in this issue - agcreditonline.com...brandon works for genex cooperative, inc., of shawano,...

Central Kentucky Ag Credit • www.ckaca.com • Issue 4, 2003

In This IssueOn the road . . . . . . . . . 4

Tobacco IssuesEverywhere! . . . . . . 8 & 9

Blackout: The Day the Lights Went Out . . 11

North AmericanInternational Marks30th Anniversary. . . . 13

Tax Understanding Can Save Big Bucks . . . 14

Ag Credit Financials . . 15

2 • Central Kentucky Agricultural Credit Association

Central KentuckyBranch Offices

Danville OfficeHighway 127 Bypass • Danville, KY 40422859-236-6570 - 1-800-589-4261Dale T. CinnamonAsst. Vice President& Branch ManagerBrad GodbeyLoan Officer & Trainee

Lebanon OfficeCampbellsville Road • Lebanon, KY 40033270-692-4411 • 1-800-264-0402Harry YoungAsst. Vice President& Branch Manager

Lexington Office640 South Broadway • Lexington, KY 40508859-252-4717 • 1-888-820-3270Shane TurnerAsst. Vice President &Regional Lending Mgr.Russell GrayLoan Officer

Paris Office1440 High Street • Paris, KY 40361859-987-4344 • 1-800-613-4292Donna Sharpe-CassityLoan Officer Margie RoeLoan Assistant

Richmond Office1000 Ival James Blvd. • Richmond, KY 40475859-623-1624 • 1-888-820-3221John ThomasAsst. Vice President& Branch ManagerJonathan NoeLoan Officer Trainee

Stanford OfficeU.S. Highway 27 • Stanford, KY 40484606-365-7500 • 1-800-467-0039Ronnie BradshawAsst. Vice President& Branch ManagerDion MullinsLoan OfficerJohn PeekLoan Officer Trainee

Country Mortgage LoansScott Maas

Manager Country Mortgage Loans1-888-820-3221

Holiday ClosingsAll Central Kentucky Ag CreditOffices will be closed on the

following holidays:

ThanksgivingNovember 27-28

(Thursday & Friday)

ChristmasDecember 24-25

(Wednesday & Thursday)

New Year’s DayJanuary 1, 2004

(Thursday)

Joe GogginAsst. Branch Manager& Loan OfficerKim Elliott, Tina Roney& Lisa YeagerLoan Assistants

Donna Mudd & Jeanine WilliamsLoan Assistants

Jonathan ParkerLoan Officer TraineeLinda HaleyLoan Assistant

Peggy Powell &Teresa ThomasLoan Assistants

Felicia MaddenLoan Assistant

American families enjoy high-quality,affordable food and fiber, thanks to

the determination of our nation’s rural community:

Ag Credit supportsagriculture and rural living with

sound financial services.

Modern agriculture is a capital-intensive and competitive

business. Those who live and work inrural America want and need a financialpartner with extensive resources and abroad range of services. Ag Credit is apartner that understands Wall Street,Main Street and special farm and ruralneeds throughout Central Kentucky.

Ag Credit helps maintain the quality of life throughout Central Kentucky

and on the farm through our constant commitment to competitive

lending, expert financial services and advice, and a feeling of

partnership with our customers.

Ag Credit Leader • 3

In November2003, many ofour membersreceived acheck for theretirement oftheir 1997

Qualified Allocated Surplus. Retiringthat surplus was an historic eventfor the association, and one thatwe've worked hard to achieve. Itwas "Good News" for our associa-tion and its members for severalreasons:

• It indicated that Ag Credit wasfinancially strong.

• It was not taxable income to the members who received it.

• It reduced their effective borrowing rates.

You might ask, "How did thesemembers qualify for this refund?The answer is simple: They hadloans with us in 1997. That was thefirst year that we declared apatronage refund, but it certainlywasn't the last.

Surplus and the FinancialStrength of your Association

Your association has declared apatronage refund each year since1997. In each of those years, we'vepaid a portion of the patronagerefund in cash – 30 percent – andpaid the balance in AllocatedSurplus. Allocated Surplus is a por-tion of the patronage refund yourassociation retains for the purposeof accumulating capital. Before yourboard of directors approved theretirement of the 1997 AllocatedSurplus, it closely reviewed theassociation's financial position.

