Tax And Business Planning For Farmers To Avoid Higher Taxes And Loss Of Subsidies

by Gray Reed & McGraw

The Agricultural Act of 2014 (aka -  the 2014 Farm Bill) has been controversial, to say the least.  Among its many changes are an $8 billion cut to the “food stamp” program.  The Farm Bill also drastically modifies or ends farm “subsidies.”

In our global marketplace, these subsidies are often necessary to help American farmers compete.  In my opinion, the American farmer can compete and beat anyone in the world,  but not compete when foreign governments provide excessive subsidies to their own farmers.  It is hard to win a 100-yard dash when your competitor starts 25 yards ahead of you.

This new legislation has made it vital to sit down with your tax professional and do some planning to avoid losing the support of the remaining governmental programs – while at the same time not getting hit with additional taxes.

An interesting article was published last month by Roger A. McEowen with the the Iowa State University Center for Agricultural Law and Taxation.  The article makes the point that beginning with the 2014 crop year, farmers with an “adjusted gross income” of greater that $900,000 will not be eligible for certain programs.  The definition of “adjusted gross income” depends on the type of entity that is being used.  Mr. McEowen states the following:

  • For a C corporation, FSA examines line 30 (taxable income) plus line 19 (charitable contributions).
  • For S corporations, FSA only looks at line 21 of IRS Form 1120S (ordinary business income or loss).
  • For estates or trusts, FSA uses line 22 (taxable income) plus line 13 (charitable deductions) of IRS Form 1041.
  • For limited liability companies (LLCs), limited liability partnerships (LLPs), limited partnerships (LPs) or similar entities, FSA looks to IRS Form 1065, line 22 (total income from trade or business) plus line 10 (guaranteed payments to partners).
  • For individuals, the pertinent Form is the 1040, line 37 (AGI).
  • For tax-exempt entities it’s IRS Form 990-T, line 34 (unrelated business taxable income) less income that the CCC determined to be from non-commercial activity.

These rules can cause “unfair” treatment.  For example, if a company has a large capital expenditure that would be normally deductible under section IRC 179 may artificially increase your “adjusted gross income” for purposes of qualifying for the subsidies.  If you have an S-corporation/LLC/Partnership, this deduction counts against you for purposes of qualifying for governmental “subsidies.”  Alternatively, a C-corporation will not be penalized for the exact same purchase.

So does this mean you should convert to a C-Corporation?  Not so fast - a thorough review of your situation is needed before you can really make a decision.

Just a few points to consider:

  1. C-Corporations will potentially subject you to two levels of tax: a) one level of ordinary income for the corporation at 35% maximum rate and b) dividends to shareholders at up to 23.8% (thank you President Obama) for a total tax of up to 58.8%.
  2. Sales of S-Corporations and Partnerships also get preferential tax treatment by avoiding one of  the Obamacare taxes.
  3. Estate Planning - C corporations are also not the ideal estate planning mechanism if you want to keep the family farm - and not see it broken up by the Feds.

There are multiple other planning techniques that folks in the farming business need to consider – and consider now before they get unfairly penalized.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Gray Reed & McGraw | Attorney Advertising

Written by:

Gray Reed & McGraw

Gray Reed & McGraw on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.