Farm Net Operating Loss Rules Every Idaho Grower Should Know

The 2017 Tax Cuts and Jobs Act killed the two-year carryback for most businesses. It left the farm carryback in place. That distinction gets lost in general small-business tax coverage, and it matters more than most Idaho and Utah growers realize.

A hard year on a Bingham County potato operation, a drought year on a Twin Falls dairy, or a broken price cycle on a Cache Valley hay operation can generate a farm net operating loss that produces a real refund of prior-year tax. Or, in the right fact pattern, it can carry forward to shelter income that would otherwise be taxed at a higher rate. The rules are technical, the elections have deadlines, and the decision to waive the carryback is not automatic.

What actually changed after TCJA

For non-farm businesses, TCJA repealed the general two-year NOL carryback and imposed an 80% of taxable income limit on NOLs generated in 2018 and later. Farming operations kept the two-year carryback under IRC §172(b)(1)(B). The 80% limit still applies to farm NOLs when they are carried forward, but the carryback year itself is not subject to that limitation for a farm loss.

The CARES Act briefly restored a five-year carryback for NOLs generated in 2018, 2019, and 2020, then that provision expired. Farm NOLs generated in 2021 and later are back on the two-year rule that farmers had before TCJA.

What counts as a farm loss

A farm NOL is the portion of a taxpayer’s total NOL that is attributable to a farming business. That definition is narrower than what shows up on Schedule F. Off-farm income, wage-earner losses, and rental activity that does not qualify as farming are not part of the farm NOL calculation.

The Schedule F loss and the farm NOL are two different numbers. The farm NOL calculation strips out non-farm items and applies the modifications required under §172(d). Idaho growers with off-farm income sources need to separate the farm side of the return before running the carryback math.

The two-year carryback election

By default, a farm NOL carries back two years and any unused portion carries forward indefinitely. The taxpayer can elect to waive the carryback and carry the entire loss forward instead. The waiver is filed with a timely return, including extensions, and once made it is irrevocable for that loss year.

The trade-off is straightforward. The carryback refunds tax at the rate you paid two years ago. Carrying forward shelters income at whatever rate you pay in future years. When rates are moving, or expiring credits or carryforwards would be wasted by a carryback, the waiver has real value.

The 80% of taxable income limit

The 80% limitation only applies to NOLs generated in 2018 and later. For a farm NOL:

  • In the carryback year, the 80% limit does not apply. The full farm NOL can offset up to 100% of that year’s taxable income.
  • In any carryforward year, the 80% limit does apply. Post-2017 farm NOLs can offset up to 80% of taxable income in the year they are used.

Pre-2018 NOLs that are still being carried forward are not subject to the 80% cap. Farms with older loss carryforwards and newer ones stack them in a specific order under §172.

When waiving the carryback makes sense

Waiving the two-year carryback is worth running the numbers on when:

  • The taxpayer expects to be in a higher bracket in future years than the two carryback years.
  • Expiring credits or general business credit carryovers would be absorbed by a carryback and lost.
  • AMT interactions in the carryback years would blunt the refund.
  • The carryback would flow back to a year already under audit or examination.

These are not universal answers. The calculation depends on the actual bracket, credit position, and audit status in each carryback year. A CPA should run the return both ways before the election deadline.

The mechanics of claiming the carryback

A farm NOL is carried back using Form 1045 (Application for Tentative Refund) for a fast refund, or Form 1040-X (Amended Return) for the same result on a longer processing timeline. Form 1045 must be filed within 12 months of the end of the NOL year. Form 1040-X can be filed later but takes months longer to process.

Idaho generally conforms to the federal NOL rules but with its own modifications on the Form 39R adjustment. Utah has its own conformity provisions. Farming operations that file in both states need the analysis run at both the federal and state levels.

This overview is general information, not tax advice for your specific operation. Talk with our farm CPAs about running the carryback and carryforward numbers before the election deadline, and use tax planning for farmers in strong years so the loss year does not catch you flat. Run the numbers with a Cooper Norman advisor before you file.

Farm Succession Planning: 6 Steps Every Family Farm Should Take

Most Idaho and Utah farm families believe they have a succession plan. When someone asks to see the document, they discover they have a conversation, not a plan. The gap between the two is where operations get sold to pay taxes or split between heirs who never agreed on the split.

The USDA and university extensions have said for years that only a minority of family farms have a written succession plan in place. Whatever the exact number, the operations that survive the transfer are the ones that treated the plan as work, not intention. Six steps carry most of the outcome, and a Cache Valley cattle operation, a Bingham County potato operation, or a Rexburg row-crop can complete the first three within a quarter.

1. Write down what you own and how it is titled

Most farm families cannot list every parcel, entity, account, and piece of equipment from memory. Step one is a real inventory:

  • Every parcel: deed of record, current use, encumbrances, and legal description.
  • Every entity: current members or shareholders, operating agreement or bylaws, and current registered agent.
  • Every account: bank, brokerage, retirement, and life insurance, with beneficiary designations in writing.
  • Every piece of major equipment: title status, financing, and estimated value.
  • Every lease: ground leases, equipment leases, cash-rent agreements, and share arrangements.

The inventory is the foundation for every other step. Without it, valuation is a guess and the transfer plan is a hope.

2. Have the family conversation

The conversation is the step that gets postponed the longest. It is also the step that determines whether the plan is workable or theoretical.

The questions to answer, in order: Who wants to be on the farm? Who wants off? Who is realistic about the work involved? How do we treat the child who ran the operation for the last fifteen years versus the child who moved to Boise or Salt Lake City in 2003? Is the goal that every heir gets equal value, or that the operation stays intact?

