Agribusiness Update for 2014

©2014 Sikich LLP. All rights reserved.

2014 Agribusiness Update

December 4, 2014

Agenda3:45 p.m. – 4:00 p.m. Welcome Time & Registration

4:00 p.m. – 4:10 p.m. Sikich LLP

» Introduction

4:10 p.m. – 4:30 p.m. Dale Aupperle, President, Heartland Ag Group Ltd.

» Current Issues in Agriculture – Leases and Land Values

4:30 p.m. – 5:10 p.m. Anthony Metzner, Vice President, Advantage Capital Partners

Timothy Hassler, Principal, Advantage Capital Partners

» Investing in the Future of Agribusiness

5:10 p.m. – 5:25 p.m. Break

5:25 p.m. – 6:05 p.m. Nick Braden, Regional Sales Manager, Climate Corporation

» Using Precision Ag for Field and Yield Insights

6:05 p.m. – 6:25 p.m. Tom Bayer, Partner-in-Charge, Agriculture Services, Sikich LLP

» Current Issues in Agriculture – Tax Update

6:25 p.m. – 6:30 p.m. Q & A

Join us for cocktails and hors d'oeuvres following the seminar.

Riding the

Agricultural Super Cycle!!

December 4, 2014

By:Dale E. Aupperle, AFM, ARAPresident- Heartland Ag Group Ltd.1401 Koester Drive, Suite 100Forsyth, IL 62535

******Phone: (217) 876-7700Fax: (217) 876-7724E-mail: [email protected]: www.heartlandaggroup.com

Sikich Agribusiness Seminar

Current Ag Trends

Note some of the following general observations regarding

agricultural conditions throughout our respective agricultural

areas:

Declining Grain Prices

Expensive Farm Inputs

Squishy Farmland Values

Ongoing Weather Concerns

Planted Acreage Shifts

Cash Rent Concerns

Technology Advancements

Uncertain Global Demand

Crop Insurance Safety Net

Increased Sensitivity to Farming Risk

Relatively Low Interest Rates

Outside Capital on Sidelines

Larger Farming Units

More Absentee Ownership

Threat of Inflation/Deflation

Global Financial Quagmire

Uncertain Ethanol Prospects

Fear of the Future

Thoughts on a Sunday Evening

All of us gather our thoughts - - and keep our eyeon the ball in different ways. Here is a collectionof charts I look at every Sunday evening - - the bigpicture is wonderful!

13 Year Uptrend Broken

Correction Over?

As of December 4, 2014

Downside

breakout

negative

for grains!

Be careful if an

uptrend develops.

Stock market is

looking good on the

Dow Jones.

Historically high

prices are over!

Critically important

uptrend line

gives way.

Tile Drainage Systems(are becoming prevalent)

2014

Illinois Farmland Values

& Lease Trends

▼ 19th Annual Report

▼ Covers Calendar Year 2013

▼ Lots of Farm Real Estate Transactions

▼ Updates on Rents & Leasing Trends

▼ A Team of Over 70 Professionals

- Professional Farm Managers

- Accredited & State Certified Appraisers

- Licensed Farmland Brokers

www.ispfmra.org

All Categories of Farmland

The Great State of IllinoisThese (rounded) figures are the average as reported by each region

on the categories shown.

Excellent Good Average Fair Recreational Transitional

Region 1 $12,700 $9,100 $9,300 - - $6,000 $25,400

Region 2 $12,900 $10,000 $7,100 $5,900 $4,300 $17,500

Region 3 $13,600 $9,500 $6,900 - - $3,400 - -

Region 4 $12,300 $9,500 $7,600 $8,700 $4,500 $25,000

Region 5 $11,500 $9,100 $7,000 $4,400 $3,100 $7,500

Region 6 $12,600 $9,900 $8,100 $7,200 $2,900 - -

Region 7 $12,900 $10,000 $6,800 - - $3,300 $37,600

Region 8 - - $10,300 $9,200 $7,500 $3,900 $10,100

Region 9 - - $9,400 $7,900 $5,900 $3,000 $16,300

Region 10 - - $10,000 $5,600 $4,200 $2,700 - -

Average $12,600 $9,700 $7,500 $5,850 $3,700 $19,900

Averages are dangerous - - but they give us a snapshot of

each category (for comparison).

