Episode 40 Tax Prep and Changes for 2025

Listen to our guest, Tarrah Hardin, with the Kentucky Farm Business Management, speak with Senior Loan Officer Caleb Sadler about upcoming changes for the 2025 and 2026 tax season. 

Learn more about KFBM at https://kfbm.mgcafe.uky.edu

Central Kentucky Ag Credit: https://www.agcreditonline.com

Transcript

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[00:00:00.000] - Intro

Welcome to Beyond Agriculture, the podcast that takes you beyond the scope of Ag and into the real-life stories, conversations, and events taking place in our community. Who we are and what we do is beyond agriculture.

[00:00:19.380] - Caleb

Hello, and welcome in to Beyond Agriculture. Caleb Sadler back with you today. Today, we're joined in the Paris office here via phone with Tarrrah Harden with the Kentucky Farm Business Management program through the University of Kentucky. Good morning, Tarrah. How are you?

[00:00:34.300] - Tarrah Hardin

I am wonderful. How about yourself?

[00:00:36.200] - Caleb

Good. Doing good. It looks like the last nice day of weather here in Paris, at least. They're talking storms tomorrow and some nasty weather moving in. So I think winter weather may finally be here.

[00:00:50.440] - Tarrah Hardin

Yes, it is. It's going to be quite rainy across the state.

[00:00:54.220] - Caleb

Also today, outside of Tara with Kentucky Farm Business Management, we're also joined with Cassie Johnson, our Marketing Coordinator here at Central Kentucky Ag Credit. So good morning, Cassie. How are you?

[00:01:05.160] - Cassie

I'm doing great. Got a little chill coming out this morning. We got a little frost last night.

[00:01:09.770] - Caleb

I know. It was really frosty. I was surprised because yesterday it was almost 70 degrees. Well, Saturday was 70 degrees, and then yesterday it was in the '60s, and I was like, whewf. I wasn't ready for it. Big change. Well, Tara, I'll turn it over to you. I want to let you introduce yourself a little bit. Tell us a little bit about yourself as well as Kentucky Farm Business Management program.

[00:01:30.000] - Tarrah Hardin

All right. Well, I have been with KFBM for about 12 years now in this role. I mainly support producers across central Kentucky with their farm records, helping them With Quickbooks, with production, looking at the finance side of things, as well as putting together some end-of-the-year documents for them. Producers even take balance sheets to Ag Credit. At the end of the year, Caleb, I believe you might be seeing those shortly when we roll out into 2026. At the end of the year, also, one of the main topics is what we're going to cover today is taxes and tax prep. With farmers, trying to decide on what to spend, what to move, and how to defer any taxes if that's what they want to do.

[00:02:25.900] - Caleb

It'll be quite the interesting year, just given the ag economy that we're in right now, and I know you'll see that as well and seeing that every day right now, because I'm sure you are getting ready to get in the thick of it with updating financial statements and tax preparation and things like that for farmers. How many people do you all help around central Kentucky here, Tarrah?

[00:02:44.800] - Tarrah Hardin

Central Kentucky, we serve about 40 farms. When I say central Kentucky, I cover all the way from Elizabethtown down to Monticello, all the way up to Shelbyville and all the way over into Winchester. So quite the range. Our travel days are really traveling.

[00:03:09.120] - Caleb

Yeah, there's a lot of different types of production across that window. I mean, you're talking primarily row crop farmers there in Elizbethtown, probably. Over in Clark, Shelbyville, that area, a lot of probably cattle producers, too.

[00:03:24.220] - Tarrah Hardin

Yes, and I enjoy it. The diversity keeps me on my toes and be able to help farmers with a multiple a multitude of questions and work through how things are looking.

[00:03:35.040] - Caleb

Well, I will give a plug, too, because I know here at Central Kentucky Ag Credit, we really appreciate the partnership that you all have with some producers around here. It certainly makes our job a lot easier when we start collecting year-end financial information and tax returns, because when you start looking at trend analysis, when you've got somebody that's been working with you for several years, it really helps us create a trend and see which trajectory the operation is really going into, whether they're retracting or whether they're growing on that and the thing. We really appreciate the partnership here that you all got with those farmers here in central Kentucky, because it certainly makes our job easier.

