||This Month in Ag Connection|
New Generation Cooperatives Heighten Interest in Tax CreditsThe Missouri Agricultural and Small Business Development Authority provides new generation cooperative incentive tax credits to promote private investment. The goal is for new generation cooperatives to process Missouri agricultural products into value-added goods, providing economic benefits to agricultural producers and creating jobs for Missourians.
An individual, partnership, corporation, trust or limited liability company investing cash funds into a qualified new generation cooperative is eligible for state tax credits. The amount of the tax credit is determined using a formula, based on the amount of the investment and several other factors.
For tax credits to be issued, the new generation cooperative must be organized, reports and applications filed, and approved by the Missouri Agricultural and Small Business Development Authority. After investing in a new generation cooperative, each member is responsible for filing an application for the tax credits.
Tax credits may be assigned, transferred, sold to another taxpayer and the new owner has the same credit rights. Credits must be used to offset tax liability in the year of the investment. Remaining credits may be carried back, up to three previous years, or forward up to five years.
For more information contact the MO Agricultural and Small Business Development Authority at (573) 751-2129.
(Author: Mary Sobba, Farm Management Specialist, University Outreach and Extension)
Marketing Research -- Getting the Best!
Eighty percent of new products and services fail within three years. Many of these failures are a direct result of poor marketing research.
Marketing feasibility research is critical to develop business and marketing plans. Quality research will answer the following questions:
There are two forms of market research – primary and secondary. Primary research is conducted for specific purposes to answer specific questions, making it costly and time-consuming. Independent marketing research companies use interviews, surveys, focus groups and expert opinions to conduct primary research.
Secondary research provides a starting-point for agri-entrepreneurs to begin market examination. It is less expensive than primary research, but fails to provide information specific to a business, product, or service. This research is published by sources like the United States Census Bureau, USDA, University Outreach and Extension, trade publications, etc., and is available to everyone. Thus, it does not provide an advantage exclusive to any one entity.
Determining the amount and quality of research needed depends on project scope and goals of the agri-entrepreneur. Business ventures generally need more research as investment and risk increase. The product and industry also affect market research needs. For example, predominate market research associated with evaluating ethanol production feasibility is secondary research and primary research is needed when determining the market for a new branded meat product.
Finding qualified research companies can be a difficult task. Agri-entrepreneurs can contact the following sources to identify reputable market researchers:
These sources can be found on the Internet or in your local library.
Selecting firms is the next challenge. Matching needs of value added businesses with appropriate market research firms is key in attaining usable and actionable information. Agri-entrepreneurs need to look for three main qualities:
Request a proposal from the top three or four firms. Proposals should be free or cost a minimal amount. Review and evaluate each proposal according to the following variables:
Agri-entrepreneurs need to prioritize these variables to select the firm that best meets their needs. Regardless of project details, marketing research is expensive. If a proposal looks too good to be true, it is most likely. Remember, you get what you pay for!
Marketing research does not guarantee success nor should it stop with one study. Providing an independent and objective opinion about new ventures is the greatest benefit market research firms can provide their clientele. Markets, consumers, and competition change continuously, therefore value added ventures must be flexible and prepared to change.
Today’s niche markets create an opportunity for value added agriculture. Agri-businesses must focus on customer needs. Research provides the information necessary to minimize risk of producing and marketing value added products or services.
(Author: Nancy Giddens, Value Added Marketing Specialist)
Taxation Tidbits: For Year-End Income Tax Planning
Prior to year-end is an excellent time to estimate taxable income and consider appropriate adjustments. To facilitate this task a “2001 Federal Income Tax Worksheet” is available by clicking here. (PDF format, requires Acrobat Reader.) Also available is a 2001 Tax Rate Schedule available by clicking here (PDF format). Click here to obtain a free copy of Acrobat Reader.
Most of the provisions in the Tax Relief Act of 2001 will not take effect until 2002. The events of September 11th are prompting a discussion of enacting additional tax relief to provide current-year economic stimulus. Thus, additional late-in-the year tax changes are possible that would be effective for the 2001 tax year.
Section 179 Deduction: This year the maximum deduction increased to $24,000. Section 179 can provide year-end taxable income adjustment.
Prepaid Expenses - Financed by a Subsidiary of the Seller: Debate continues among tax professionals regarding the timing of the deductibility of purchases (corn seed, for example) financed by a subsidiary of the seller. A cash-basis taxpayer cannot deduct the expense of supplies financed by the seller – until the financed amount is paid. Many tax professionals believe the IRS and tax courts will hold the seller and its financing subsidiary as “one and the same”. Proceed down this path with caution until there is an IRS ruling or case law.
Prepaid Expenses – Business Purpose: A 2001 U.S. Court of Appeals case involving a Missouri taxpayer revealed the importance of establishing the “business purpose” for the prepayment of expenses. If a valid business reason does not exist the IRS will disallow the deduction for the prepayment. Too frequently prepayments resemble deposits rather than the advance purchase of specific supplies or the locking-in of a supply or price.
More Information on Farm Taxation: Tax forms, instructions, or publications can be ordered from the IRS by calling 1-800-829-3676 (1-800-TAX-FORM). Two very informative web sites to utilize are: http://www.irs.gov/smallbiz/agriculture/index.htm maintained by the IRS and http://agebb.missouri.edu/agtax/index.htm maintained by Parman and the AgEBB staff. For year end tax planning forms, contact your local University Outreach and Extension Center or click here to visit the Ag Connections Web page.
(Author: Parman R. Green, University Outreach and Extension Farm Business Management Specialist)
Popular Area Grain-Marketing Newsletter Now on MU Statewide Value-Added Website
When Melvin Brees was a regional farm management specialist at Fayette, Missouri, he wrote a grain-marketing newsletter for area farmers. Through word-of-mouth the newsletter distribution spread across the state -- and beyond. When Brees was promoted to state extension value-added specialist in Columbia, the weekly newsletters stopped. However, by popular demand, the newsletter is back -- in a new format.
The frequency has changed to monthly. And, it's distributed only on the Internet, not by mail.
The October issue of "Decisive Marketing," is packed with helpful advice. For openers, he asks "Low Priced Soybeans and Corn, Store or Sell? In that article he looks at the October USDA Supply and Demand Report, which has been described as a "shocker." Brees outlines different corn and bean marketing strategies, including income-tax considerations. The second article is "Corn Price Risk for Value-Added Producers." He reports that increasing grain supplies may require more risk management. The electronic version allows Brees to go into more details.
(Author: Duane Dailey, Senior Editor, Extension and Ag. Information, University of Missouri)
A number of resources are available through the Agricultural Electronic Bulletin Board. The AgEBB web address is: http://agebb.missouri.edu/
Examples of information that might be useful as we end the year are:
This is just a sample of the information that is on AgEBB. You should visit the site and find the vast array of information they have put together.
(Author: Don Day, Ag. Eng./Info. Tech. Spec., University Outreach and Extension)
Ag Connection - Ag Connection Newsletter, November 2001