These questions have wrong answers. They also have honest answers that keep families intact. Deferring the conversation until the founding generation dies is where the operation gets sold at auction.

3. Get a real valuation

Not a rule of thumb. Not the county assessor’s number. Not what the neighbor got for his ground last spring. A proper valuation of the operating farm that a lender or the IRS would accept.

An operating-farm valuation is not the same as a real estate appraisal. The land is one input. Equipment, quotas or contracts, working capital, and going-concern value all matter. A real estate appraisal of the dirt is fast and cheap and answers a different question. A business valuation of the operation takes longer and costs more and answers the question the transfer actually turns on.

4. Choose the transfer tools

Every real transfer uses a combination of tools:

  • Annual gifting under the §2503 exclusion.
  • Lifetime exemption use for larger blocks now.
  • Entity structuring for valuation discounts.
  • Installment sales at the applicable federal rate.
  • Life insurance to equalize off-farm heirs without disturbing the operation.

Which combination fits depends on the family, the operation, and the timeline. A large multi-generation ranch usually needs entity structuring and gifting. A smaller operation with one on-farm heir and one off-farm heir may need mostly life insurance and a simple installment sale.

5. Update the documents

The plan is only real when the documents match. In one review cycle:

  • Wills and revocable trusts, aligned with the plan.
  • LLC or partnership operating agreements, including buy-sell language.
  • Buy-sell agreements between family owners with real triggers and real funding.
  • Beneficiary designations on retirement accounts and life insurance.
  • Powers of attorney for property and health decisions, in case of incapacity.

A conflict between an operating agreement and a will is where litigation starts. Reviewing every document at the same time closes those gaps.

6. Set the review cadence

A transfer plan built in 2020 has already changed. Tax law changed. The family changed. The operation changed. A working plan gets reviewed annually at year-end and formally reset every three years or after any major event.

The annual review is short: a sit-down with the CPA and the attorney to confirm that gifts happened, valuations were refreshed if needed, and the family situation still supports the plan. A major event (marriage, divorce, death, disability, sale, major expansion) triggers a formal reset rather than a small edit.

The role of the CPA and the attorney

The CPA runs the tax math. What does a gift cost in exemption use, in basis carryover, in current-year income to the donee? What does an installment sale look like in cash flow to the seller and the buyer? The attorney draws the documents that implement the plan the CPA and family agreed to. Neither one alone is a plan.

This overview is general information, not tax advice for your specific operation. Talk with Cooper Norman’s ag CPAs and our farm valuation service before the next tax year closes. Start the conversation and complete step one this quarter.

FDA and USDA Compliance for Food Manufacturers: The CPA View

Idaho ranks first nationally in potato production and top three in dairy. Utah has significant cheese and beverage manufacturing. Between them, the region hosts hundreds of food manufacturing facilities, each subject to federal food safety oversight from either FDA or USDA. The compliance program is not just a food safety line item on the operating budget; done well or done poorly, it drives real financial outcomes on insurance, banking, buyer contracts, and eventual sale value.

From a CPA’s seat, three things about food manufacturing compliance keep showing up in client conversations: registration and program costs are meaningful and often under-budgeted, recall exposure is chronically under-insured, and recordkeeping quality drives audit outcomes far more than the underlying operations.

Which Food Manufacturers Fall Under FDA vs. USDA

The line between FDA and USDA jurisdiction is based on product, not facility. USDA (through FSIS) inspects meat, poultry, and processed egg products. FDA regulates almost everything else, including dairy, seafood, produce, packaged goods, baked goods, and food additives.

A single facility can operate under both. A meat processor with a deli line running poultry might be USDA-inspected on the meat side and FDA-registered for other products. The regulatory burden and the recordkeeping requirements differ, which matters for compliance staffing and cost.

Facility Registration and Renewal Costs

FDA facility registration is required for every domestic and foreign facility that manufactures, processes, packs, or holds food for consumption in the United States. Registration is renewed every two years during the even-year renewal window (October through December). Registration itself is free from FDA, but the process of maintaining current registration data, updating in response to changes in ownership or product lines, and coordinating with a U.S. agent (for foreign facilities) is administrative work with real ongoing cost.

USDA-inspected facilities operate under continuous federal inspection. The inspection itself is at government cost during regular hours; overtime inspection (weekends, holidays, extended shifts) is billed to the facility. For a processor running six or seven days a week, overtime inspection can add tens of thousands of dollars annually.

FSMA Preventive Controls: The Real Cost of Compliance

The Food Safety Modernization Act (FSMA) preventive controls rules apply to most FDA-registered facilities. Compliance requires a written food safety plan, a designated Preventive Controls Qualified Individual (PCQI) with specific training, hazard analysis and control implementation, verification and validation activities, corrective action procedures, and detailed recordkeeping.

For a mid-size food manufacturer, FSMA compliance typically drives:

  • Initial food safety plan development: $15,000 to $50,000 for external consultant support (depending on facility complexity)
  • PCQI training: $1,500 to $2,500 per trained individual, with typically 2 to 3 trained per facility for redundancy
  • Ongoing plan maintenance and reviews: 200 to 400 hours annually of qualified staff time
  • Environmental monitoring, verification testing, and third-party audit costs

None of this is optional for facilities that qualify. All of it should show up in the annual budget rather than as a scramble when inspection arrives.

HACCP Plans and Where They Hit the Budget

Hazard Analysis and Critical Control Points (HACCP) plans are required for USDA-inspected facilities, juice processors, and seafood processors. Voluntary HACCP is common in other categories to satisfy buyer requirements.