Buyers and Sellers

• Buyers: Local farmers 64%, Local investors 14%,

Non-local investors 9%

• Sellers: Estate sales 52%, Individual investors,

14%, Retired farmers 11%

• Reasons for Selling: Settle estates 50%,

Received a good price 22%

Comparing Farmland to other

Financial Assets

Asset/Index

1970 – 2010Average

Annual Return

1990 – 2010Average

Annual Return

Farmland 10.77% 10.80%

Mtg./REITS 9.09% 9.49%

Aaa (Bonds) 8.24% 6.85%

10 yr Treasury 7.20% 5.45%

Dow Jones 6.52% 6.84%

S & P 500 6.24% 5.75%

CPI 4.29% 2.63%

PPI 4.03% 2.47%

CRB Spot Index 3.25% 2.40%

Note – From Bruce J. Sherrick, PhD at the University of Illinois.

Here is a quick comparison of how farmland compares in its overall return - -it’s the best!

Uptrend Interruptions

Years 2008 – 2009 Sideways for a year - - afterdoubling in value from 2001.

Years 1998 – 2001 A 15% correction - - after an

eleven year uptrend from 1997

with farmland values rising by

92%

Years 1980 – 1987 A 50% correction - - after

farmland values advanced nearly

500% from 1982. This one was a

bubble.

In the last four decades the Illinois farmland uptrend was

interrupted on three occasions:

In summary – Perhaps history gives us some guidelines for our

current thought processes. It doesn’t look like a bubble to us!

2013/14 Illinois Farmland SalesHere are several representative top quality land sales that have occurred throughout

the central part of the state during year 2013 and into 2014 (to date):

2013

County Date AcresPrice

Per Acre

DeWitt Apr 2013 66.50 $13,600

Shelby May 2013 134.00 $13,150

Moultrie Jun 2013 160.35 $12,473

Christian Jun 2013 120.00 $15,300

Piatt Jul 2013 281.35 $13,050

Macon Aug 2013 160.17 $13,000

Douglas Nov 2013 960.00 $14,583

Logan Nov 2013 80.00 $12,200

2014

County Date AcresPrice

Per Acre

Christian Nov 2014 40.00 $12,400

Macon Oct 2014 120.13 $12,750

Moultrie Oct 2014 62.15 $12,100

Coles Nov 2014 73.60 $13,300

Shelby Nov 2014 52.00 $11,100

Piatt Aug 2014 80.00 $12,550

Logan Oct 2014 103.37 $12,500

Sangamon Oct 2014 40.00 $13,500

What is a Farm Lease?

• Method to divide annual farm income and

expenses

• Rewards investor for owning land

• Compensates farmer for operating the land

• Reflects the risk taken by both parties

General Types of Farm Leases

• Cash Rent – Fixed payments to landowner

• Flexible Cash Rent – Bonus rent paid to landowner

• Crop Share – Share of income/expenses by both

parties

• Modified Crop Share – Deviations from historical

sharing of income/expenses

• Custom Farming – Landowner hires farmer to

operate the land

Incomes from Alternative Lease Types, 2013

Lease type Excellent Good Average Fair

Traditional crop share 320 270 230 186

Cash rent 347 281 242 197

Custom farming 394 344 279 226

Land Quality

------------------ $ per acre ---------------------

Historic Cash Rents, Midpoints

Year Excellent Good Average Fair

2007 183 164 144 1202008 241 207 172 1382009 267 221 187 1552010 268 231 189 1562011 319 271 220 1832012 379 331 270 2182013 396 339 285 2352014 375 323 277 219

$ per acre

Land Quality

Farmland is what it earns!

Let’s look at three scenarios which help forecast the 2015 land value trend (using 75% corn and 25% soybean rotation). It will take a combination of good yields and reasonable prices to have stable land values!