Like every business, your asso-ciation needs capital to grow and tomaintain its operations on a soundbasis. We get part of capital fromthe stock you buy when you obtaina loan from us. But stock suppliesonly a small portion of the totalcapital your association needs tooperate. We obtain the majority ofour capital from our earnings, thesame way most farming operationsand other business do.

President's Message

Surplus Retirement – Our GoalsWe were able to retire the 1997

Allocated Surplus right on schedule– five years after it was declared --and that's an achievement we'reproud of. Our goal is to remainfinancially strong so we can contin-ue to retire or revolve QualifiedAllocated Surplus on a 5-year cycle.

By using Central Kentucky AgCredit for your farm and homecredit needs – and by telling othersabout us – you'll help make thispossible.

Surplus RetirementReduces Effective InterestRates

The retirement of theAllocated Surplus reduces theeffective interest rates on bor-rowers' loans. Like otherlenders, Ag Credit chargescompetitive interest rates onits loans. Unlike other lenders,Ag Credit returns its profits toits borrowers, thereby reducingtheir effective cost of borrow-ing. That's the benefit of doingbusiness with your Ag Creditcooperative.

Surplus Retirement andTaxes

When we issued the 1997patronage refund in March1998, we paid 30% of therefund to members in cash.We retained the remainingamount in Allocated Surplus.However, each member whoreceived a patronage refundthat year reported the entireamount of the patronagerefund - the cash and AllocatedSurplus portions - as incomeon their 1998 tax returns.Therefore, they have alreadypaid taxes on the AllocatedSurplus, and will owe no addi-tional taxes for the retirementof the surplus.

by Larry K. Stone, President & CEO

Protectand ServeIn recognition of theirdevotion to duty andcountry, the Congressof the United Statesprovided additionalrights for members ofthe Armed Forces,reserve and NationalGuard, under theSoldiers and SailorsCivil Relief Act of 1940.Special provisions applyto their financial obligations during theirtime in active duty. Inthis time period, financialinstitutions may notcharge these persons arate of interest greaterthan 6 percent per year.Certain conditions mayapply. Other benefitsare also available. Seeyou local Ag Creditoffice for details. Hatsoff to the men andwomen who serve ourcountry.


Getting started in agriculturecan be a challenging task. BrandonGriffith of Lincoln County has takenon the challenge with the supportof his family, friends and the people at Ag Credit. Brandon, along with

his two brothers and sister, are chil-dren of Frank and Sue Griffith ofLincoln County.

Part of Brandon’s early involve-ment in agriculture was with theFFA/4-H show circuit. With each show, Brandon learned more aboutthe cattle industry and the peoplein it. He bought his first commercialheifer at ten-years-of-age. Fromthat beginning it became a one-step-at-a-time process. Selectingand keeping back heifers, sellingbull calves, making some purchases… he slowly grew his operation.

Brandon knows the importanceof good genetics and has traveledacross the country to obtain cattlehe wanted for his operation. He is

Leaderis published quarterly forstockholders, directors,business associates andfriends of the CentralKentucky Ag CreditAssociation.

President & CEOLarry K. Stone

Board of DirectorsJames L. May ChairmanJames W. Waggener, Vice Chairman

James A. LyonsOscar PennJerry RankinDavid C. Sparrow

EditorRobert Anderson

Address ChangesAddress changes, questionsor comments should bedirected to Central KentuckyAgricultural Credit Associationby calling 1-859-253-3249, or by writing P.O. Box 1290,Lexington, KY 40588-1290.

Financial InformationThe Farm Credit Administra-tion does not require theassociation to distribute itsquarterly financial reports tostockholders. However, copiesof its complete report areavailable upon request. Theshareholders’ investments inthe association are materiallyaffected by the financial con-dition and results of opera-tions of AgFirst Farm CreditBank and copies of its quar-terly financial report areavailable by writing PattiTrotter, AgFirst Farm CreditBank, P.O. Box 1499,Columbia, SC 29202-1499.

currently up to seven commer-cial cows, plus eight registeredAngus females. Brandon’s cattleare kept on his dad’s home farmin Lincoln County, but that maysoon change.

