Tulare County

Citrus Notes (December 1999)

In This Issue

• Lindcove Field Days
  
• Fruit Quality Measurements
  
• Peel Miner
  
• Leaf Drop: Mite Activity
  
• Midknight Valencia
  
• Tax Considerations
  

Lindcove Field Days

Morning Session: Tuesday, December 14, 1999, 10:00 AM

• Dr. David Gumpf, U.C. Riverside, Department of Plant Pathology - Citrus Clonal Protection Program Fruit Display and Presentation.
• To be held at the UC Lindcove Research and Extension Center Citrus Clonal Protection Program Screenhouse.

Afternoon Session: Tuesday, December 14, 1999, 1:30 PM

• Dr. Joseph Smilanick, USDA, Agricultural Research Service - "Postharvest Fruit Injury and Decay Control."
• To be held at the UC Lindcove Research and Extension Center Packline.

Tuesday, January 11, 2000, 1:00 PM

• Dr. John Menge, U.C. Riverside, Department of Plant Pathology - "Control of Phytopthora Root Rot Using Biological Control"
• Sergeant Robert Mathews - Tulare County Sheriff's Department, Ag Crimes Unit. Sgt. Mathews will discuss ag crimes and their prevention and the assistance offered to growers by the Ag Crimes unit.

Fruit Quality Measurements

The following information was provided by Dr. David Gumpf, Director of the Citrus Clonal Protection Program.

CCPP Lindcove Foundation Block Fruit Evaluation

November 17, 1999

Peel Miner

Two instances of fruit infestation by a peel miner were observed during November in the county, one in an Oro Blanco block and the other in Fukamoto navel. This insect was detected in the Coachella Valley in 1995 and in Kern County in 1998. The level of infestation varies considerably from year to year. In 1995 the percent of infested grapefruit in Coachella reached eighty percent in some orchards but in subsequent years has not been observed at this level. The level of infestation in the two county orchards is not known, but is thought to be quite low. Alternate hosts for the peel miner are reported to be oleander, cotton, avocado and tree tobacco.

Biological control can be quite high as a result of a parasitoid. In the years following the high level of infestation in Coachella, populations of the miner were overcome by a parasite.

Fruit may be infested when it is immature, with the adult insect depositing an egg in the rind of the fruit. After hatching the immature insect forms the serpertine tunnel. The extent of tunneling varies from one infested fruit to another. Anyone observing this peel miner in an orchard is asked to contact the Cooperative Extension office at 733-6484.

Leaf Drop: Mite Activity

Leaf drop and associated shoot dieback has been observed in the past month. In each instance mite activity was detected, either citrus red mite or two-spotted mite. This condition has not been observed for several years, but it is a condition reported for many years in California citrus plantings. Although not completely understood, it appears to be associated with a water deficit at some point during the current season. Warm, dry Santa Ana winds have been reportedly involved in Southern California orchards. In the San Joaquin Valley, the condition is generally observed in the fall, usually with mite activity associated with affected portions of the tree. Indian summer conditions this year together with a mild summer may have provided favorable conditions. Factors to consider in evaluation of the problem might include the distribution of the conditions in the orchard, extent of affected canopy and whether fruit drop is occurring as well. Finally, trees with significantly reduced canopies may be more susceptible to damage during a frost/freeze episode.

Midknight Valencia

Young trees of this cultivar have been observed with gumming. Similar observations have been made in other citrus producing regions. Reports of this condition in mature trees is not common. Gum production appears to be stress related particularly under hot, dry conditions at which time the young trees are unable to assimilate some micronutrients. Foliage applications of copper have corrected the gumming condition.

Tax Tips for the End of the Year

As the calendar year comes to a close all agribusiness people should give their income tax situation a close review to see whether some last minute adjustments might save money. A number of year-end strategies have evolved over time, and I suggest that you discuss the subject with your accountant or tax preparer to get the details of any strategies that might fit your needs. The purpose of this note is just to highlight some of the common tax strategies to get you thinking about your tax situation.

Pre-pay Expenses in 1999

Pre-paying operating expenses prior to January 1st will enable you to reduce your taxable income for 1999 if you use a cash accounting system (as most agricultural producers do). Just write your checks for upcoming expenses before the end of the year. All bills paid can be included in your 1999 tax return if you use a cash accounting system. This strategy is useful if you have had a good 1999 and expect 2000 to be less profitable.

Defer Revenue Until 2000

If you use a cash accounting system, you only have to report revenues received during the calendar year on your 1999 tax forms; therefore, cash received after January 1st will be reported next year. This means you will not have to pay taxes on deferred revenues for a year. To defer revenue, you might delay invoicing (billing) your customers until January.

Two things to remember before deciding to defer revenue: (1) this only postpones taxes, it does not eliminate them, and (2) deferring revenues means you do not have that amount of cash to use, which could put you in a cash bind around the end of the year. This deferral strategy is useful if you have had a good 1999 and expect 2000 to be less profitable or if you expect to be able to defer revenues again next year. In the long run, being able to carry forward or go backward your profits or losses may enable you to accomplish the same "profit smoothing" to pay the least amount of taxes allowed.