HACCP plan development and validation, critical control point monitoring, verification testing, and staff training all carry real costs. The largest recurring line is usually product testing at CCPs (pathogen testing, chemical residue testing, allergen swab testing). Testing lab costs vary widely by pathogen panel and turnaround time, but a mid-size processor can easily run $30,000 to $150,000 annually in third-party lab work.

Recall Insurance and Financial Reserve Strategy

Product recall is the low-probability, high-severity risk that food manufacturers chronically under-insure. A Class I recall (reasonable probability of serious health consequences) can drive costs into the millions between product retrieval, destruction, notification, brand rebuild, and potential litigation.

Product recall insurance is a specialty coverage separate from general liability. Coverage elements typically include first-party recall expense (retrieval, destruction, notification), third-party liability (customer losses, distribution costs), business interruption, brand rehabilitation, and crisis management. Retentions for mid-size manufacturers typically run $25,000 to $250,000.

Beyond insurance, a financial reserve for recall response is prudent. Even with insurance, the deductible and the cash flow gap between event and reimbursement can strain working capital.

Recordkeeping That Protects You in an Audit

Every food safety program lives or dies on documentation. FDA inspectors, USDA inspectors, and third-party auditors all ask for the same evidence: the plan, the training records, the monitoring logs, the corrective action records, and the verification activity records.

Common recordkeeping failures that produce citations:

  • Sanitation logs signed daily but not linked to specific pre-op inspections
  • Environmental monitoring results without a documented remediation record for positives
  • Training records without demonstrated competency verification
  • Corrective action records that describe what happened but not how the root cause was addressed
  • Missing calibration records for critical measurement equipment

Digital recordkeeping systems (Safefood 360, FoodLogiQ, Icicle, and similar) can reduce the compliance burden and produce audit-ready records. The tools have real cost but often produce faster inspection outcomes and lower audit finding rates.

Food safety compliance is meaningful capital and operating cost, and it deserves treatment as a real line item in the annual plan rather than an emergency response to an inspection notice. The manufacturing team at Cooper Norman works with Idaho and Utah food processors on budgeting for FSMA, HACCP, and USDA compliance programs, evaluating recall insurance, and building the financial resilience that survives an event. Our audit and assurance group reviews food safety controls as part of every audit for food manufacturing clients.

Gifting Land vs. Cash: Which Move Makes Sense for Your Farm?

A gift of land and a gift of cash both use lifetime exemption. Both count against the annual exclusion. Both accomplish an immediate wealth transfer. And for the family’s total tax picture, they are not remotely the same move.

The difference is basis. A gift of cash carries basis equal to the amount gifted. A gift of land carries the donor’s basis under IRC §1015, which for most Idaho and Utah farm ground is a fraction of current fair market value. Every dollar of appreciation the donor accumulated over decades transfers with the land, waiting to be taxed when the donee eventually sells. That single fact drives most gifting decisions for farm families.

The basis problem with gifting land

Under §1015, gifted property takes carryover basis. The donee steps into the donor’s shoes on original basis, adjusted for any gift tax paid on appreciation. A parcel of Bingham County potato ground purchased in 1985 at $1,200 per acre may be worth $9,000 per acre today. Gift the ground now, and the donee’s basis is roughly $1,200 per acre.

If the donee eventually sells the ground, capital gains apply to the full appreciation from the donor’s original purchase. The family used exemption on the fair market value, and the donee pays capital gains on the appreciation. That tradeoff is not necessarily bad. It is just important to see it clearly before making the gift.

The step-up that cash does not get either

The alternative to gifting land during life is holding it until death. Under §1014, most property held at death receives a step-up in basis to the date-of-death fair market value. That step-up is one of the most valuable provisions in the tax code for farm families with long-held appreciated ground.

Cash gifted or held does not get a step-up. Cash is cash. The step-up is only meaningful for appreciated property. Comparing gifted-land-now to gifted-cash-now misses the real comparison: gifted-land-now versus held-land-until-death. That is where the decision lives.

When gifting land wins

Gifting land is the right call when:

  • The land will stay in the family for another generation. If the donee will not sell in their lifetime, basis matters less because the donee’s heirs get the step-up.
  • The family can capture valuation discounts by gifting entity units instead of undivided land. Discounts amplify the exemption use.
  • The exemption is high and scheduled to reduce. Using higher exemption now locks in the benefit.
  • The donor is running out of ways to shift income and control outside the estate. Post-gift appreciation and post-gift income both belong to the donee.

When cash (or life insurance proceeds) wins

Cash gifting fits when:

  • Equalizing off-farm heirs without disturbing the operation. Cash to the off-farm children, land to the on-farm children.
  • Funding a buy-sell agreement between family owners.
  • Meeting an immediate liquidity need in the donee’s life without pulling apart the operation.
  • The donor holds appreciated cash equivalents (large brokerage positions with low basis) that would benefit from the step-up if held at death, and needs to transfer wealth without triggering that basis event.

Life insurance proceeds paid through an irrevocable life insurance trust (ILIT) function similarly to cash for these purposes and can be structured to arrive outside the donor’s estate.

The hybrid move

Many Idaho and Utah farm families end up on a combined approach that solves several problems at once:

  • Put the operating land inside an LLC or family limited partnership.
  • Gift entity units, not undivided ground. The units qualify for lack-of-control and lack-of-marketability discounts.
  • Retain a management interest so the founding generation keeps operating control.
  • Hold appreciated non-farm assets (brokerage, non-operating real estate) until death for the §1014 step-up.
  • Fund equalization to off-farm heirs with life insurance owned by an ILIT.

