Quick look
A new Iowa State University program hopes to ensure more farmers have access to trusted tax guidance by offering free workshops to tax preparers on agricultural income tax issues.
AMES, Iowa - Are you a farmer, for tax purposes, if you inherit land and lease it? What if you sell vegetables at a farmers market? As a livestock producer, can you claim depreciation on the purchase of animals? How should you handle a harvest that doesn't turn a profit on your tax return? What about a crop wiped out by storms?
For farmers, livestock producers and landowners who rely on trusted experts to navigate these kinds of questions, a tax preparer who grasps the unique complexities of agricultural income can be difficult to find. A new Iowa State University program will aim to help by offering free ag-tax training to tax-prep professionals nationwide.
"We want to lift the veil for tax preparers who have been hesitant to take on farm clients and say, 'No, you can do this, and we're going to make you confident that you can do this,'" said Kristine Tidgren, director of Iowa State's Center for Agricultural Law and Taxation (CALT).
CALT staff are partnering with the university's Ivy College of Business on the training program, which will hold in-person pilot workshops after the April 15 federal income tax deadline next year before launching an online version later that fall. Development of the training is supported by $2.8 million in funding from the U.S. Department of Agriculture, part of a larger grant focused on improving agricultural taxpayer education and outreach.
Experts needed more than ever
The need for more tax professionals who work with farm income is clear to Tidgren, who hears about it from both farmers and tax preparers. The issue often arises when rural tax preparers retire, she said.
"It's really difficult to find someone who wants to come into a small town and buy the business to keep it going," said Tidgren, the Leonard Dolezal Professor in Agricultural Law and an adjunct associate professor in agricultural education and studies.
It's a familiar story in rural communities, where access to health care and legal services is also becoming more difficult. Tidgren said farm clients often get distributed among remaining tax firms when one closes, but consolidation ends up pushing business to metro areas, where experience with ag income - and the basics of farming - isn't as common.
"It becomes less a matter of finding somebody competent and more a matter of finding anybody at all without driving a long way. We want to change that," she said.
Working with tax professionals with industry-specific knowledge can save money and reduce legal risks, said Michael Bootsma, a dean's teaching fellow and teaching professor in accounting who is helping develop content for the new training program. Effective tax advice is especially important when margins are slim, as they have been for most farmers recently, he said.
Bootsma compared the inability to hire a qualified tax expert to taking an electric car to an oil-change shop and noted that high-income taxpayers typically work with tax specialists.
"People are always interested in how the wealthy invest their money. Well, for one, they all have specialized tax practitioners helping them," he said. "We hope our training gives farmers more options for finding experts who know how to prepare their tax returns."
Special concerns
Though agricultural income taxation comes with distinctive concerns, there are numerous similarities to other industries, Tidgren said. Teaching tax professionals how to serve farming clients is largely about applying well-known concepts in new contexts.
"When it's explained in a way that makes sense, somebody who is familiar with business taxation can pick it up pretty easily," she said.
One key and novel question is how to keep taxable income steady, despite the variable and cyclical nature of farm revenue. Federal tax law allows farmers to shift a portion of current taxable farm income to the prior three years to reduce this volatility.
Most tax professionals have experience depreciating assets to spread the cost of capital expenses over multiple years, though it can look different on a farm than in a factory or an office, Tidgren said. Take the livestock example: Animals held for resale are treated as inventory. But animals kept for breeding, like a heifer, are treated as farm assets. If purchased, their cost can be depreciated or expensed. If raised, the production costs are deducted.
Because understanding what happens in fields and barns can be crucial in determining tax treatment, the training program will have a brief boot camp on how farms work, Tidgren said. ISU Extension and Outreach farm management specialists will share some financial and operational fundamentals with workshop participants.
The program also will cover how to handle returns of nonfarmers with farm income, an increasingly common situation, Bootsma said. The most recent farmland ownership survey by ISU Extension and Outreach found that in 2022, trusts owned 23% of Iowa farmland, the same percentage held by sole owners. Twenty years earlier, trusts owned just 8% of Iowa farmland.
Ideal fit for ISU
While Tidgren teaches an annual eight-hour course on recent changes in agricultural taxation, she's not aware of any workshops that cover the same ground as the training program the ISU team is developing. The new program will include 40 hours or so of content, while the existing workshop is meant as an update for practitioners who already have a background in preparing income taxes for farmers.
She expects there will be significant interest in the new training, especially in regions where farming is less prevalent than the Midwest but still present. The hope is to reach hundreds of preparers with the free online course, which will count as required continuing education. That's a big selling point, as continuing education classes can be costly.
"Especially because it will be offered free through a digital portal so they don't have to travel and can work at their own pace, I think it'll be a big win for a lot of them to get equipped to take on a new type of client," she said. "And it will be a big win for agricultural communities."
Iowa State was an ideal choice for the project, Tidgren said. Through the National Farm Income Tax Extension Committee, Iowa State collaborates with numerous university extension offices to put together the Farmer's Tax Guide published annually by the IRS. But Iowa State stands alone in having a center dedicated to farm tax issues, she said.
Bootsma and Tidgren credited their respective deans - Raj Agnihotri in the Ivy College of Business and Daniel Robison in the College of Agriculture and Life Sciences - for supporting the initiative, which will rely on technical support from Ivy's IT team.
It will be a satisfying program to help launch because of the need it fills and the personal connection to its ultimate clients, said Bootsma, who grew up on a northwest Iowa farm.
"This is such a great way to benefit and create value for folks who don't have the resources they'd like to have," he said.
