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DECEMBER 2020 | VOLUME 38 | ISSUE 12 A MONTHLY PUBLICATION FROM NOBLE RESEARCH INSTITUTE Ice Storm Damage | 3 Pecan Truffles | 5 Capturing Bird Calls | 7 ECONOMICS End-of-Year Tax Planning for Farmers and Ranchers ood income and expense records WHY IS IT IMPORTANT provide decision-makers with a tre- mendous amount of information. TO ESTIMATE TAXABLE This information can be useful in INCOME? Gseveral ways, including: Each citizen of this country has the 1. To compare actual to budget. obligation to pay their fair share to the 2. To compare current year to last year or government — but no more. An estimate to the average of the last three. of taxable income before the end of 3. To calculate net income to date. the year provides a taxpayer with the by Dan Childs, Once net income to date is known, then knowledge to manage their taxable senior agricultural it can be combined with a projection of income and thereby only pay for their fair economics income and expenses for the remainder of share of government. consultant | the year to arrive at an estimate of taxable [email protected] income for the year. Story continues on next page 2 | NOBLENEWS&VIEWS The Internal Revenue Service (IRS) depreciation. Both of these are powerful provides taxpayers with many ways to MANY TAXPAYERS HAVE choices and great ways to manage taxable manage taxable income. However, a taxpayer income if asset purchases are made during must have an estimate of taxable income NO IDEA WHAT THEIR TAX the year. before the end of the year and take action BILL OR REFUND WILL BE Also, consider delaying the sale of calves, before the end of the year, assuming a grain and other farm products until after the taxpayer is a cash-basis calendar-year UNTIL THEIR TAX PREPARER first of the year. taxpayer. Otherwise that ability to manage NOTIFIES THEM OF THE Paying for some expenses that will not be taxable income stops at midnight Dec. 31. RESULTS. IF A TAX BILL used until next year can also be done if the Many taxpayers have no idea what prepayment meets the necessary guidelines. their tax bill or refund will be until their tax IS DUE, IT COULD CAUSE The key to being able to manage one’s preparer notifies them of the results. If a tax CASH FLOW ISSUES OR THE taxable income is to know what the income bill is due, it could cause cash flow issues UNTIMELY NEED TO MARKET and expenses are a couple of months before or the untimely need to market products in the end of the year, then determining what order to generate enough revenue to pay for PRODUCTS IN ORDER TO the projected income and expenses might be the tax obligation. Both of these issues might GENERATE ENOUGH for the remainder of the year. This knowledge be alleviated with previous knowledge of an REVENUE TO PAY FOR will allow a taxpayer to have the information estimate of the tax owed. needed to make prudent tax management THE TAX OBLIGATION. decisions. MANAGING TAXABLE INCOME Another excellent option to increase IMPLICATIONS OF One sometimes misunderstood way to income is to convert a portion of a traditional CORONAVIRUS STIMULUS manage taxable income is to increase IRA (depending on amount of income needed) to a Roth IRA. Some limitations PROGRAM income. When would a taxpayer want to One last item to be aware of that is apply, so be sure the conversion is within the increase income? It would typically be when unique to this year but may have lingering guidelines. deductions are greater than W-2 income, consequences into next year is related to business income and the standard deduction. the Coronavirus Aid, Relief and Economic If this is the case, the additional income MANAGING EXPENSES Stimulus Act (CARES). generated is basically tax free. Most would If a taxpayer happens to be in the enviable If a taxpayer is the recipient of a CARES agree that is a good deal! situation where they have more income than stimulus program, such as the Payroll The many ways to increase income expenses, the IRS also provides many ways to Protection Program (PPP) and/or Coronavirus include: increase expenses. And is it not this situation Food Assistance Program (CFAP), this may • Sell more products (calves, grain, etc.). where many justify the purchase of a new complicate making the estimate. The reason • Use a slower rate of depreciation for pickup or other business assets? Yes, indeed, is that the possibility exists that a portion or any assets purchased during the year. purchasing assets and choosing to expense all of the PPP funds received as a loan will be • Be judicious in choosing to use Section a portion or all of the purchase price is a forgiven and may not count as income. 