Stable

Net Income

Declining

Net Income

Corn Beans Corn Beans

Yields 210 58 210 58

Grain Prices $4.25 $11.00 $3.50 $10.00

Govt. Payment $0 $0

Gross Income $840 $695

Projected Cash Rent $335 $285

Operating Expenses -$35 -$35

Net Income $300 $250

Investor Return 2½% 2½%

Projected 2014

Land Value

(per acre)

$12,000 $10,000

Heartland Outlook

December 2014Agriculture is experiencing incredible forces from every angle. At Heartland

Ag Group Ltd., we are watching the following key areas:

Commodity Prices – My friend Richard Brock calls this the biggest bear

market in history. Let’s hope we can average $4.00 for corn and $10.00 for

soybeans as minimum prices in our future!

Bushels Per Acre – Rain makes grain - - and our 2014 El Niño season is

forecast to repeat itself next year! Trend line yields should increase going

forward.

Weather Trends– Worldwide weather is crucial - - it has minimized our

global stocks. But it looks like we will rebuild them quickly with good

global weather.

Interest Rates – We are at historic lows - - attractive for

farmland mortgages. Slowly rising long term interest rates

are suggesting a change is coming.

Alternate Investments – Agriculture is always competing with other financial opportunities. As farmland’s performance levels off - - the competition from other financial assets is enhanced. Money could leave agriculture.

Investor Demand – Our current farm earnings outlook is discouraging

some investors who are now on the sidelines. That is a significant but

temporary change.

Farmer Demand – Our neighbors are spending their high commodity

prices and crop insurance proceeds. When that dries up - - look out.

Net Farm Income – is the primary driver of farmland values - - and

projections are dropping 20%! Don’t forget - - farmland is

what it earns!

Heartland Outlook

December 2014

Don’t Forget

Farmland is a growth stock!

Farmland is what it earns!

Farmland is a hedge against inflation!

Farmland is the new world currency!!

At Heartland Ag Group Ltd. - - the upcoming pressureon farmland earnings and declining number of investorand farmland buyers will put pressure on land values.2015 will be a year of squishy land values!

Save your money - - to Buy a Farm!

One Last Thought:

“If you eat - - then you

are a part of

Agriculture.”

Leland Glazebrook

Farm Broadcaster

WDZQ Radio

Advantage Capital Partners

Presentation for Sikich Agribusiness Event

December 4, 2014

Proprietary and Confidential.© All rights reserved 2014 37

Advantage Capital Partners Summary

Advantage Capital Partners provides equity and debt financing to established and

emerging companies located in communities underserved by conventional sources

of capital. Since 1992, the firm has invested more than $1.9 billion in companies

from a diverse array of industry sectors including manufacturing, technology and

business services, among others. The firm has offices in New Orleans, St. Louis,

New York, Austin and other locations.

Advantage Capital Partners is an investment adviser registered under the

Investment Adviser Act of 1940. Registration does not imply a certain level of skill or

training. This release is not intended to be an advertisement subject to the rules

under the Investment Advisers Act of 1940.


Advantage Capital Agribusiness Partners,

LP Summary

$154.5 million fund size; 5 year investment horizon; 12 year life

Formed through Rural Business Investment Program, as a Rural Business Investment

Company (“RBIC”)

Nine Farm Credit banks represent limited partner group

All investments must be Farm Credit eligible

Max investment size of $15.45 million per company (10% of fund)

Target portfolio mix of 50% mezzanine debt/50% equity

Within equity component, targeting 50% minority equity investments and 50% control

investments

At least 75% of investments (by dollars and number) must be in rural areas

Seeking growth stage or mature businesses

No startups or project finance


Why Agribusiness?