Brandon is making arrange-ments to obtain a 42-acre farm in Lincoln County. Following hisfather’s lead, Brandon came to

Ag Credit for financial assis-tance. Brandon says, “Ag Credit was easy to work with … withAg Credit’s background in agri-culture, I felt it was easier totalk with them.”

On The Road…

“…To S

by Robert Anderson

“Ag Credit waseasy to

work with …”

Brandon Griffith


Season’s GreetingsFrom All Your Friends At

Central KentuckyAgricultural Credit Association

Danville - Lebanon - Lexington - Paris -Richmond - Stanford

Thought for November“Let us come before his presence

with thanksgiving;and show ourselves glad in him

with psalms.”The Book of Common Prayer

1928

Thought for December“At Christmas play and

make good cheer,For Christmas comes

but once a year.”A Hundred Good Points of Husbandry;

The Farmer’s Daily Diet.By Thomas Tusser

1557

Ronnie Bradshaw, assistantvice president and branch man-ager for the Lincoln CountyBranch of Ag Credit, echoesBrandon’s comments regarding agood working relationship andgoes on to say, “Ag Credit is gladto work with young farmers whoare just getting started.”

What does the future hold?Brandon is in his second year atWestern Kentucky University,where he is studying AnimalScience. It will take a few moreyears to complete his formaleducation. Back on the farm,Brandon is considering some bulltesting to continue to market anddevelop his line of cattle. Then,there may be a “new” farm to develop. Brandon knowsthat hard work and a plan canbring success.

As if this wasn’t enough to keep a young man busy,Brandon works for GenexCooperative, Inc., of Shawano,Wisconsin. Brandon had gone to work for Genex while still asenior at Lincoln County HighSchool. Due to his hard work andperformance for the company, heis currently the beef representa-tive for Lincoln and surroundingcounties.

Our hat is off to a youngfarmer who is well along hisway as part of the centralKentucky agricultural community.

Success.”

Ag Credit’s status as a cooperative is important toour customers, because itmeans they have a say in

how we do business and thatour earnings stay in the rural

community setting.Photo by Robert Anderson


The Danville Branch of Central Kentucky Ag Credit has been undergoing extensive remodeling, including an addition to the existing office. Construction continues, but will soon be completed.Customers and employees are looking forward to completion of the improved facilities. Danville’s Ag Credit Branch improvement isjust another way of saying, “thanks to you for being an Ag Creditmember-customer!”

Under Construction

DanvilleBranch

Mission StatementIt is the objective of the Central Kentucky Agricultural Credit

Association (“Ag Credit”) to be the premier provider of short-, intermediate- and long-term agricultural/rural home credit to eligible borrowers within its territory. The association will be financially sound for the benefits of all its member-farmers and flexible in providing credit and financially related services to benefit both the individual borrower and the lender.


At the Danville Branch -Lisa Yeager has joined the AgCredit team in Danville and willserve as a loan assistant. Priorto her employment with AgCredit, Lisa was an instructorwith special children at KingMiddle School in Mercer County.She and her husband, Jimmy,are parents of four children,

including Nickie, Buddy, Danni and Staci and thefamily resides in Mercer County. Lisa likes tocoach Little League Softball and is interested inphotography. As though she isn’t busy enough,Lisa is also attending Eastern Kentucky University,to earn an associates degree in Office SystemsTechnology & Management, with a minor inHuman Resources.

At the Richmond Branch –Teresa Thomas has been named aloan assistant with Ag Credit’sRichmond Branch. She assumesher role following extensive workin the financial industry. Mostrecently, she worked with PBKBank in Richmond, and prior tothat time she worked with FirstSouthern Bank in Richmond.Teresa is married to Russell Thomas and they areparents of three children, including Brad, Tiffanyand Tara. A native of Richmond, Teresa and herfamily reside there. She enjoys sports, gardeningand travel.

At the Stanford Branch –Dion Mullins has joined the AgCredit team in the StanfordBranch as a loan officer. Heearned his degree fromMorehead State University,where he majored in Finance,with an Accounting minor. Priorto being named to the AgCredit team, Dion worked with

Farm Credit Services in Danville as a financial ser-vices officer. He is a native of Winchester in ClarkCounty. Dion resides in Garrard County, where herecently built a new home. He played football andbaseball in both high school and college and main-tains a hearty interest in sports of many types.

