality class. Survey results are summarized for western Ohio with regional summaries (subsets of western Ohio) for northwest Ohio and southwest Ohio.

The complete survey summary can be accessed and downloaded here on one of our Farm Office pages:

https://farmoffice.osu.edu/farm-management-tools/farm-management-publications/cash-rents

 

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Planning for the Future of Your Farm publications
By: Peggy Kirk Hall, Monday, August 08th, 2022

Farming takes planning.  A lot of planning.  Whether for next year’s crop, expanding a herd, buying land, constructing buildings, starting a new venture, or upgrading equipment, farmers are nearly always engaged in planning for how to keep the farm on track.  But  farm transition and estate planning—that is, planning for what happens to a farm business and its family from one generation to the next—is a whole different kind of planning.  And it’s one type of planning farmers often avoid.

Farm transition and estate planning can be challenging and uncomfortable, perhaps because it involves dealing with death, uncertainty, and difficult family decisions.  But like planning for the next year of production, farm transition and estate planning is critical to a farm’s success.  With good planning, a farm family can protect farm assets, implement family and business goals, and ensure a smooth transition of a viable operation to the next generation.  It’s the kind of planning that can pay off big. That's why we've written the Planning for the Future of Your Farm law bulletin series, a resource that explains the legal tools and strategies that can address a family’s goals. 

The ten-part series of bulletins in Planning for the Future of Your Farm includes:

  1. Farm Transition Planning: What it is and What to ExpectThe concept of farm transition planning, common terms, what farmers can expect from the transition planning process, and how to prepare for it.
  2. The Financial Power of AttorneyA Financial Power of Attorney authorizes someone to make financial decisions for another.  We explain the different types and how they can help a farm business.
  3. The Health Care Power of Attorney and Advance DirectivesMedical and end-of-life plans can ease decision making uncertainties for families.  This bulletin explains the Health Care Power of Attorney, Living Wills, Donor Registries, and Funeral Directives.
  4. Wills and Will-based PlansA will is a commonly known tool for distributing property.  This bulletin explains different types of wills and how they can be used in a farm transition plan.
  5. Legal Tools for Avoiding ProbateWe review legal tools that transfer assets upon death and avoid probate, including beneficiary designations, payable on death accounts, transfer on death designations, and survivorship deeds.
  6. Gifting Assets Prior to DeathGifting is one way to transfer assets to the next generation.  In this bulletin, we discuss how gifting works and when it can be advantageous to incorporate gifting into a transition plan.
  7. Using Trusts in Farm Transition PlanningTrusts are popular tools in farm transition planning.  In this bulletin, we explain how trusts function and highlight how they can meet family and farm planning needs.
  8. Using Business Entities in Farm Transition PlanningMany farms have business entities for liability or tax purposes, but business entities can also enable transition of a business to the next generation.  We explain how in this law bulletin.
  9. Strategies for Treating Heirs EquitablyWhether heirs should inherit assets equally or equitably is a challenging dilemma for parents.  We present strategies for equitable distributions of assets in this bulletin.
  10. Strategies for Transferring Equipment and LivestockEquipment and livestock can be more difficult to transfer than other assets.  In this bulletin, we review special considerations and strategies that can help minimize the challenges of these transfers.

Find the entire set of bulletins on the Farm Office website law library at go.osu.edu/farmplanning.  We also cover these topics in our popular Planning for the Future of Your Farm Workshop, offered online and in person each winter.  The next online workshop will begin January 23, 2023--check our Events Page at farmoffice.osu.edu for workshop registration details.  Reading our new bulletins and attending our workshop are two first steps that can help you plan for the future of your farm.

This resource is provided with generous funding from USDA National Agricultural Library, in partnership with the National Agricultural Law Center.