The result is a plan that uses lifetime exemption where the basis tradeoff is acceptable, preserves the step-up where it matters most, and equalizes heirs without breaking the operation.

Medicaid look-back and other wrinkles

Gifts made within five years of applying for Medicaid can trigger a look-back penalty. For a farm family concerned about long-term care costs, gifting large blocks of land close to a Medicaid application can eliminate benefits for a period. The five-year window applies regardless of whether the gift was to a family member or a trust.

Gifts to spouses generally use the marital deduction under §2523 and do not use exemption. Gifts to non-citizen spouses have their own annual limit under §2523(i). Gifts to minors use the annual exclusion but require a present-interest structure (usually a §2503(c) trust or a UTMA account).

This overview is general information, not tax advice for your specific estate. Talk with Cooper Norman ag CPAs and our farm valuation team to run the basis and exemption tradeoffs before making a large gift. Walk through the math with Cooper Norman before you sign the gift documents.

H-2A Farm Labor: Accounting and Tax Compliance for Employers

H-2A payroll looks like normal farm payroll, and it is not. The FICA rules differ, the FUTA rules differ, the reporting form differs, and the wage floor is set by a federal-and-state rate rather than by the market. Employers running H-2A operations on a Twin Falls farm, a Cache Valley orchard, or an Idaho hop yard treat H-2A workers as a separate payroll category, or the wage-hour investigation shows up before the tax return does.

The rules are technical for a reason. The H-2A program exchanges access to seasonal foreign agricultural workers for a set of employer obligations that go beyond normal agricultural employment. Understanding the payroll-tax and reporting rules is the accounting side. The Department of Labor requirements on housing, transportation, and wage rate are the operational side, and they interact.

Who H-2A workers are

H-2A workers are temporary agricultural nonimmigrant workers admitted under the H-2A visa category. The employer must first obtain temporary labor certification from the U.S. Department of Labor, which requires:

  • Documented inability to fill the positions with domestic workers.
  • Compliance with the Adverse Effect Wage Rate for the state and occupation.
  • Provision of housing at no cost to the worker.
  • Provision of inbound and outbound transportation.
  • Payment of a specific percentage of the guaranteed hours regardless of weather or slack demand.

Once certified, the worker enters the U.S. under an H-2A visa for a defined temporary period tied to the certified employment need.

The payroll-tax rules that differ

Under IRC §3121(b)(1), services performed by an H-2A worker while admitted to the U.S. as an H-2A temporary agricultural worker are exempt from Social Security and Medicare tax. Both the employee side and the employer side.

Under IRC §3306(c), the same services are exempt from federal unemployment tax (FUTA).

Two important limits on these exemptions:

  • Federal income tax withholding. H-2A wages are NOT automatically exempt from federal income tax withholding. The default is that withholding does not apply unless the employer and worker agree to voluntary withholding. Many employers do not withhold; the worker is responsible for filing and paying.
  • State tax treatment. State income tax treatment varies. Idaho and Utah generally treat H-2A wages as subject to state income tax, though state withholding rules differ from federal.

Domestic agricultural workers on the same operation are subject to normal FICA and FUTA rules. This means the same employer often runs two payroll categories with different tax treatment. The accounting has to separate them cleanly.

Reporting: Form 943 vs. W-2

Farm employers file annually on Form 943 (Employer’s Annual Federal Tax Return for Agricultural Employees) instead of the quarterly Form 941 used by non-agricultural employers. Form 943 reports federal income tax withheld from all agricultural employees, both H-2A and domestic.

Every H-2A worker receives a W-2 for the calendar year showing wages paid and any federal income tax withheld. Wages subject to FICA and FUTA are shown as zero in the appropriate boxes for H-2A workers, and the exemption is noted appropriately.

State filings track state law. Idaho and Utah each have their own annual reconciliation and withholding forms.

Housing and transportation

Employer-provided housing and transportation are conditions of the H-2A program. Housing must meet DOL standards. Transportation includes daily transportation between housing and worksite where the housing is not adjacent, plus inbound (from home country to worksite) and outbound (worksite back to home country) transportation.

For tax accounting purposes:

  • Housing provided to H-2A workers is generally not includible in the workers’ taxable wages under the convenience-of-the-employer test.
  • Transportation costs are the employer’s responsibility and are deductible business expenses on the farm return.
  • Documentation of housing standards compliance and transportation actually provided should be maintained; DOL audits check both.

Adverse Effect Wage Rate compliance

The Adverse Effect Wage Rate (AEWR) is the minimum wage for H-2A workers in each state, set annually by USDA. The AEWR is intended to prevent depression of domestic farm-labor wages by the H-2A program.

The AEWR is not a suggestion. It is the floor. Every H-2A worker must be paid at least the AEWR for every hour worked. Overtime rules follow state law; some states require overtime pay for hours over 40, others do not for agricultural workers.

Idaho and Utah AEWR figures are published annually. Farms operating in both states, or running crews across state lines mid-season, apply the AEWR of the state where the work is performed.

Records the operation needs

H-2A audits (both DOL wage-and-hour and IRS tax audits) request:

  • Hour-by-hour time records for each worker.
  • Payroll records showing wages, deductions, and net pay.
  • Housing inspection records and DOL housing standards documentation.
  • Transportation cost records.
  • Labor certification, job orders, and I-9 documentation.
  • Copies of W-2s issued and Form 943 filed.