Consider When to Take Capital Gains

Take capital gains before January 1st if you have had a poor 1999 or if you expect 2000 to be more profitable than 1999. This strategy is similar to deferring revenues in that you are deciding in which of two tax years you will pay the least tax. Check with your accountant about this - there have been recent changes in the laws affecting capital gains.

Consider Capital Gains on Inventory Changes

Some operators, especially livestock producers, may be subject to taxes on the increased value of their inventories. Talk to your accountant to see whether this applies to you. If it does, build this extra tax into your planning for cash needs.

Expense Capital Purchases

If you have purchased any asset for use in your business during 1999 (such as a truck, tractor, computer, irrigation system, wells, etc.), consider reporting the item as an "expense" up to the maximum allowable amount or the value of the item, whichever is less. Amounts above the expense ceiling have to be reported as a depreciable item, resulting in a lower current deduction. Expensing almost always results in lower taxes overall, for a profitable firm. If you had a net loss this year, but you have been profitable in the recent past, it still might be best to take the maximum expense on a purchase this year so that you can carry back a larger loss against previous profits and possibly get a tax refund.

Purchasing Damaged Tree/Vine Replacements This Year

If you have decided to replace trees or vine crops which were damaged by drought, flood or a freeze, purchasing any materials to do so before January 1st enables you to claim some of that cost as a current expense which can be deducted on this year's tax report. Amounts above the expense ceiling have to be reported as a depreciable item, but starting the depreciation schedule in 1999 rather than later benefits you in that future deductions are available sooner.

Develop a Plan for Reporting Drought Sales of Livestock

Gains realized when livestock is sold due to drought are now subject to a number of different rules, and you may sometimes choose between the various methods. Breeding stock are subject to capital gains tax on the difference between your basis and the selling price. In the case of raised stock, your basis is zero, so the entire sale price is capital gains. In the case of purchased stock, the difference between the sale price and your undepreciated cost is considered to be capital gains. However, livestock kept for draft, breeding, or dairy and sold or exchanged solely because of drought are considered to be "involuntarily converted" and the gains from such a sale are not taxable provided you reinvest the proceeds of the sale in similar livestock within the time limits.

The burden of proving that the sales of livestock were a result of drought rests with you as a taxpayer. If you do not wish to recognize gains on particular sales, you must file certain details concerning those sales with your tax return for the year during which the sales were made. The tax return should contain information on the following:

1. Date the replacement stock are purchased.

2. Cost of the replacement stock.

3. Number and kind of replacement livestock.

If you elect not to have the gains from the livestock sales taxed and you follow the instructions for this process, you still may later have to file an amended return and recompute your tax for the year or years during which the gain was realized. This would be necessary if it later develops that a part or all of the gain must be taxed, either because the stock is not replaced within the time prescribed or the cost of the replacement stock is less than the proceeds from the converted livestock.

Instead of treating drought sales as an involuntary conversion, you have the option of deferring receipts from the sale of livestock under tax Code Section 451 (e). This provision applies only to livestock sold in excess of the number usually sold and only if you establish that under your usual business practices the sale would not have occurred in the year in which it did except for the drought conditions in an area designated as eligible for assistance from the federal government. The sale proceeds may be deferred until the year following the year of sale. This provision is not limited to animals used in the trade or business, as is the involuntary conversion provision described earlier; any livestock sales can be included under the deferred sales provision. This includes draft, breeding, dairy, and "sporting" animals as well as animals held for sale.

Refinance Now

If you have decided to refinance any part of your business, do so as soon as possible. There are two reasons for the urgency in this tip: (1) the length of time it takes to complete a refinancing may cause you to miss being able to claim any financing expenses in 1999, and (2) interest rates are very low at present and are already showing signs of increasing. If you can complete a refinancing deal before January 1st, some expenses incurred may be deductible this year.

Shift Personal Expenses to Your Business

Some agricultural producers can reduce their total tax bill by shifting expenses from their personal account to their business account. One example of this has been the recent success of plans aimed at making medical expenses deductible by participating in a pooling operation run by a commercial firm.

Transfer Income-Producing Assets Into Trusts

People using trusts as part of their estate plan can reduce their personal tax burden by transferring assets into trusts held in the name of beneficiaries, such as children or grandchildren. If an income-producing asset is gifted into a trust before January 1st, the income it generated this year may be taxed at the beneficiary's tax rate, rather than the giver's rate. This arrangement does not eliminate the need to pay taxes on the income, but it may reduce the total tax paid. See an accountant or attorney for specifics on how to accomplish this transfer.

If a gift is made to a charitable organization, a tax deduction is received for the calendar year in which the gift is given. Therefore, if such gifts are planned, make them by year's end.

Check for Special Taxes on Products

Some products are subject to special taxes that may influence a producer's year-end strategies. For example, dairy producers are assessed a levy if they produce more milk than they did in the previous year. If a dairyman produces too much milk, he forfeits the levy on 13.25 cents per hundredweight. This is essentially a tax on production. Public or private organizations may have special fees, levies, etc. that may be paid in certain situations. Therefore, all producers should be aware of these payments and include them in their cash planning.

Summary

A number of year-end tax strategies have evolved over time. Some of the most common have been listed in this note. I suggest that you discuss the subject with your accountant or tax preparer to get the details of any strategies that might fit your situation. The time spent doing tax planning could be well rewarded.