179 or bonus depreciation. valid way to increase expenses. However, be In addition, the expenses paid by the PPP • Capitalize instead of deduct the cautious in doing this. Be sure the purchase funds may not be deductible as a business purchase of small tools and major is a good business decision and not just a expense, such as pasture or crop rent and repairs. means to reduce the tax obligation. utilities. However, CFAP funds will likely be • Postpone purchases planned for the For all assets purchased during the year, taxed as other government payments in the end of year, and pre-pay expenses that choose faster rates of cost recovery, such as past, so do not forget to include these funds will not be used until next year. making wise use of Section 179 and bonus as income. 3 | NOBLENEWS&VIEWS PECANS Cleaning Up Pecan Orchards Hit by Ice Storms ecan growers in southwest, central the most ice accumulation also received and north-central Oklahoma as well between 2-5 inches of rain. as northwest Texas are facing yet Normally, ice storms occur during the another challenge. Growers looking to winter after trees have become dormant and Pstart harvest soon are faced with the task of leaves have fallen off the trees. This storm cleaning up ice damage in orchards hit by an occurred while most trees still carried a full early ice storm. leaf load. Additionally, there was less disease On Oct. 26, 2020, a strong winter storm pressure from the drier-than-normal summer pushed through these areas. Temperatures and fall, which added to the leaf load. dropped to record lows in some areas. Since it was still too early to harvest, by Will Chaney, Several areas had the lowest temperatures an additional obstacle some growers senior pecan ever recorded for the entire month of encountered was a good crop of pecans that operation October. added weight to the trees, resulting in more associate | This storm resulted in the earliest ice damage. jwchaney@ storm in Oklahoma’s history. Areas that had Story continues on next page noble.org LATE-SEASON ICE STORM CAUSES DEVASTATING RESULTS TO PECAN HARVEST 4 | NOBLENEWS&VIEWS IS CLEANUP WORTH THE COST? Oklahoma growers may remember the ice storms in 2000 and 2001 and the two from 2007. These storms hit parts of the state and devastated pecan trees in the impacted areas. The one thing that growers learned going through previous disasters is that pecan trees are resilient and will eventually return to production. Growers may question if the cost of cleaning up orchards is worth it. If the trees were worth managing before the storm, then I would say that cleaning up is worth it. Cleanup will be very labor intensive and will cost a fair amount of money per acre, depending on the amount of damage. Following the ice storms in 2007, cleanup costs were reported for two orchards in Skiatook and Collinsville, Oklahoma. The cost, adjusted to 2020 values, would range from $250 to $506 per acre. In both of these orchards, the owners supervised the labor and had the resources to obtain sufficient equipment needed to facilitate the cleanup. Reports from the same ice storm for growers who had to hire custom crews to cleanup orchards ranged from $604 to $967 per acre. OPPORTUNITIES FOR A BETTER ORCHARD For some orchards, especially older planted orchards and native groves, this will give a grower the chance to thin out crowded trees. It can also help rejuvenate the trees. The downside is that the thinning patterns may not be what you planned and production may In spring, the sprouts should be thinned Evaluate the growth of the trees during be decreased for a few years. out. This allows growers to select the sprouts the spring. If trees are not growing well, In the case of natives where large they want to develop into shoots. The most then another nitrogen application should branches are removed from the tree, several vigorous shoots will eventually shade out the be applied in early summer. If the shoots new branches will emerge. This will increase less vigorous shoots. produce too much growth, do not apply the total fruiting wood, resulting in potentially Limbs that are broken but remain additional nitrogen until the fall. larger yields in the future. attached to the tree should be removed at a The other important thing to keep in mind lateral branch or the trunk. The collar of the is that these vigorous shoots will be growing HOW TO START limb should be left intact for cuts made at the longer into the year than normal tree growth. trunk. Limbs that have pulled away from the Therefore, new leaves will develop throughout CLEANING THE ORCHARD trunk should be removed from the bottom of the spring and summer.