Backbone of rural America

US farmers provide 18% of world’s food supply on only 10% of the world’s farmland

Long term market dynamics very favorable

Global population increase; rising incomes resulting in changing diets (particularly

more protein)

Crop yield improvements not keeping pace with global demand increase

Trends require more capital for infrastructure, soil fertility, seed technology, crop

chemicals, water conservation and other productivity/yield enhancement

Continued strong demand for healthy, natural, organic, traceable and functional foods

Average age of farmers and agribusiness owners continues to grow; will require

significant capital and operating expertise for wealth transfer and succession plans


RBIC Fund: General Areas of Investment

Inputs

Agricultural

Machinery and

Equipment

Animal Health and

Nutrition

Fert / Chem

Seed

Water

Biotechnology

Distribution / Retail

Agri-Retail

Specialty Retail

Food Services

Bulk Distribution

Primary Production

Local / Organic / Natural

Specialty Crops

Botanicals / Spices

Grain Storage and

Handling

Infrastructure

Greenhouse and

Nursery

Processing

Consumer Food

Functional Food

Pet Foods

Food Packaging

Food Safety

Rendering

Waste Water

Recycling


Key Investment Characteristics

Lower middle market companies

(generally $10-125 million of revenue)

Target investment size range of $3-15

million

Strong, experienced management team

Growing revenue or poised for growth

Serving attractive, large markets

Generally, cash flow positive

Reasonable financial leverage

Proprietary or defensible product line

Ability to protect margins

Diversified customer/supplier bases

and continuity of both

Clarity on exit mechanics

Repayment/refinance for debt

investments

Reasonable, identifiable universe of

acquirers for equity investments

Co-investors with relevant investment

or industry experience a strong plus


Case Study: Cage Free Egg Production

Company

State of the art egg

production facility

600,000 layers

5.3 million eggs

Introduced through

private equity firm

focused on agribusiness

Capital Need

To convert facilities to a

cage free environment

Financing

$2.1 million preferred

equity

Minority position

LLLP structure

Our Interest

10 year contract in place

with established, safe

customer

High quality management

team

Exceptional board/co-

investors with deep

experience in the industry

Opportunity for follow-on

Key Points

State specific farming

statutes added

complexity

Environmental

concerns

Employee base

600K chickens are

loud

Chickens poop a lot!


Case Study: Botanicals

Company

Process and supplier of

bulk herbs and botanicals

90% collected in the wild

400+ customers

Health food, cosmetics,

flavoring, spices, etc.

Introduced through Senior

Lender

Capital Need

Owner was ready to

transition into retirement

Required capital and

fresh ideas to grow

Financing

$2.6 million equity

Control position

LLLP structure

Our Interest

Niche product and

industry

Highly fragmented with

room for consolidation

Growth market

International reach

Key Points

Control deals are

always more complex

Entrepreneurs need

hand-holding

throughout the process

Transition plans are

critical

Key employees are

critical

Use 3rd parties


Case Study: Manufacturing

Company

Producers of heat

exchangers, pressure

vessels and tanks

80% revenue from

agribusiness clients

Introduced through

Private Equity Group

Capital Need

Owner was ready to

transition into

retirement

Financing

$10 million one-stop

Control position

Senior debt, sub-debt, equity

Revolving line of credit

Our Interest

Large available market

High quality production

capabilities

Opportunities for expansion

Opportunities to improve

processes and market

penetration

Large, long-term customers

Key Points

Be prepared to

weather economic

downturns

Transition plans are

critical

Excellent support staff

go a long way in small

businesses

Be creative and nimble

Be patient

Questions and Answers

Thank You

The Climate CorporationAgribusiness Update Seminar

Precision Ag for Field and Yield Insights

December 2014

46

Disclaimer

© 2014 The Climate Corporation. All rights reserved.

Certain statements contained in this presentation are "forward-looking statements," such as statements concerning the company's anticipated financial results, current and future product performance, regulatory approvals, business and financial plans and other non-historical facts. These statements are based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties, the company's actual performance and results may differ materially from those described or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, among others: continued competition in seeds, traits and agricultural chemicals; the company's exposure to various contingencies, including those related to intellectual property protection, regulatory compliance and the speed with which approvals are received, and public acceptance of biotechnology products; the success of the company's research and development activities; the outcomes of major lawsuits and the previously announced SEC investigation; developments related to foreign currencies and economies; successful operation of recent acquisitions; fluctuations in commodity prices; compliance with regulations affecting our manufacturing; the accuracy of the company's estimates related to distribution inventory levels; the recent increases in and expected higher levels of indebtedness; the company's ability to obtain payment for the products that it sells; the effect of weather conditions, natural disasters and accidents on the agriculture business or the company's facilities; and other risks and factors detailed in the company's most recent periodic report to the SEC. Undue reliance should not be placed on these forward-looking statements, which are current only as of the date of this presentation. The company disclaims any current intention or obligation to update any forward-looking statements or any of the factors that may affect actual results.

