Tax Planning Resources For Producers Who Received Loan Servicing Assistance Payments
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It’s that time of year … tax-planning season. Well, maybe taxes aren’t what you’re thinking about right now, but now is the time to start thinking about how to put yourself and your farming operation in the best possible position to lessen your tax burden. And, if you’re a farmer who received a loan servicing assistance payment under the Inflation Reduction Act, then you will want to check out these resources for information about ways to mitigate the tax consequence.
Information About Taxes For Loan Servicing Assistance Payments
On Oct. 18, 2022, USDA announced that distressed borrowers with qualifying farm loans would receive financial assistance. The payments, part of the Inflation Reduction Act, were automatic, and farmers who were experiencing certain types of financial distress might have received a loan servicing assistance payment.
For federal tax purposes, that financial relief payment is viewed as a program payment and it’s deemed to be a taxable event. Under the Federal Tax Code, recipients whose payments exceed $600 will need to file a tax return to comply with IRS regulations. Producers whose payment exceeds $600 will receive a Form 1099-G. The amount listed on that form represents the taxable income to the farmer that must be reported on Schedule F.
Additionally, if the interest paid by the farmer on the loan associated with the service assistance payment exceeds $600, the producer will also receive a Form 1098. A Form 1098 reports interest paid on loans. This interest may be deductible on your schedule F.
Everyone who received a payment will need to file a federal income tax return reporting the payment as income, regardless of their current income level, land status, current employment status, and even if they have not filed an income tax return before. Failure to file a return with the correct income included could result in additional amounts owed to the IRS for interest and penalties.
For more information about the tax impacts of the loan servicing assistance payments, you can visit the Agricultural Finance, Tax, and Asset Protection (AgFTAP) website at https://agftap.org. There, you’ll find a fact sheet that addresses the impacts of the loan servicing assistance payments and also addresses strategies to help mitigate the tax consequences. The fact sheet is available at https://agftap.org/home/resourcedetails?id=b4f40c55-d414-48f6-8985-2ab4d912bc4c. You can also view a webinar with the information at https://agftap.org/home/resourcedetails?id=37ff29b3-397d-4dfd-a98b-ba829b62397b.
To learn more about the potential tax implications of USDA program payments generally, you can visit www.farmers.gov/taxes and ruraltax.org. These webpages are current and are continuously updated with resources such as fact sheets and informational webinars.
The Agricultural Finance, Tax, and Asset Protection Portal
The AgFTAP portal is a resource to enhance farmers’ and ranchers’ ability to understand and navigate the farm business tax and asset protection strategies for their operations. It is part of the Farm Services Agency’s $10 million investment in its new Taxpayer Education and Asset Protection Initiative. To learn more about the program and its collaborators visit the AgFTAP portal at https://agftap.org.
AgFTAP Programs In Maryland
In Maryland, AgFTAP collaborators are the University of Maryland Extension’s Shannon Dill and ALEI’s Nicole Cook who have teamed up to provide taxpayer education and resources for farmers, ranchers and agricultural educators.
On January 6, 2023, you can attend the Maryland Grain Marketing Workshop for a webinar hosted by the University of Maryland Extension covering farm tax issues and tax planning. You can register for the webinar here. The webinar is from 9-11am.
And be sure to watch this space for more information about future programs about income taxes and USDA program payments, asset protection, and other timely farm tax issues.