Common employer mistakes

The recurring errors on H-2A payroll:

  • Applying FICA to H-2A wages by default because payroll software treats them as normal wages.
  • Missing federal income tax withholding when voluntary withholding was elected.
  • Combining H-2A and domestic payroll on the same reporting line.
  • Underpaying AEWR because the state rate updated mid-season.
  • Undocumented housing that fails a DOL inspection years later.

This overview is general information, not tax or legal advice for your specific operation. Talk with Cooper Norman’s ag CPAs and use our farm payroll services to run H-2A payroll cleanly through the season. Get H-2A payroll right with Cooper Norman before your next certification.

HIPAA-Compliant Vendor Management for Medical Practice Financial Systems

Every medical practice depends on financial software and outside vendors: accounting systems, payroll processors, tax preparers, bookkeepers, banks, and occasionally financial planners. HIPAA sits over this ecosystem, and the question of which vendors need a Business Associate Agreement (BAA), which do not, and what the practice’s ongoing obligations look like is one most physician-owners have not walked through carefully.

The stakes are practical. A vendor mishandling protected health information (PHI) exposes the practice to HHS Office for Civil Rights enforcement, patient notification obligations, and civil liability. Getting the vendor management right up front is much easier than responding to a breach after the fact. This piece walks through when a financial vendor becomes a business associate, how to keep PHI out of the accounting system where it does not belong, BAA terms worth checking, audit and access controls to look for, and what a vendor breach actually triggers.

When a Financial Vendor Becomes a “Business Associate”

Under HIPAA, a business associate is a person or entity that creates, receives, maintains, or transmits PHI on behalf of a covered entity. The definition is broader than most practices assume. A vendor that never sees a patient chart can still be a business associate if it handles claims data, payment postings, or any records that identify a patient’s medical information.

Financial vendors that typically require a BAA:

  • Practice management or EHR software (which routinely handle PHI)
  • Outsourced billing services (they handle claims data, which is PHI)
  • Clearinghouses
  • Bookkeepers or CPAs who receive PHI as part of their work (this is uncommon in most well-structured engagements, but if PHI ends up in your accounting software or reports, the vendor is a business associate)

Vendors that typically do not require a BAA:

  • Banks conducting standard payment transactions (specifically excluded from the HIPAA definition)
  • Payroll processors that handle staff data only, not patient data
  • Accounting software vendors, if the practice’s ledger contains no patient-identifiable information
  • Tax preparers, if the practice’s tax data is aggregated and de-identified

Keeping PHI Out of Your Accounting System

The cleanest way to keep an accounting system out of HIPAA scope is to make sure PHI does not land in it. In most practices, this is easier than it sounds and only fails through carelessness.

Revenue postings should reference the payer and the date, not the patient. Adjustments and write-offs should reference the reason code, not the patient’s condition. Deposit slips should not include patient names, and refund checks should be issued by the practice management system, not the general ledger accounting system.

A well-designed workflow leaves the accounting system with a clean transactional record and no patient-identifiable data. This narrows the HIPAA perimeter and simplifies vendor management.

BAA Terms to Check Before Signing

A vendor-provided BAA is a starting point, not a finish line. Six terms worth confirming:

  • Explicit permitted uses and disclosures of PHI (narrow, not broad)
  • Breach notification timeline (60-day is the HIPAA maximum; shorter is better)
  • Subcontractor obligations (any subcontractor with PHI access must also sign a BAA)
  • Return or destruction of PHI at contract termination
  • Audit rights the practice retains
  • Indemnification terms for breach-related costs

The template BAAs many vendors distribute favor the vendor. Terms can and should be negotiated for the practice’s protection.

Audit Logs and Access Controls a CPA Should Look For

Beyond the BAA, three technical controls signal a vendor that takes HIPAA seriously:

Detailed audit logs of who accessed what PHI when, retained for at least six years. If a vendor cannot produce audit logs on demand, the practice cannot investigate a suspected breach.

Role-based access controls that follow the minimum-necessary standard. Staff members should not have access to PHI unnecessary for their role.

Encryption of PHI both at rest and in transit. Modern vendors do this as a matter of course; older systems sometimes do not, and it is worth confirming.

What Happens After a Vendor Breach

If a vendor breaches PHI, the practice’s obligations are triggered even if the practice itself did nothing wrong. HHS OCR requires notification of affected patients, and depending on scope, notification of the media and HHS itself. The vendor’s BAA and the practice’s own incident response plan together determine how quickly the practice can meet those obligations.

Practices with cyber insurance should confirm coverage extends to vendor-caused breaches, not just first-party events. This is worth checking before a breach happens, not after.

Cooper Norman’s healthcare accounting team reviews financial-vendor engagements and BAA structures for medical practices across Idaho and Utah. To review your current vendor list and BAA files, talk with a Cooper Norman advisor.

Home Office and §280A Rules for 1099 Physicians

The regular-and-exclusive-use rule is the whole game. Miss it and the 1099 physician home office deduction disappears no matter how many square feet you devote or how carefully you track expenses. Meet it, and a locum tenens physician, an independent-contractor consultant, or a rural telehealth doctor can defensibly deduct a portion of rent or mortgage interest, utilities, insurance, and depreciation.

The rules have not changed materially since the TCJA closed the door on unreimbursed employee business expenses. What has changed is who the rules now apply to. The rise of 1099 contract medicine, locum staffing, and telehealth in Idaho and Utah has pushed a large group of physicians into a situation where §280A is worth understanding.