Trademarks

Trademarks owned by Monsanto Company and its wholly-owned subsidiaries are italicized in this presentation. All other trademarks are the property of their respective owners.

© 2014 Monsanto Company

Our History

2006

2013

Today

Founded by

Dave Friedberg

Acquired by

Operationally

independent,

wholly owned

subsidiary


The Climate Corporation Today


INSURANCE HARDWARE

SOFTWARE

How we fit within Monsanto’s Vision


Monsanto’s Mission


Monsanto’s Technology Leadership


Our mission


Helping Farmers Sustainably Protect

and Improve Their Operations

• Protect against what growers can’t control (insurance,

marketing)

• Improve the decisions growers can control (agronomic

services)

Integrated Solution: The Climate Corporation Targets Farmers’ Most Critical Decisions


Technology Trends


We are building the OS for the farm

One System Across All Your

Devices and Equipment


The OS for the farm includes several

components


• Software & Data Science

• Software platform for farm management

• Unique agronomic insights & advisory

• Hardware integration

• Leading the industry in yield enhancements

• Unrivaled precision & accuracy of data

• After-market add-ons (any brand)

• Deep integration with software systems

• Field level data & analytics

• Industry leading soil analytics

• Evolving strategy to collect other field level data and insights

How we will deliver


• Integrated services: Deep integration with Climate ecosystem

• Software (Climate Basic & Pro), Hardware (Precision Planting), Field (Solum)

• Software expertise: World class talent, modern technologies

• Development team centered in San Francisco, heart of Silicon Valley

• Modern technologies and agile development processes

• Data science: Data & models build unique products & services

• Data driven scenarios analysis and planning

Winning with software


• Only few eventual winners: Software gravitates to a few compelling offerings –expertise and scale start a flywheel of innovation that leaves others behind

• Must be a core competency: Software needs to be a core competency – Top developers don’t work for companies that consider software ‘an IT function’

• Speed matters: Think weeks and months, not years

• Legacies hurt: It is much harder to innovate on a shaky, rigid foundation

• Future is in the cloud: Web, mobile and cloud solutions

• Migrations are painful: Trying to move to web, mobile and cloud from 90’s technology is daunting

Climate Corporation Ramp UP:Opportunities with Product Upgrades and Market Expansion


Climate Technology Platform

The Climate Technology Platform


Unique and proprietary technology powers Climate’s products to deliver

value for growers

Weather Monitoring | Agronomic Modeling | Weather Simulation

Climate BasicClimate Advisors and other tools are designed to assist with farming decisions, and do not substitute for in-person monitoring and sound farming practices.

Data and recommendations are estimates based on The Climate Corporation’s and third parties’ statistical and agronomic models, research, and data. Individual results may vary, as weather, growing conditions and farming practices may vary across growers, locations and years. Data and recommendations do not modify any rights under insurance policies purchased through The Climate Corporation’s affiliates.

Climate Basic optimizes daily decisions

and is available for free at climate.com

Make more informed production decisions and save time with:

• Information customized to each field

• Information updated as it happens

• Integrated weather, tracking and scouting information

Available for 2015 for corn, soybeans and wheat

Field

WorkabilityReportsWeather AlertsField

Details

Scouting &

Notes


Climate PROClimate Advisors and other tools are designed to assist with farming decisions, and

do not substitute for in-person monitoring and sound farming practices.

Data and recommendations are estimates based on The Climate Corporation’s

and third parties’ statistical and agronomic models, research, and data. Individual

results may vary, as weather, growing conditions and farming practices may

vary across growers, locations and years. Data and recommendations do not

modify any rights under insurance policies purchased through The Climate

Corporation’s affiliates.