[00:04:15.000] - Tarrah Hardin

I know, and I will plug in you all, too. You guys help me just as much as giving me some background information on clients as well. That's awesome.

[00:04:21.080] - Caleb

Feeling as mutual. There you go. That's awesome. I know there's some interesting things that we're going to get into, but the number one topic that we're going to cover Today is certainly coming up here at the end of the year because it's hard to believe that we're already at the middle of November and we're already starting to talk about 2025 tax preparation. Tell us a little bit about the new things that are coming down the line, as well as some of the things that may be changing in 2026.

[00:04:49.000] - Tarrah Hardin

Back in the summer months, the big, beautiful bill got passed, and there was a lot of tax implications in that. One of the major changes that happened, in which most farmers are mostly interested about and know and use as one of the biggest tools in the toolbox is depreciation. Bonus depreciation for 2025 went back up to 100%. It was been put into, Oh, it was only going to be used 40% for 2025. That was how it was being planned at the beginning of the year. But in July, we got that notice that now it's back to 100% bonus depreciation to be used for equipment. Also, we always have that section 179 depreciation that is still there. The limits have went up, of course, like they do each year. But having that 100 % bonus depreciation will help producers across the state help with that tax liability. Now, one caveat with that is that farmers can still elect to use that 40 %. And with the low net farm income, especially on the grain side of things, farmers might not need to use that whole 100 % bonus depreciation on their tax planning side of things.

[00:06:30.520] - Tarrah Hardin

There is still that way to use that 40% if that farmer decides that's the best route to go.

[00:06:38.160] - Caleb

I could see that 100% bonus depreciation really helping, especially on the livestock side this year. As you are well aware, and our listeners are well aware, beef cattle prices, even though they've trended back the past couple of weeks, still at record prices. I think if you're looking at a beef cattle operation right now, they're going to be flush with cash and a lot of capital there, and they may be able to take advantage to offset some of that tax liability with that 100% bonus depreciation there. That will be nice.

[00:07:10.480] - Tarrah Hardin

Most certainly. Like I said, there's always that little Section 179 that everybody is used to using and used to seeing, but having this bonus depreciation at 100% is very useful, especially for the beef farms this year.

[00:07:23.840] - Caleb

Okay. What other things may be changing in 2026 that previously was out there that we may no longer be able to have?

[00:07:34.920] - Tarrah Hardin

Not necessarily no longer be able to have, but one of the things that is changing for 2026 is reporting payments like your 1099s that go out. Typically, and especially for 2025, that is normally $600. If you paid somebody to do work on your farm, put up fences, or any type of contract work, it was always $600. Well, now in 2026, that will increase to $2,000, which is a big step up and wonderful for not only producers, but also their CPAs. Yeah, I'm good about. That's going to cut down on quite the forms going out at the beginning of the year.

[00:08:28.840] - Caleb

I'm just sitting here thinking myself on that side of things. I don't send out very many 1099s, but two or three, and by changing that to 2000, that will alleviate all of my 1099 reporting. So you just made my day on that end of things.

[00:08:44.280] - Tarrah Hardin

That's awesome. I mean, it will make a lot of people's day, believe me, especially that goes for your rents and everything, too, especially if you have running small pasture acres that fall under that $2,000. I mean, that's a considerable amount of money, not only that you're giving somebody else fill out these forms, but also tracking down information as well, because that sometimes can be difficult as well.

[00:09:05.540] - Caleb

Oh, yes, absolutely. That can be very difficult on that side of things. But that's awesome. That's good news on that side. That is awesome. One other thing that I know we've got on our list to cover here is going to be meals to employees. Tell us a little bit about that side of things and what you see coming there.

[00:09:24.420] - Tarrah Hardin

As of right now for 2025, if you provide meals to your that is only 50% deductible on your tax return. Unfortunately, coming into 2026, that is going away. There will no longer be deductible. That is quite the change. This has been a gradual process to eliminate this. In 2026, that is now going away. The meal is provided to employees for the convenience of the employer.

[00:10:01.040] - Caleb

All right. You still have 2025 to file that. When you're filing your 2025 taxes, correct, you still be able to use that as a deduction this year. But moving forward into 2026, that will no longer be the case, correct?

[00:10:17.160] - Tarrah Hardin

That is correct.