An Open House was held on October 3 at AgCredit’s new Richmond Branch Office. The eventdrew many visitors from throughout the region, asmember-customers and friends toured the newfacility, while also enjoying refreshments and gifts.Completion of the Richmond office building final-izes another phase in facility upgrades and expan-sions that have been underway in many of AgCredit’s offices in recent months.

Richmond Ag Credit BranchHosts Open House

Shown here during Open House activities at thenew Ag Credit Richmond Office are (front row, leftto right): Jim May, chairman of the Ag CreditBoard of Directors; John Thomas, assistant vicepresident and Richmond branch manager; TeresaThomas, Richmond loan assistant; Peggy Powell,Richmond loan assistant; and Larry K. Stone,president and chief executive officer of CentralKentucky Ag Credit. Shown on the back row (leftto right) are: Jonathan Noe, Richmond loan officertrainee; Scott Maas, manager, Country MortgageLoans and G. D. Perkins, builder of the newRichmond facility.

New to the Ag Credit Team

Why should farmers rely on Ag Credit?Because Ag Credit is reliable, competitive,

knowledgeable, customer-ownedand passionate.


Tobacco Issues Everywhere!by Robert Anderson

uring a recent conversationwith Harry Young, manager of Ag Credit’s Lebanon Branch,Harry observed that Congress ismaking its most serious effort yet to come to an agreement toregulate the sale and marketingof tobacco.

A coalition consisting oftobacco advocates from thetobacco industry, tobacco grow-ers and health advocates havedescended into the Halls ofCongress to hammer out a deal.

As with any proposal, therewill be winners and losers. And,with competing interests, com-promises will still need to bemade. Harry goes on to say,“most observers would be surprised if anything happens by January of 2004.”

Proposed House and SenateBills contain differences in timingand amounts of money that willbe provided to current growers.The Senate is recommending a 6-year payout, while the Houserecommends 7-years. The Senatesuggests a total of $12 billion,while the House recommends $15 billion. Conference commit-tees will need to work out anydifferences to produce a bill thatwould still need to pass both theHouse and the Senate beforebeing signed into law.

Under Phase II, paymentswould come directly from tobaccocompanies. Under a buyout, thegovernment would guaranteepayments, then assess tobaccocompanies for the money. At thispoint, under the current Phase IIagreement, those paymentswould stop.

Under terms of the proposedbuyout, growers would switchfrom a quota system that is tiedto the land, to a permit systemthat is tied to the person growingthe tobacco. There are still manyunanswered questions regardingthe new marketing system.

Change is in the wind. To discuss these issues in moredetail and to determine how theymay affect your farming opera-tion, stop by your Ag Credit officeand talk with the experts in agricultural finance.

D

Production of burley tobaccowas forecast in September bythe Kentucky Ag StatisticsService at 194-million pounds,down two percent from the2002 estimate. Yield per acre was estimated at 2,000pounds, up 85 pounds fromestimates a year ago.


Central Kentucky AgriculturalCredit Association

World Wide Web and CKACA.COM

Privacy PolicyAt Central Kentucky Agricultural Credit

Association (Ag Credit), we recognize yourexpectation of privacy and confidentiality of personal financial information when seeking theassistance of outside professionals to obtaincredit. We have taken great care in establishingand implementing policies and procedures andhave committed to an ongoing review of thosepolicies and procedures to protect your personaland financial information.

To review Ag Credit’s entire privacy policy,see the World Wide Web at www.ckaca.com.

Ag Credit offers a broad and diverse range of financial products and services to member-customers. After all, our

very mission is to help ensure the financial health andwell-being of our customers.

Ag Credit is acustomer-owned lending

institution that is dedicated toimproving the quality of life

throughout the rural areas ofcentral Kentucky.

Source: Report for CongressU.S. Tobacco Production,Consumption, and Export Trends 6-3-2003, C.R.S. The Library of Congress


How AboutThat AutoDraft?

Ag Credit’s AutoDraft service is not a NASCARracing event, but it sure can make doing businessfaster and more convenient!