NAL NALC

 

Young farmer in a field of wheat
By: Peggy Kirk Hall, Tuesday, August 02nd, 2022

The idea to use income tax incentives to help Ohio’s beginning farmers gain access to agricultural assets floated around for several years in the Ohio General Assembly.  The idea became a reality when the Beginning Farmer Bill sponsored by Rep. Susan Manchester (R-Waynesfield) and Rep. Mary Lightbody (D-Westerville) passed the legislature, was signed by Governor DeWine and became effective on July 18, 2022.  The law is now in the hands of the Ohio Department of Agriculture (ODA), charged with implementing its provisions.

The new law sets initial eligibility criteria for certifying “beginning farmers,” directs ODA to establish the certification program, and authorizes two types of income tax credits for certified beginning farmers and those who sell or lease assets to certified beginning farmers.  According to ODA, the income tax credits will be available for 2023, once the certification program is up and running.  The law sunsets the tax credits on January 1, 2028 and also limits the total amount of tax credits that can be awarded to $10 million.

Here’s a summary of what to expect from the new law.

Certification of beginning farmers.  The ODA will establish a process for designating a farmer who meets the eligibility criteria to be a “certified beginning farmer.”  The law sets initial criteria for beginning farmers designation but also allows ODA to create additional requirements.  ODA may seek participation from Ohio State and Central State in the certification of beginning farmers. The initial certification conditions are:

  • Resident of Ohio.
  • Seeking entry to or has entered farming within the last 10 years.
  • Farms or intends to farm on land in Ohio.
  • Is not a partner, member, shareholder, or trustee of the assets the individual is seeking to purchase or rent.
  • Has a total net worth of less than $800,000 in 2021, including spouse and dependent assets, as adjusted for inflation each year.
  • Provides majority of daily physical labor and management of the farm.
  • Has adequate farming experience or knowledge in the type of farming for which seeking assistance.
  • Submits projected earnings statements and demonstrates profit potential.
  • Demonstrates farming will be a significant source of income for the individual.
  • Participates in a financial management program approved by ODA.

Financial management programs for beginning farmers.  ODA must approve financial management programs that meet the certification requirement, in consultation with Ohio State and Central State.  The list of approved programs will be available on ODA’s website.

Income tax credits for certified beginning farmers.  An individual who attains certification as a beginning farmer may apply for a state income tax credit equal to the cost incurred during the calendar year for participating in an ODA approved financial management program or a substantially equivalent financial management program approved by the USDA.  The tax credit is nonrefundable.  If the tax credit exceeds the beginning farmer’s tax liability in the year granted, the excess can carry forward for not more than three succeeding tax years.

Income tax credits for owners who sell or rent assets to certified beginning farmers.  An owner who sells or rents “agricultural assets” to a certified beginning farmer during the calendar year or in either of the two preceding calendar years may apply for a state income tax credit.  The credit will be equal to 3.99% of the sale price or the gross rental income received during the calendar year for either a cash or share rental agreement. “Agricultural assets” includes agricultural land (at least 10 acres and in agricultural production or earning $2500 in average yearly gross income from agricultural production if under 10 acres), livestock, facilities, buildings, and machinery used for agricultural production in Ohio. The owner cannot be an equipment dealer, however, nor can the certified beginning farmer receiving the assets be a partner, member, shareholder, or trustee of the owner of the assets.  Rented assets must be rented at prevailing community rates, as determined by ODA in consultation with the Ohio tax commissioner. The tax credit is nonrefundable but may be carried forward for seven succeeding tax years if it exceeds the owner’s tax liability.

Time to plan.  As we await ODA’s rules and procedures for the new tax credits, beginning and existing farmers can use this time for planning.  Review the new law with your attorney and accountant to determine how the income tax credits could affect you.  If you are a beginning farmer seeking agricultural assets, spend time trying to connect with an existing farmer who is ready to sell or rent agricultural assets.  Although the 3.99% credit for those transfers may not sound significant, run the numbers and see how they could play out.  The hope of the new law is that those numbers will be enough to help a beginning farmer have greater access to those important assets that are critical to farming in Ohio.

Information on House Bill 95, the Beginning Farmer bill, is available at this link

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