[00:10:18.220] - Caleb

Perfect. Just want to make sure that we get everything covered for our listeners on that side, that they don't have any questions there. All right. Moving on to the next topic that I know that we wanted to talk about was installment of capital gains on land sales. I know that there's some programs out there through Kentucky Farm Bureau and things like that for younger farmers to take advantage of for people selling property. But tell us a little bit about the capital gains on land transactions. It'll be changing.

[00:10:46.040] - Tarrah Hardin

For new for 2025 and moving forward on the federal side of things, there is now an election. If you sell farmland, that you can spread It's a lot of money. We get out that capital gains payments for four years. Capital gains, most of the time, it's long term capital gains, so it's quite the tax rate. That is a big help for the seller to be able to do. The only caveat with this is that the buyer also must be qualified to do this as well. They also have to be a farmer, and they have to make sure that the land will stay in production AG for 10 years after the sale of the date. That must be actually written into the land contract. Oh, for the seller to be able to qualify for this installment payment. There are some little caveats here and there with this election, that if sellers are going to do this, they really need to talk to a CPA just to make sure that they are dotting all the I's, crossing all the T's, to make sure that this is done correctly. The same on the Kentucky side of things. But to just talk to your CPA, make sure everybody is on page for this election.

[00:12:22.480] - Caleb

Yeah, I would say that one may be a little harder to track. I'm just thinking when you sell a piece of property, obviously, you collect a check that day. You never know what's going to happen the next 5, 10 years down the road. I could see that one being a little more challenging to track, especially when you get out there and you're 8, 9, 10, that area right there.

[00:12:47.640] - Tarrah Hardin

Right. I think this is great if the buyer has that plans to stay in. But as you know, with the current economy, it could be difficult.

[00:13:00.480] - Caleb

Yeah, no, that's exactly right. That gives us a perfect transition because one of the things that we were going to talk about was the current farming environment that we're in and what you're seeing on your end dealing with customers this time of the year. As we transition into that, what are you seeing right now with producers around your target area or your area that you're covering?

[00:13:23.580] - Tarrah Hardin

Well, we'll start on the on the green side of things and end on a happy note on the B side.

[00:13:28.720] - Caleb

Perfect. No, that sounds great.

[00:13:31.700] - Tarrah Hardin

On the green side, weather conditions haven't been very favorable throughout the year. Yields are coming in, especially low in some areas. We're expecting low net farm income. I think beginning of the year and through planting, we had this range of what we thought the net farm income would be. Unfortunately, I'm I'm thinking it's going to be even a little bit lower, considering what has happened, that farmers really can't control what is going on right now.

[00:14:14.040] - Caleb

Now, and also speaking on that from outside of my daytime job here as a lender, I'm also a farmer from a production-ag standpoint, raise row crop and cattle as well. I can tell you this from my personal standpoint, it was really dry this fall, and You may see this on your side with producers, but really dry this fall. We hopped on harvest really early, got beans out of the field, corn shelled, all of that. Then once we get finished up, now it looks like commodity prices have certainly started to rise due to China finally being able to buy some beans and things like that. I think we're going to see a lot of farmers fall into that same position this year. They went ahead and got crops out of the field with the weather, but they just weren't able to capitalize on a little bit higher price.

[00:15:02.010] - Tarrah Hardin

Yeah, and it's also the game, right? You can't predict the weather.

[00:15:07.700] - Caleb

No, you can't.

[00:15:08.480] - Tarrah Hardin

You can't roll when you need to.

[00:15:09.910] - Caleb

Yeah, that's exactly right.

[00:15:11.140] - Tarrah Hardin

And hopefully for the best outcome that you possibly can. Being That low net farm income on the green side of things. The cash, as you know, is just not there to be able to, even if they do need to prepay. We're running into some cash flow issues on the green side of things. We're typically not seen on the livestock side.

[00:15:36.520] - Caleb

This is where it would be a good time to have a diverse farming operation. Obviously, we try to preach that as well. Not having all your eggs in one basket really helps spread out the risk of the operation because you hit the nail on the head. When you start looking at these full-time row crop operators right now, things are really tight. Margins have retracted and really starting to have some issues on that earning statement as well. Moving on over into the cattle side. Tell us a little bit about that, what you're seeing on that side of things right now. Obviously, we can tell on this end of things, things look really good. But what are you seeing on your side there?