The AutoDraft service creates a way for member-customers to make payments withoutthe worry of deadlines, mail delays or other mat-ters that simply get in the way of daily business.

AutoDraft provides you with six (6) times during the month when you can make your pay-ment, a great benefit for managing your cashflow. You can be an AutoDraft user by stopping by your Ag Credit office to fill out a simple authorization form. Then, you can relax and enjoy the convenience!

There’s more, too! If you sign up for theAutoDraft program by the end of December, you’ll be eligible for a travel bag drawing that will be held at each of Ag Credit’s six branch offices.

End your current year with this convenient service. Start your new year with a great business tool. It’s free and another service offered by Ag Credit to make your life easier.

OurHomeland

This beautiful scene was captured as a photograph byAg Credit’s Robert Andersonas he traveled on business incentral Kentucky this year.We’re sharing the beauty with you as a reminder thatbreathtaking landscapes andthoroughbreds of this qualityare only found in the lushfarmlands of Ag Credit’s central Kentucky region.

How AboutThat AutoDraft?


It may be some time beforeU.S. and Canadian investigatorsreach conclusions regarding thesequence of events that causedthe huge blackout that cascadedthrough several states andsouthern Canada on August 14.The North American ElectricReliability Council (NERC) deter-mined that the blackout beganat just after 4:00 p.m. (EDT)that day, when major losses ofelectric load occurred in theNortheast and Canada. Multipletransmission lines and dozens ofpower plants tripped off in amere nine seconds.

Hardest hit areas wereMichigan, Ohio, New York,northern New Jersey, south-western Connecticut andOntario. The disturbancesaffected an estimated 50 millionpeople. Officials of NERC saidinitial investigations indicatedthe blackout began with thetripping of three, 345-kv linesowned by FirstEnergy in Ohio,

near Cleveland. Line failuresstarted at just after 3:00 p.m.(EDT), an hour before theblackout struck. However, withthat overview in sight, investi-gators of the August 14 black-out say thousands of pages ofdata will be analyzed before acomplete picture is obtained.

Whatever the precise causeor causes, the blackout that hitthe Northeast, Midwest and

Canada affected dozens of pub-lic power utilities and the peoplethey serve.

While the August 14 black-out did not affect residents ofthe Central Kentucky region, the power outage certainly rais-es a need to be alert to futureincidents that could take placein the area. Today’s modern,reliable energy transmissionservice consists of a complexnetwork of power generationplants and transmission lines,combined with distribution linesand facilities that ultimatelybring power to centralKentucky’s homes, businessesand farms. In reality, a poweroutage incident many milesfrom this area could haveimpact on service that is provid-ed in central Kentucky.

A conversation with DanHitchcock, a customer servicerepresentative with Inter-County Energy Cooperative,confirmed that informationregarding what you can do inthe event of power interruptionscan be obtained in advance onat least two World Wide Websites. Dan said Inter-CountyEnergy’s web site can beaccessed at www.intercountyen-ergy.net. He also said goodinformation regarding powerusage, failures and a variety of

other information is available onthe web site that is maintainedby the Kentucky Association ofElectric Cooperatives, whoseheadquarters are in Louisville,KY. Their web site address iswww.kaec.org.

There are likely homes in AgCredit’s 17-county service areathat receive their electricityfrom sources other than Inter-County Energy Cooperative. Inthose cases, just do a “google”search on your computer andyou’ll likely find that your elec-tric service provider has a website that will also provide goodinformation. If that fails, callyour provider and request

advance information regardingpower outage incidents.

Ag Credit’s Robert Andersonis also quick to point out thateveryone should “study up” onwhat to do during power out-ages before they happen.Robert, who maintains AgCredit’s computer network, said,“when the power goes out, yourcomputer will go out, too!”

So, it is wise to spend a bitof time in advance learningwhat to do, where to go andhow to react before a poweroutage happens. The advicecan be handy, even if the poweroutage is relatively small suchas those sometimes experiencedduring ice storms, high winds orother acts of nature.

Blackout: The Day the Lights Went Out

INFORMATION SOURCES:American Public Power

AssociationInter-County Energy

Cooperative

...the power outagecertainly raises aneed to be alert...

