by Cynthia Harrington
CPAs working in small towns are few and far between, just like the clients that they serve.
In the U.S., one-fifth of the rural population occupies 80 percent of the land. Yet these professional farmers need professional help on their unique issues, as well as a forum to share concerns with colleagues in the same situation. So the Illinois Society of CPAs created the annual National Agribusiness Conference.
Topics on the schedule this year reveal the unique challenges of the rural CPA. “We’ll look at a fairly diverse set of presentations this year,” said Kent Reeves, CPA. “In addition to the tax update, this year we’re looking at charitable remainder trusts, warehousing licensing issues and risk management analysis primarily for crop producers.”
Reeves is a member of the 23-person Agribusiness Committee of the Illinois society. Since 1974, he has served clients in the downstate Illinois town of Fairfield, which numbers 5,000 people and is located halfway between St. Louis and Louisville, Ky. “We’ve had as many as 120 professionals attend the conference,” Reeves said. “They come from as far away as South Carolina, Washington State, Pennsylvania and even Canada.”
Tax updates of particular interest this year are changes in self-employment tax issues, regulations on trades and bonus depreciation, and opportunities with the extraterritorial income exclusion for commodity exports. Information about the conference can be found at www.icpas.org.
“Tax changes like the increased Section 179 expensing are affecting this year’s tax planning,” said Trenna Grabowski, CPA, of Trenna R. Grabowski CPA Ltd., in DuBois, Ill. “But tax planning for farmers is different, so we have to look at the whole picture.”
A large percent of Grabowski’s clients in the 250-person southern Illinois village where she opened her practice in 1986 depend on agriculture. Farmers do year-end tax planning to decide whether to sell crops in the current year or the next, or whether the farmer has sold too much already and should go ahead and purchase the next year’s inputs. Sometimes the decision at year’s end is to buy new equipment to increase the year’s expenses. “We have to do multi-year planning on equipment,” said Grabowski. “For instance, if we took $100,000 of a $150,000 combine in one year, that leaves us only $50,000 to spread out over the rest of the seven-year depreciated life.”
Similarly, Grabowski looks closely at the ability of her clients to even out fluctuations in their income. “Farm averaging income works well for clients who are retiring,” she said. “But I have to check the [alternative minimum tax] calculation for everyone, because the averaging is included in that calculation and increases the tax in some situations.”
Even the tax crunch season is different for rural CPAs. Since farm tax returns are due March 1, the pressure is on in February. “We’re waiting for the 1099s from the farm payment programs, and it’s also a very short month,” Grabowski said. “The non-farm clients are aware of this, though, and don’t make appointments until after the farm deadlines.”
The seasonal workload is a problem to be solved for Arnie Honkamp, a CPA and managing partner of Honkamp Krueger & Co. CPAs, in Dubuque, Iowa. Honkamp’s firm has been acquiring the practices of rural CPAs. Honkamp now owns offices in towns as small as 2,000 people. “After the strain of tax season, there’s nothing for them to do,” says Honkamp. “We’re constantly brainstorming in our partner group for ways to effectively use the time of all personnel.”
Honkamp moved into both financial services and monthly compilation services to fill the gap. “Properly structured, these are profitable, plus a great source of cross-selling opportunities,” he said.
The National Agribusiness Conference addresses these services, as well. The speaker on warehousing issues addresses federal and state licensing, which is more a business decision than a tax matter for farmers. Similarly, the risk management analysis of crops discussion will assist CPAs with general advice for clients.
CPAs providing the monthly compilation work for farmers will be particularly interested in the Farm Financial Standards Task Force’s report. “It should help make reporting more uniform than each individual CPA reporting according to their own interpretation,” Reeves said.
Help all around the farm
In addition to the accounting and tax work, rural clients depend on their CPA for advice on a wide range of issues. Farmers’ assets are primarily invested in the land that they work. That part of their business involves investment aspects, as well as tax aspects. “I had a client last week ask me for investment advice,” says Reeves. “I get asked for that, legal advice and sometimes even divorce counseling. I tell them I’m not licensed in those areas and offer only a personal opinion.”
Where the planning issues intersect with tax and business planning is in the transition of assets between generations. While farms are getting bigger, most of the businesses are still passed down in families. “I do lots of individual and estate planning,” said Grabowski. “Having grown up in a small town, I’m sensitive to the give and take of the issues of siblings and the farm.”
The aging of the farm population has brought this issue to the fore. In fact, one of the newest topics on the agribusiness conference schedule is the charitable remainder trust. The CRT can “be a winning strategy for the retiring farmer facing a machinery auction and sale of carryover commodities,” according to the conference brochure.
Planning for the transition may hit rural CPAs as hard as their clients. Attracting quality talent to smaller communities is difficult, leaving the professional in the small community to find homegrown talent or face shuttering the doors upon retirement. “Succession planning is the biggest problem facing professionals in small communities,” said Honkamp. “The pool of qualified staff is shrinking as demand is growing throughout the profession. We find it harder and harder to get people of real substance to relocate to the smaller areas.”
These issues come up in scheduled presentations, as well as informal networking at the conference. “The Agribusiness Committee has been very helpful to my practice,” said Grabowski. “It provides a good chance to talk with other people with these same issues.
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