Who Actually Qualifies: W-2 vs. 1099 Physician

The employee-versus-contractor distinction matters more than any other threshold. Under current law, a W-2 employed physician cannot deduct unreimbursed home office expenses on the federal return. That deduction, which existed as a miscellaneous itemized deduction before 2018, was eliminated for tax years 2018 through 2025 and remains eliminated under the One Big Beautiful Bill Act.

A physician paid on Form 1099, whether as a sole proprietor, an LLC member, or the shareholder of a professional corporation reporting distributive share income, is treated as running a trade or business. That physician can deduct qualifying home office expenses against self-employment income, and can also treat the home office as a principal place of business for mileage purposes, which is often the more valuable side effect.

Physicians whose income mixes W-2 hospital work and 1099 telehealth or locum work can deduct only for the 1099 side and only if the home office is used regularly and exclusively for that specific self-employed practice.

The §280A Regular and Exclusive Use Test

Section 280A allows a home office deduction only when a portion of the home is used both regularly and exclusively for business, and either the principal place of business or a place where the physician meets patients or clients in the ordinary course of the practice.

Regular means recurring use, not occasional. Exclusive is stricter than most physicians realize. A guest bedroom that doubles as a home office once a week does not qualify. Neither does a corner of a family room. The space must have no meaningful personal use. A separately partitioned room dedicated to the 1099 practice is the safest structure. A clearly demarcated area within a larger room can qualify, but the physician needs to be able to describe and, ideally, show that no personal activity occurs there.

For a telehealth physician who takes patient encounters exclusively from a home office, principal-place-of-business status is usually easy to establish. For a locum tenens physician who provides services onsite at multiple hospitals, the home office qualifies as a principal place of business if administrative and management activities such as scheduling, credentialing, billing, and follow-up documentation are performed there and no other fixed location is used for those activities.

Simplified Method vs. Actual Expense Method

The simplified method is a flat $5 per square foot up to 300 square feet, capped at $1,500 per year. It is easy, requires no receipts, and cannot generate a loss.

The actual expense method allocates a portion of home expenses to the office based on the percentage of total square footage devoted to the business. Deductible expenses can include rent or mortgage interest, real estate taxes, utilities, insurance, repairs, and depreciation on the business portion. On a home where the actual expenses attributable to a 200 square foot dedicated office exceed $1,000 for the year, the actual method wins.

The tradeoff is complexity. The actual method requires records, an allocation schedule, and depreciation of the business portion of the home, which then affects the basis and gain calculation when the home is later sold. For most physicians with modest home office footprints, the simplified method gets 80 percent of the value with 20 percent of the effort.

Special Cases: Telehealth, Locum Tenens, and Second Practices

Three fact patterns come up often. A telehealth physician conducting all patient encounters from a home office typically has the strongest deduction. A locum physician whose administrative work happens at home has a defensible principal-place-of-business claim even though clinical work happens elsewhere. A physician who owns a small side practice, such as a medical spa or wellness consultancy, can deduct for a home office dedicated to that entity even while working a separate W-2 or 1099 clinical role.

The one fact pattern to avoid: claiming a home office for a W-2 role. Even with an employer letter, this deduction is not available on the federal return through 2025 and remains unavailable under OBBBA.

Recordkeeping That Holds Up in an Audit

Photograph the space. Keep utility, insurance, and mortgage or rent statements. Maintain a simple log or calendar showing that the office was used for the 1099 practice on a regular basis. If the physician chose the actual method, document the square footage measurement and the allocation calculation.

The home office deduction is not aggressive tax planning. It is a straightforward statutory deduction with a strict qualification test. Our team at Cooper Norman advises physician and dental practice owners across Idaho and Utah on practice tax planning, and getting the 1099 side clean is often the fastest win for a new locum or telehealth physician.

This overview is general information, not tax advice for your specific situation.

How Medical Practices Are Valued: Methods and Multiples

Every valuation of a medical practice ends with a single number, but three different roads get you there. The income approach, market approach, and asset approach each look at the practice from a different angle, and a proper valuation usually runs all three and reconciles them. For a physician-owner in Idaho or Utah who has been approached by a buyer, is planning a partner transaction, or is thinking about succession, understanding how the number is built matters as much as the number itself.

Confidence around practice multiples is common in industry articles and rarely justified. Real ranges are wide, deal specifics move the number materially, and the “market multiple” for a specialty in Boise is not the same as in Salt Lake or Provo. This piece walks through the three approaches, why owner-doctor compensation adjustments drive the math, what personal versus enterprise goodwill actually means at closing, and how the real estate question should be handled separately.

The Three Valuation Approaches (Income, Market, Asset)

The income approach values the practice based on the cash flow it produces for its owners. The most common variant is a capitalization-of-earnings or discounted-cash-flow model built on adjusted earnings, which for a physician-owned practice means Seller’s Discretionary Earnings (SDE) for smaller practices and EBITDA for larger ones. The multiple applied to those earnings reflects the buyer’s required rate of return.

The market approach values the practice by comparing it to similar practices that have recently sold. The quality of a market-approach valuation depends entirely on the quality of the comparable data. Nationwide averages are less useful than comparables from the same specialty and roughly the same market size.

The asset approach values the practice by summing the fair market value of its tangible and intangible assets, less liabilities. For most medical practices, this approach produces a floor value rather than the operating value, because the going-concern goodwill is where the real value lives.

Why Owner-Doctor Compensation Adjustments Matter

A physician-owner’s compensation on the P&L is almost never what an incoming buyer would pay a replacement physician to do the same work. The owner might be taking $600,000 in a practice where a replacement would cost $350,000 in salary, or vice versa. The valuation math has to normalize that difference.