...“study up” onwhat to do duringpower outages...


ExpertServices andAdvice.

Ag Credit people understand agriculture

and life in rural America. We live and work

there. Most of our farm loan officers hold

degrees in agriculture, and many of our

employees are only a generation removed

from life on a farm.

Our customers tell us they place high

value on building a relationship with a

lending partner who understands the

dynamic needs of rural communities and

who is a specialist in rural and agricultural

financing.

Ag Credit offers much more than just

a loan – we offer more than 65 years of

rural financing expertise and deep,

personal knowledge of local agricultural

and business practices.

Central Kentucky Ag CreditAssociation

Contact Your Nearby Ag Credit Branch

for Full Service

www.ckaca.com


The North American International Livestock Expositiontakes place during the first two weeks of November everyyear, and this year marks the 30th time the big expo hasopened its doors to livestock producers and worldwide visitors. Even though the exposition is an international event that draws visitors from 48 states and over 15 foreigncountries, dozens of central Kentucky farm and educationalleaders participate in many expoevents.

David Sparrow, who serves on Ag Credit’s Board ofDirectors and Joe Goggin a loan officer with Ag Credit’sDanville Branch are among those whose service to the expo

is extensive. David is superintendentof the Dairy Cattle Division, while Joeis a well-respected leader in purebredcattle shows at the North AmericanInternational. University of KentuckyExtension Agents, teaching specialistsand many area business leaders also perform vital leadership functions at the exposition.

Throughout the two-week run ofevents, over 1,000 people serve on a volunteer basis to make the expo a success. Many of them are fromright here in central Kentucky. Wesalute them for a job well done asthey support the world’s largest,purebred livestock exposition.

Thirty years ago, the exposition featured 2,500 entriesin purebred beef cattle competition, and visitors wereprimarily exhibitors who competed in the show rings.This year, over 22,000 entries were confirmed at the

North American International andgate attendance tops 225,000 visitors annually.

Nine livestock types now competefor international honors, as com-pared with only beef cattle threedecades ago. Among livestock typesthat compete at the big expo arebeef cattle, dairy cattle, sheep, dairygoats, swine, quarter horses, drafthorses, llamas, alpacas and stockdogs. The total purse for all eventsis nearly $750,000, and the totalamount of indoor, climate-controlledspace that is used by the expositionexceeds one million square feet.

North American International Marks 30th Anniversary

North American International Marks 30th Anniversary


This year has been interesting formany central Kentucky farmers. With2003 traditional tobacco incomedeclining, many farmers haveexpanded beef operations, only toexperience spring weather problems,followed by a fortunate improvementin cattle prices this fall.

Just like the weather and farmprices, congressional action on taxlaws is unpredictable. Gone are thedays when Wilbur Mills and DanRostenkowski controlled the HouseWays and Means Committee wheretax legislation originated. Today’sCongress changes tax policies fre-quently, with many of those changesbeing temporary or phased in-and-outin order to balance budgets and getlegislation passed.

In 2003, Congress passed theJobs and Growth Tax ReliefReconciliation Act to provide tax reliefto nearly every individual and busi-ness taxpayer. Among other changes,the 2003 Act reduces the 27% federaltax rate to 25% and the 30% rate to28%, with similar reductions for high-er brackets. The Child Tax Creditincreased $600 to $1,000 per year fortax years 2003 and 2004, thus bene-fiting families with dependent childrenunder 17. Dividend income receivedin 2003 through 2008 is now subjectto a maximum federal tax rate of15%, with those in the 10% and 15%regular tax brackets paying only a 5%tax.

Long-term capital gains incurredafter May 6, 2003 through 2008 willbe taxed at 5% for those in the 10%and 15% regular tax brackets and ata maximum rate of 15% for all thosein higher brackets. The Capital GainsTax Reduction should be especiallybeneficial to farmers who are offeredincreasingly higher prices for theirfarm land, in part due to investorslooking for alternatives to the riskystock market, and for other buyerswho have been financed by some ofthe lowest interest rates in manyyears. When structuring long-terminstallment sales, remember that cap-ital gains rates revert back to oldrates in 2009, therefore substantialtax savings may be achieved byreceiving all installment payments bythe end of 2008.

