November 10th, 2011
As fall harvest comes to an end we begin turning our attention to the inevitable tax planning that coincides with the completion of another successful farming year. In an effort to keep you better informed of the decisions made by your cooperative this past year as they relate to yearend tax planning we have summarized several key points below:
Domestic Production Activities Deduction (Section 199) – Wheat Growers will again be passing through this tax deduction to patrons in 2011 with an anticipated total pass through deduction of $16M – assuming a 25% marginal tax bracket this should save our patrons approximately $4M. Last year this pass through deduction was $11M. This pass through tax deduction is available by doing grain business with your cooperative and will again appear in box 6 of the 1099 PATR you will receive in January. We will be sending letters to patrons in November with their respective pass through deduction amount in order to allow ample time for tax planning.
Bonus Tax Depreciation Election – As many of you are aware, South Dakota Wheat Growers completed the final construction stages of the Connecting to Tomorrow (CTT) initiative during the fiscal year ended July 31st, 2011. As many of you do in your own farming operations, Wheat Grower’s Board decided to elect full bonus tax depreciation on the entire CTT initiative. This was done in order to minimize the tax your cooperative will pay the next few years and better manage the cash resources of the cooperative. Saving tax dollars ultimately allows your cooperative to invest in initiatives like Connecting to Tomorrow.
Old Year Equity – As you may recall, the Board and Delegates voted to suspend the payment of old year equity for three years in order to fund a portion of the Connecting to Tomorrow initiative. 2011 was the second year of three there was no old year equity retirement. The three year suspension of old year equity payments will ultimately fund approximately $10M of the CTT initiative and result in substantial interest savings to the Coop.
Non Qualified Patronage Allocation – In an effort to get more equity in the names of our patron owners, Wheat Growers will be issuing for the first time a non qualified patronage allocation in 2011. In December patrons will receive a letter indicating their portion of the $3.6M non qualified patronage allocation. Please keep this letter as record of your non qualified allocation amount. There are no tax consequences to the patron related to the non qualified patronage allocation in the year of allocation as the cooperative basically pays the tax on the non qualified amount. Wheat Grower’s Board reserves the right to pay the non qualified allocation at any time in the future. In the year approved, checks would be written to patrons and the tax liability to the patron would follow the receipt of cash.
Qualified Patronage Allocation – IRS regulations do not allow us to issue a qualified patronage allocation (patronage dividend) in the year we elect bonus tax depreciation as the code does not allow us to allocate ourselves into a tax loss. For this reason Wheat Growers will not be paying a qualified patronage dividend in 2011.
We hope the information provided in this letter helps clarify issues around your tax planning for 2011. You may want to share this letter with your tax preparer.
South Dakota Wheat Growers Association
Blake L. Bomesberger, CPA
Chief Financial Officer