The adjustment is called “recasting” or “normalizing” the earnings. Owner-doctor comp is adjusted to a market-rate replacement salary for the specialty and market. The resulting “adjusted EBITDA” or SDE is what a buyer is really buying, and it is the number the multiple applies to. Two identical practices with different owner-comp practices can have very different reported earnings and nearly identical adjusted earnings.

Multiples: What the Ranges Actually Mean

Practice multiples are typically expressed as a multiple of adjusted EBITDA (for larger, more sophisticated buyers) or SDE (for smaller, individual-buyer transactions). Ranges vary widely by specialty, market, buyer type, and the individual practice’s growth, margin, and diversification.

Two things to watch:

  • Advertised “market multiples” from brokers and roll-up buyers are usually the top of the range, not the median
  • The multiple applied to a $500,000 EBITDA practice is not the same as the multiple applied to a $2 million EBITDA practice; larger practices generally command higher multiples

A rural Idaho or Utah practice with a single physician-owner and $400,000 in adjusted earnings does not sell at the same multiple as a five-physician group in Salt Lake with $2.5 million in adjusted EBITDA. Assuming otherwise is one of the most common expensive mistakes at the beginning of a sale process.

Personal Goodwill vs. Enterprise Goodwill

Goodwill in a medical practice sits in two places. Enterprise goodwill belongs to the practice: brand, systems, staff, referral relationships that would transfer to a new owner. Personal goodwill belongs to the physician: reputation, individual referring relationships, and the patient loyalty that follows the doctor rather than the shingle.

The split matters for two reasons. First, tax treatment: in many transaction structures, sale proceeds allocated to personal goodwill are taxed to the physician as long-term capital gain, potentially outside the entity’s tax structure, which can materially change the physician’s net take-home. Second, deal reality: buyers often push back on personal goodwill because it is harder to acquire and retain.

The Real Estate Question (Sell With the Practice or Not?)

Most owner-doctors who own their office real estate hold it in a separate entity that leases to the practice. When a sale happens, the real estate can be sold with the practice, retained and leased to the new owner, or sold to a separate real estate buyer.

Retaining the real estate and leasing it to the acquirer is a common structure. It generates ongoing lease income for the former owner and lets the acquirer avoid a real estate purchase they may not want. It also complicates future flexibility; a five-to-ten year lease is a long commitment.

Cooper Norman’s healthcare business valuation team builds practice valuations for physician-owners across Idaho and Utah, running the income, market, and asset approaches together and connecting the number to the tax and deal-structure math. To have your practice valued honestly before a sale conversation starts, talk with a Cooper Norman advisor.

Idaho and Utah Sales Tax Exemptions on Farm Inputs

Farms buy a lot of things every year. Seed, feed, fertilizer, fuel, chemicals, parts, equipment, and structures. State sales tax on those inputs adds up. Both Idaho and Utah exempt many farm purchases from sales tax, but the two states do not exempt the same things and do not use the same paperwork.

Operations that farm in both states, or move equipment across the state line, end up navigating two sets of rules. Getting a category wrong means either paying sales tax that could have been avoided or facing a use-tax assessment months later when the auditor arrives. This walk-through covers what each state exempts, where the two diverge, and how to actually get the exemption at the register.

What Idaho exempts

Idaho provides a production-agriculture exemption for items used primarily in commercial farming or ranching. The core categories:

  • Livestock and feed. Production animals and the feed for them.
  • Seed and fertilizer. Seed for planting, commercial fertilizer, and soil amendments used in production.
  • Chemicals. Herbicides, pesticides, and other production chemicals.
  • Fuel. Fuel used in production, including farm-use dyed diesel and clear diesel used in qualifying equipment.
  • Equipment. Machinery and equipment used primarily in production farming and ranching. “Primarily” is a use test, not a design test.

To claim the exemption at the point of sale, the buyer presents a completed Idaho Farmer Exemption Certificate on Form ST-101 to the seller. The certificate is a signed statement that the purchase qualifies. Sellers keep the certificate on file to support the exempt sale. Buyers should keep their own copy in case a vendor’s records are ever unavailable at audit.

What Utah exempts

Utah’s agricultural-production exemption covers a similar core set of purchases used in the commercial production of food, fiber, or other agricultural products. The categories:

  • Feed, seed, and fertilizer used in production.
  • Chemicals used in production.
  • Fuel used in agricultural production.
  • Machinery and equipment used primarily in agricultural production.
  • Certain irrigation equipment.

Utah uses Form TC-721A, the Agricultural Producer Exemption Certificate. The buyer signs it, the seller keeps it on file, and the exempt sale is documented. Utah also has TC-721G for greenhouse and nursery operations with slightly different rules.

Where Idaho and Utah diverge

The core categories look similar. The details are where operations that farm in both states get caught:

  • Utility vehicles and ATVs. Both states apply a “primarily used in production” test, but the practical treatment of dual-use vehicles differs. An ATV that also carries hunting gear on weekends is a fact-and-circumstance question in either state, but the two revenue departments have taken different positions in audit.
  • Structures. Farm buildings themselves are usually taxed differently than the equipment inside them. Idaho and Utah both draw the line between real property and personal property with their own definitions.
  • Repair parts. Both states generally exempt parts that go into exempt equipment. Documentation requirements differ.
  • Custom farm services. Custom hire (harvesting, planting, spraying) is treated as an exempt service in some fact patterns and taxable in others. Both states have specific rules.

Farms operating in both states should not assume the Idaho rule applies to a Utah purchase. Check the current-year rule for each category in the state where the purchase occurs.