Climate Pro builds on Climate Basic to optimize

profitability per acre

Increase per acre profitability

• Plan with confidence

• Helps anticipate issues before yield is reduced

• Supports optimizing your response to events as they happen

• Assists with maximizing efficiency of time and budget

Planting

Advisor

Nitrogen

Advisor

Pest &

Disease

Advisor

Field Health

Advisor

(FHA)

Harvest

Advisor

Revenue

Advisor

Available for 2015 for corn, soybeans and wheat


Precision Planting

Precision Planting


Precision Planting Roadmap

• Continue to build easy to use tools to have our

platform in more cabs

• Develop tools that continue to measure and execute

recommendations

• This feeds Climate PRO Advisors

• Develop robust distribution network to support

hardware sales and service

• Signed an OEM agreement with CaseIH for factory integration

of equipment

Climate Insurance

Risk Management from the farm OS


• Insights and advisory: Help growers plan risk management and execute in-season

• Leverage field level data to inform financial planning – insurance, financing & marketing

• Help farmers track and manage their operational plan – yield & revenue forecasts, marketing advisory & execution, claim alerts

• Automated reporting & claims

• Automated acreage & production reporting direct from field data

• Instant claims identification and adjustment

• Endorsements tied to farm practices

• Provide insurance cost savings for employing optimal farming practices

Climate Agent PortalFinancial &

operational

advisory

Automated

reporting &

claims

Endorsement

s tied to farm

practices

OS for the Farm

Why now? What has changed?


• Hardware: Precision hardware is finally here

• Software: We now have an OS for the farm

• Data: Silos are good for farms, not data – Open Ag Data Alliance

• Expertise: Software problems, are best solved by software companies

Data Privacy

Guiding Principals On Data and Privacy

The data created by a farmer, or generated from equipment the farmer owns or

leases, is owned by that farmer and should be easily managed.

• It is the grower’s choice to share their data and with whom to share it

Basic data services should be free.

• We shouldn’t charge for online storage of data but rather for the value we can

provide from analysis of the data

Farmer’s data should be easily shared across systems.

• Farmers should have flexibility and communication amongst their operating

systems to gain additional insight and maximize profit potential

The Climate Corporation will regularly utilize third party audits to ensure we are

adhering to our Guiding Principles on Data and Privacy.

• Transparency and integrity are our guiding principles


American Farm Bureau Federation

On Wednesday November 12th, the American Farm Bureau

Federation announced an industry-wide data use and privacy

agreement among agriculture technology providers.

Climate signed that agreement along with John Deere, Dupont

Pioneer, National Corn Growers Association and other industry

organizations.

Farmers own the data created by their farm equipment.

This agreement will make it easier for farmers to embrace new technology.

Articles:

Wall Street Journal: Agricultural Firms, Farm Groups Strike Deal on Crop Data.

Reuters: Farm Groups, Ag Tech Companies Agree on Data Privacy Standards

www.climate.com/principles© 2014 The Climate Corporation. All rights reserved.

Thank you!QUESTIONS?


2014 Agribusiness Update

Seminar: Tax Update

Tom Bayer, Partner

Springfield, IL

December 4th, 2014


Why are we here?


Extenders: Will They Get Passed?

• November 26, 2014 Update: An agreement has been reached that

10 provisions previously expired on 12.31.13 would be made

permanent. Significant business and individual provisions include:

• Increase in expensing of asset purchases to $500,000, with a

phase-out for businesses that purchase more than $2mm

• Research Credit made permanent

• Built-in Gains period for S Corporations is permanently reduced

to five years

• Enhanced charitable deduction for food inventory

• Tax-free distributions for IRA account holders if directed to

charity


Extenders: What Does it Mean if the

Changes are Enacted?

• Asset purchases made, or to

be made in 2014, will create

immediate tax benefit

• Later filing season: IRS and

software companies update

• Reduced planning uncertainty

going forward


Extender Opportunities in Ag: Research

Credit

• Remember this is a credit, not a deduction, so the credit amount calculated reduces your federal tax liability, dollar-for-dollar

• In general, time spent developing and testing a new business process or product may qualify

• Wages for personnel, supplies and outside expenditures for contractors all constitute qualifying expenditures to compute credit

• General rule of thumb: Credit nets to about 10% of qualifying expenses

• Significantly underused: Administrative burden is the biggest obstacle


Affordable Care Act Provisions

• If you have employees, know

the rules!