Depreciation method choices offermany tax planning opportunities forKentucky farmers. For 2002, farmerswere eligible to make a direct write-off, up to $24,000 of personal proper-ty used in their farming business. For2003, 2004, and 2005, the law has

by Walter L. Goggin, CPARobinson, Hughes & Christopher, PSCDanville, Kentucky

Be Informed,Be Alert

increased the maximum allowablededuction to $100,000. Eligible prop-erty includes both new and used per-sonal property.

As a result of tax legislationdesigned to stimulate the economyafter the 9/11 events, in 2002 tax-payers had the option to claim a spe-cial bonus depreciation expense of30% of the costs of new personalproperty. Used property was not eligi-ble. The 30% bonus depreciation hasbeen increased to 50% for 2003 and2004. The 50% depreciation is appli-cable for property acquired on or afterMay 6, 2003. Kentucky, along withmany other states, has not adoptedthese latest federal tax law changes.Thus, for Kentucky State purposes,farmers are not eligible for either the30% or the 50% bonus depreciation,and are limited to a direct expensingamount of $24,000 per year.

Alternative minimum tax applies atthe federal tax level, and althoughexemptions have been raised for bothsingle and married taxpayers,increases are only in effect for 2003and 2004. Substantial tax reforms arestill needed in this area to preventmany unsuspecting taxpayers frombeing hit with this tax in the future.

With farm real estate prices esca-lating, along with increased pressurefrom real estate development, manyKentucky farmers have explored uti-lizing conservation easements or sell-ing development rights on their farmproperties in order to preserve theirfarms. Tax laws are very favorable forthose pursuing such options.Generally, taxpayers are allowed to

reduce amounts received from pro-ceeds of the sale of developmentrights by their basis in the land towhich the development rights havebeen sold. For many taxpayers, thismeans that most, if not all, of theproceeds they received from the saleof the development rights are tax-free. Additionally, depending on theresults of appraising the farm proper-ty before and after the sale of devel-opment rights, substantial charitablecontributions deductions may also beavailable. With the tax-free infusion ofcash from the sale of the develop-ment rights and/or the tax saved bythe charitable deduction, farmers canhave more cash to plow back intotheir operation or to simply reducedebt.

Tax calculations for utilizing devel-opment rights are technical.Interested parties should consultqualified tax advisers. Kentucky hasan excellent program, P.A.C.E.(Purchase of Agricultural ConservationEasements). This program has beenhighly successful in some areas and itappears that demand by farmers toparticipate in the program is muchhigher than the available source offunds at the state level. State budgetissues and future tobacco settlementswill likely have a direct impact on theprogram’s future.

The Internal Revenue Service con-tinues to expand their computer tech-nology and is making an increasedeffort to match up amounts reportedby payors on 1099 forms to the taxreturns of the recipients. ManyKentucky farmers operate as a part-nership, LLC, or corporation and it isimperative that any entity issuing a1099 for payment reports it in thecorrect name and tax identificationnumber of the recipient. Taxpayershave increasingly received noticesfrom the IRS attempting to assessadditional taxes when income mayhave been reported on the properincome tax return, or simply misre-ported by the payor due to lack ofaccurate information. No one likes toget “love notes” from the InternalRevenue Service, so all farmers areencouraged to be sure that 1099forms are reported properly, includingtobacco settlement payments.

It has been said that “nothingstays the same”, whether that is inlife, farming, or taxes. Good recordsand a pre-year-end tax projection areoften good opportunities to preventunwanted surprises at year-end.

Tax Understanding Can Save Big Bucks;

Central Kentucky Agricultural Credit Association Ag Credit Leader

With interest rates as low as they are now,there has never been a better time to invest in aplace in the country. Whether you want a little or alot, building now or later, we know where to begin.

Financing your lifestyle

Contact Your Nearby Ag Credit Branch Officewww.ckaca.com

‘tis the season.

Central Kentucky Agricultural Credit AssociationP.O. Box 1290Lexington, KY 40588-1290

PRSRT STDU.S POSTAGE

PAIDCOLUMBIA, S.C.

PERMIT 785

in this issue - agcreditonline.com...brandon works for genex cooperative, inc., of shawano,...

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