[00:16:21.780] - Tarrah Hardin

Great. This is the conversations I love to have and love to end on the good side of things, especially throughout the year, We've seen income be high, be steady, be consistent across the board. We are expecting some net farm income to be higher this year. A lot of my bee farmers, too, have struggled in the past several years. We're able to use some of this extra cash to pay down some debt, to reinvest within the farm, maybe do some fencing that we've put off for several years because the cash was just tight. We're able to do that. We're also now able to do some tax planning. In the past, there hasn't been a tax liability issue, but I know a couple of my guys moving forward to this year, they're like, Tara, We got to we got to figure this out sooner rather than later. One of their plans is maybe hold off on selling those last cold cows in December until January, February of next year to pull that income into another year.

[00:17:32.440] - Caleb

I think we'll see a lot of that in terms of deferment of income from December and try to move that over into January. We've got some producers that have been doing that for the past couple of years because this cattle market has just been on a steady increase over the past few years. It looks to be a trend that may continue, I guess, going forward here in 2026. As we wrap up here, it's been great talking about all these things with you and giving us the insight that you're going to be seeing and things that will be changing coming up in 2025 and 2026 with tax preparation. But give us some tips that might be helpful when gathering paperwork for our listeners. That way, when they do go in to see their CPA, that they've got everything they need and to complete a tax return and things that they may be missing on. Just give us some tips that may be helpful.

[00:18:27.160] - Tarrah Hardin

Just the main, it's simple, to be quite honest, Caleb. Just make sure you have that file folder. When you see them come in the mail, just place them all there and look over everything. Make sure you're not missing anything. One of the things that slows down my process, and I'm sure your process, too, is having those stragglers. Oh, I need this. I'm missing X, Y, and Z. Do you have it? Hunting for it. Just get that one spot that all the papers go to. Another tip is, too, if you know that you're going to have either a high high tax liability, go ahead and make that courtesy call to your CPA. Give them a heads up, because nobody likes surprises, right? No, that's exactly right. They may need to have some more time on their books to be able to do a more complex return that they're maybe not used to having to do for that particular operation. Just give them a little heads up. It's the biggest tip that I have.

[00:19:28.320] - Caleb

I would say this, too. This is just from a personal standpoint with me, but I think it's good practice. You may say yay or yay on that in the things, but I think it's always good to sit down the last few weeks of December and really see where you're at because that really tells you what you're going to be looking at going forward when you file those 2025 tax returns. It may also tell you what you need to change in the last couple of weeks of the year to be able to offset some of that tax liability. I've always thought that that's a good thing. It's a busy time of the year, obviously around Christmas time, but it's certainly a good time to sit down and think about tax preparation and what you're going to be looking at coming up in the next few weeks before you file those taxes in April.

[00:20:13.440] - Tarrah Hardin

I love that whole idea. It's also great, too, to sit down and… It's a good time to get those numbers, right? For inventory, for balance sheets. It's just December is busy, but it's also great. Make sure that balance sheet is as close as we can get it possible because not only does that help to know the farmer where they're heading and going, but also, Caleb, you appreciate a good solid balance sheet as well.

[00:20:40.270] - Caleb

Oh, yeah. No doubt on that in the things. It certainly makes the lending job a lot easier when we can sit down at your end and know exactly where inventory's cash levels and things like that on the financial statement are. Tara, we really appreciate you joining in today. It has been great talking with you, going over some of this stuff in terms of tax preparation, the trends that you're seeing, and some of the tips that you like to see for people to exercise. We really appreciate the time that you've taken out of your busy schedule to join us on Beyond Agriculture. We want to remind our listeners to go out and like, subscribe, and share our podcast. So thank you.

[00:21:18.380] - Tarrah Hardin

Thank you so much for having me.

[00:21:21.100] - Outro

This episode of Beyond Agriculture is brought to you by Central Kentucky Ag Credit. Thanks for listening to the podcast. Be sure to visit agcreditonline.com/beyondagriculture. Access the show notes and discover our fantastic bonus content. Also, don't forget to hit the subscribe button so you can join us next time for Beyond Agriculture.