• Reimbursements of employee

health insurance for individual

plan may invoke penalties in

2014

• Solution: Pay additional comp

but don’t tie it directly to health

plan cost


2014 Individual Tax Brackets


2014 Planning Thresholds – Individual

Return – Adjusted Gross Income (AGI)

• Phase Outs of itemized deductions and personal exemptions begin at

$305,050 for Married Filing Jointly

• There is a 3.8% tax on Net Investment Income for all filers with

Modified AGI of over $250,000

• NII is generally derived from passive income from investments,

rents, etc

• NII is not income from active businesses, i.e. S Corp earnings on

K-1 if shareholder is active, sale of ownership in active business

• For Married Filing Jointly, the tax on $226,850 of income, which is the

top of the 28% bracket, is $50,765―a combined federal rate of 22%

• Consider managing income to lower brackets if possible, but not

to zero!


Traditional Strategies: Cash Basis Taxpayer

• Prepay expenses: Farmers

can prepay for up to 50%

farmer expenses of current

year

• Deferred payment contracts:

Enter into smaller increment

contracts to allow flexibility

• Farm income averaging


CPA humor…..


Property and Equipment: “New” Rules in

Effect in 2014

• Commonly referred to “Repair Regs” or “Cap and Repair Regs”

• IRS regulations: No new law; regulations draw a line in the sand

• Document tax accounting method for various repair costs,

materials and supplies used in the business, equipment

purchases and improvements to buildings

• May require some additional filing requirements for 2014:

Form 3115 and some election statements

• Opportunities with new rules

• Review depreciation schedules for one-time write-offs

• Buildings placed in services: May have some opportunities to

accelerate write off or deduct repairs previously capitalized


Retirement Plans

• I401(k) for sole proprietors

• Employee deferral amount up to $23,000

• Employer match of 25% of wage

• Max amount at $52,000, plus catch up

for over 50

• Set up by year-end; fund when you file

your return

• Roth IRA

• $5,500 per year can be contributed, plus

catch up


Retirement Plans (continued)

• Roth IRA

• Contributions can be withdrawn at any time, without penalty

• Earnings and rollover contributions subject to more stringent

withdrawal requirements

• Qualified withdrawals are tax-free

• For younger taxpayers, Roth IRAs provide a more favorable

option for retirement savings, based on assumptions

• No RMDs from Roth IRAs

• SEP (Simplified Employee Pension)

• 0-25% of wages up to a maximum contribution of $52,000


Domestic Production Activities Deduction

• Deduction is computed as 9% of income from Qualifying Production

Activity

• This is a deduction that doesn’t require you to incur an expense

• Deduction limited to 50% of wages: Generally is the most significant

limiting factor for small agribusiness

• For retail agribusinesses, a portion of their activity may be defined as

“production” activity

• Rule of thumb:

• Income, after allocating overhead costs, exceeds $100,000

from a line of business, and

• Wages exist

• Consider taking a position on deduction

• $100,000 of income may yield a 2-$3,000 tax benefit (9%*100,000*

applicable tax bracket)


Non-Cash Wages and Gifts

• Grain or livestock wages

• Must follow the rules: VERY IMPORTANT

• Avoid SSI and Medicare tax

• Savings to employee (no withholding of 7.65%) and employer match of 7.65% on amount provided

• Grain or livestock gifts

• Gift to a charity is a way for farmer to reduce tax burden

• Net gift, when considering tax savings, is less than fair value of gift

• Unsold grain valued at $5,000, transferred to charity, is an after tax gift of $2,700

• Best to gift prior year crop in subsequent year

• For high income earners, has same impact as directing IRA RMDs to charity!


Final Thoughts on Taxes

• Ensure you keep your tax

professional informed of

business changes

• Bracket planning: Paying taxes

at lower rates may make sense

• Reducing taxable income to -

0- can “cost” opportunities


Questions?