The 2006 Southern Peanut Growers Conference in Panama City, Fla., provided several sessions meant to help peanut growers increase profitability in their fields. However, one session was meant to help growers increase profitability in their bank accounts and leave their families with a strong estate.
Tracy Knowles, an accountant specializing in mergers and acquisitions from The Parsons Group, says it is important for farmers to be proactive when it comes to planning for their financial futures.
“How many times have you ever crammed for a test?” Knowles says. “I did it all the time. But, have you ever crammed for a harvest?”
Knowles says, just like a harvest, farmers cannot cram for their financial success. He says a good first step is putting together a financial team including an attorney, banker, investment professional and a certified public accountant (CPA). While Knowles joked that these people should not know each other, he stressed later that he believes it is important that they do, in fact, know one another.
“That's kind of an old school thought — that they shouldn't know each other,” Knowles says. “I kind of disagree with that.”
Knowles advised the growers to plan early if they want to have a successful tax season. He says it is very difficult for an accountant to do a fair job if their client does not plan with them before January or February.
The new Domestic Production Activities Deduction, Knowles says, provides a tax savings against income attributable to domestic production activities. Manufacturing, producing, growing and extracting qualify as production activities under the new statute. For more information on the new deduction, see the IRS Website at www.irs.gov.
Another problem that is arising more and more often is identity theft. Knowles warned against using debit or credit cards too often — even at gas stations and restaurants — and said there are ways to avoid this growing threat.
“Especially with financial information, don't use a mail box,” Knowles says. “It's always better to use a P.O. Box.”
Paul Turner, an attorney from the Dothan, Ala.-based law firm Johnston, Hinesley, Flowers, Clenney and Turner, P.C., spoke about the tax problems many farmers are facing.
While Turner dug deep into the tax system and explored several what-if situations, one thing that was applicable to farmers is the Gross Estate tax. Turner explained that there are several not-so-obvious inclusions in this tax, including life insurance, life estates, revocable transfers, joint interest of married persons and joint interest of unmarried persons.
The taxable portion of the estate is the gross estate minus the allowable deductions, many of which go unnoticed by farmers and other people alike. Some of these deductions are marital gifts, charitable gifts, liabilities of the descendent and funeral and administrative expenses. Turner explained that gift tax laws allow for an annual $12,000 non-taxable gift to family members in most circumstances.
One problem that most farmers face is being taxed for their land, which is a non-liquidated asset. This problem, if met unprepared, forces farmers to sell land following especially poor yield years.
“If you plan — if you get with someone like me — we can work on those things,” Turner says. “We can get insurance in place to protect that land.”
Turner emphasized that the only way to avoid bad situations where large tax bills arise is to be proactive and handle the situation early. He explained how it is easy to lose a lot of money at death just by leaving substantial amounts to one person, which in many cases makes more of the money taxable.
“I'm not trying to scare you, but I am,” Turner explained. “I'm telling you there's an issue out there. Every year or every couple of years you should sit down with people you trust and have a look at your situation.”
Leigh Winslett, a Trust Officer at Regions Morgan Keegan Trust in Montgomery, Ala., talked about the importance of having the financial team Knowles talked about on the same page.
“In my job, these are the two main people I work with — your attorney and your CPA,” Winslett says. “I don't see enough interaction between your trust officer, your estate planners and your CPA. I think that interaction is vital. It's imperative to have more than one person you can trust. When you have that group of people you do trust, they will work together for you.”
She also emphasized the importance of financial planning in terms of assets. Many times, Winslett says, up to 80 percent of the assets may be in one person's name. This can cause problems if the designation is not clear in the will of a deceased person.
“It's really important to think about this stuff when you care about the people you live in a house with,” Winslett says. “This is the kind of stuff you need to take care of.”