Shoutout to Brianna Schroeder for a great summary of the Indiana Supreme Court case Himsel v Himsel, decided on February 21, 2020. Please check out her well-written and very readable article via the link, below:
This is a case involving the Indiana Right to Farm Act, and particularly, the Indiana Supreme Court makes clear that modern agriculture practices – including contemporary livestock farming – is consistent with historic agriculture use. Quoting from the article:
“The farmers and the amici argued—and the Court agreed—that the Act preserves farmland by protecting farmers against nuisance lawsuits even if the modern farm arrives after the neighbors built their homes in the area. The change from cropland to livestock farming is not a statutorily “significant change” that would remove the Act’s protections. The farm was used for agricultural purposes in general at least as early as 1941, and neighbors’ non-farming land use began well after 1941. The neighbors knowingly built their homes in an agricultural area. That was enough for the Act to apply. The Court also rejected neighbors’ attempt to “repackage” their nuisance claim as one for “trespass” or “negligent siting.” ”
The Indiana Supreme Court ruled on several other principles of law which support the Indiana Right to Farm Act in general, and as applies to this case.
All farmers should (continue to) be considerate and compassionate toward residential neighbors, However, residential neighbors need to be aware of modern farming practices, now, and in the future.
In many farm families, children help their parents with chores, caring for the animals, or tending the crops. When they’re young, they often just want to help and “do what mom and dad do.” But once they get old enough (and experienced enough) to perform more skilled or “grown-up” tasks, many farmers want to pay their children for their labor at a rate more in line with the fair market value of their labor. When farmers start paying their children for work on the family farm, one general question invariably comes to mind: “Do my kids need to file a tax return?”
Here are some frequently asked questions about when your children need to file taxes and paying them for work on the farm:
Q: When do my children need to start filing taxes?
A: Generally, you can assume that your child needs to earn the “standard deduction amount” before you must file taxes. The standard deduction amount is $12,400 for a single person in 2020. However, if your children have W2 income they might want to run the numbers to see if they qualify for a refund of the withheld taxes from that W2 income, in which case filing a tax return would be a good idea.
Q: What if my child is an owner in the family farm and receives income through the family farm operation, or has income from dividends or interest on investments?
A: If a minor has “unearned income” in excess of $1,100, then they will need to file a tax return, regardless of earned income. A minor is taxed at their parents’ rate on any taxable unearned income. For farm kids, this becomes an issue if they have an ownership interest in a pass-through farm entity and receive a K1. If a child’s unearned income is only on bank account income, then filing a tax return is usually not necessary unless they approach the standard deduction amount in earned income.
Q: How should I report my children’s’ farm income that I pay to them for their work on the family farm?
A: It depends, based on how much that farm income is.
If your children’s total earned income for the year is under $600, then you don’t need to do anything.
If your children will likely be well within the $12,400 mark for their 2020 income but over $600, a 1099 is a good idea. If their income is within the standard deduction amount then they won’t owe any income tax on earned income, and with a 1099 they won’t have to go through the process of filing a return to get a refund of withheld income. On the other hand, YOU will be able to deduct the amount that you pay them as a legitimate farm expense.
If your children will be earning close to $12,400 mark and you are already issuing W2’s to other employees, then consider adding your children to the payroll system and issuing them a W2 as well. [NOTE – if you put your children on your payroll, remember that they are also subject to consideration in worker’s comp and unemployment reporting].
BONUS: If you pay your child through normal payroll, your child has the opportunity to start funding an IRA. While retirement years seem far, far, away for a minor, a small investment in a tax-deferred account can grow significantly over your child’s working life.
It’s not news that technology is both a blessing and a burden. Every new iteration of today’s farm equipment is more efficient and allows the farmer to manage acres despite an ever-dwindling labor pool.
Today’s technologically advanced farm equipment is computer-controlled from the steering wheel to the tractor tires. Unfortunately, John Deere uses proprietary software to control all the equipment operations, and even simple malfunctions require special software to diagnose and repair. Of course, only your authorized John Deere dealer has access to that software, and if it is late or your farm is too far away from a dealership (or the dealership doesn’t have enough technicians to serve all the customers), a farmer could be stopped indefinitely. Every hour of downtime costs money.
In protest, some farmers are turning to computer hacks or black market copies of diagnostic software so they can make their own repairs. Technically, this violates the intellectual property of John Deere. Practically, farmers believe they have no choice since John Deere is unable to provide any reasonable alternative.
Iowa is considering legislation that would allow farmers to use diagnostic software without penalty. This is causing quite a stir in other technology markets. While I disagree that AT&T and Microsoft would suddenly decline to sell their products in a state that allowed device hacking, I certainly can see cause for concern.
There should be a “happy medium” where both sides can prosper. The manufacturers should provide licensed diagnostic software that allows the farmers to make their own repairs. Those that are geographically remote or mechanically capable will take advantage of the opportunity, but my expectation is that there will still be a substantial market for dealerships to provide technical and mechanical service.
Farm labor is becoming too scarce – and this includes qualified technicians. John Deere should embrace this change, and not only provide diagnostic software but teach classes (and provide certification). A smart corporation can figure out how to profit from a model that make the customer happy.