Spring is finally here, bringing warmer weather, budding trees… and tax season.
Benjamin Franklin once famously said, nothing can be said to be certain, except death and taxes. So, we invited Paul Neiffer, Principal at CliftonLarsonAllen, to join us on the Groundwork podcast to discuss how current – and proposed – tax provisions affect our farmers.
Known as the Farm CPA, Paul has seen a lot over his 40-year career. Many farmers turn to his blog Farm CPA Today for up-to-date information on tax considerations. With many family farms operating as complex businesses while also trying to navigate a burdensome tax code, it can get tricky – fast.
Especially when tax changes aren’t implemented in time for farmers to meet deadlines or legislative proposals threaten to upend multi-generational family farms.
We asked Paul about a proposal floated in Congress last year that would have changed the way family farms are taxed when they’re transferred from one generation to the next through a provision called “stepped-up basis.” Texas A&M University found in a 2021 study that this proposal would have harmed 98 percent of the family farms they regularly survey, leaving those farmers with an average tax bill of $726,000.
“That was going to be very difficult for a lot of farm families to deal with,” Paul confirmed.
Paul gave us a hypothetical based on the real-life scenarios he often deals with:
A farmer in California dies, leaving a farm worth $20 million to their heirs. However, the farm is also carrying $10 million of debt, resulting in a net worth of $10 million.
If the proposed tax change had passed Congress, the farmer’s heirs would have had to pay the federal estate tax, taxes on the stepped-up basis of the $20 million farm, and California taxes, resulting in an approximately 56 percent tax rate and a whopping $11 million tax bill.
“So, the heirs that thought they were getting an asset worth $10 million will now end up $1 million in the hole,” Paul explained. “That’s how devastating that this proposal could have been for a lot of farm families.”
When it comes to explaining how certain tax changes will harm America’s farmers, Paul explained that farm policy critics “try to couch it as being a free lunch, but it’s not.”
Not only do farmers already pay a significant amount in taxes, but many are plowing their earnings back into their farming operation so that they can more efficiently grow the crops that feed and clothe us. They’re investing in Main Street businesses and supporting our rural communities.
So, how can policymakers better serve rural America when it comes to farm policy? Easy, Paul says. Reach out to the farmers and the farm organizations that will be directly affected by any tax changes and take the time to really understand all of the consequences – intended or unintended.