Getting the exemption at the point of sale

The exemption is only good if the buyer claims it correctly at checkout. Practical steps:

  • Complete and sign the current-year exemption certificate (ST-101 for Idaho, TC-721A for Utah) before the first purchase of the year.
  • Provide a copy to every vendor the operation buys from routinely. Many vendors keep it on file and apply the exemption automatically.
  • For one-off vendors, hand the certificate to the cashier at the counter. Many farm-supply retailers have a scanning process.
  • Keep a folder or digital copy of the certificate at hand. If the auditor asks for support, the buyer’s copy is the evidence.

If the exemption was missed at the register, most states allow a refund claim to the vendor or a use-tax credit on the next filing. The mechanics vary. It is faster to get it right at checkout.

When you owe use tax anyway

Use tax fills the gap when a farmer buys something out of state and brings it home. If an Idaho farmer buys a used tractor from a private seller in Oregon and hauls it to Bingham County, Idaho use tax applies to the extent Oregon sales tax was not paid. The exemption still applies if the item qualifies as production equipment, but the buyer needs to document the exempt use.

Personal-use items purchased on the farm account (a hunting ATV registered to the operation, an office computer used for family purposes) do not qualify for the exemption. Mixed-use items require a use test.

This overview is general information, not tax advice for your specific operation. Talk with Cooper Norman’s ag accounting team about applying the exemption correctly and use tax planning across state lines if your operation crosses the Idaho and Utah line. Reach out to Cooper Norman for a certificate review before the next planting season.

Lean Accounting for Manufacturers

A plant runs on lean principles: pull-based production, small batches, continuous flow, waste elimination. The accounting system runs on standard costing: predetermined rates, monthly variances, absorption-based inventory valuation. The two frameworks push in opposite directions, and after a while, the accounting reports stop influencing plant decisions altogether.

Lean accounting is what happens when a manufacturer decides to align the financial reporting system with the operational philosophy the plant already runs on. For Idaho and Utah manufacturers that have embraced lean methods on the shop floor but kept traditional cost accounting in the back office, this is worth reading.

Why Lean and Standard Costing Fight

Standard costing rewards behaviors that lean principles explicitly reject. Absorption of overhead into inventory rewards overproduction, because unsold units carry fixed costs into inventory and inflate reported income. Variance reporting incentivizes big batch runs because setup and changeover variances get spread over more units. Purchase price variance drives buyers toward volume discounts and larger inbound shipments, which create the exact inventory the lean plant is trying to eliminate.

The result: the operations team pushes for smaller batches, faster changeovers, and lower inventory, and the accounting reports quietly punish every one of those moves.

Value Stream Costing in Practice

Lean accounting replaces per-unit standard costs with value stream costing. A value stream is a group of products that share a common production process. Costs (materials, labor, machine time, tooling) are captured at the value stream level, not the individual SKU level. Profit is measured for the value stream as a whole.

The reporting looks different. Instead of a SKU-level cost card with layered allocations, the value stream P&L shows revenue, materials, labor, and other conversion costs, with contribution margin and cash flow at the value stream level. Decisions about pricing, capacity, and product mix are made against the value stream, not against fictional per-unit costs.

Box Scores and the Weekly Financial Rhythm

Lean accounting typically moves reporting from monthly to weekly, using a compact one-page report called a box score. The box score for a value stream shows:

  • Operational metrics: on-time delivery, first-pass yield, cycle time
  • Capacity metrics: available hours, productive hours, non-productive hours
  • Financial metrics: revenue, material cost, conversion cost, value stream profit

The box score fits on a single page and gets published every week. Plant managers, value stream leaders, and finance staff all read the same report and act on the same numbers. Monthly financial close still produces GAAP-compliant statements for external users, but the operational conversation happens weekly on the box score.

Retiring Variance Reports Without Losing Control

The most common objection to lean accounting is loss of control: without variances, how does the plant know where costs are going wrong? The lean answer is that variances are a lagging indicator of problems that visual controls, in-process metrics, and daily huddles should catch in real time.

In practice, lean accounting plants keep a few key variances (usually material price and material usage) as monitoring tools, but retire the rest. The plant manager reviews box scores and value stream profitability instead of a dozen variance reports that arrive weeks after the events they measure.

What Auditors and Bankers Expect

External stakeholders (auditors, bankers, sureties, buyers) still need GAAP-compliant financial statements. Lean accounting does not replace GAAP; it operates alongside it. The month-end close produces standard financial statements using absorption costing for external reporting. Lean accounting runs as the internal management reporting layer, informing decisions but not replacing the GAAP output.

Auditors evaluate whether inventory is valued correctly under absorption costing. Lean accounting plants typically use a simplified average-cost or standard-cost method for inventory valuation, applied at the value stream level. That is fully defensible under GAAP as long as the method is documented and consistently applied.

Rolling Out Lean Accounting Without a Big Bang

The mistake is trying to convert the entire finance function in one project. Lean accounting rollouts that work usually follow a staged path:

  • Identify one value stream (usually the largest or most stable) and build its box score
  • Run the box score alongside existing standard costing for at least one quarter
  • Retire two or three variance reports that the box score has effectively replaced
  • Expand to a second and third value stream once the first is stable
  • Consolidate the general ledger structure to support value stream reporting

A full rollout for a mid-size manufacturer typically runs 18 to 24 months. The payback shows up earlier, usually within the first six months, as decision quality on pricing and mix improves.

Lean accounting is not for every plant. Job shops with heavy customization, project-based manufacturers, and plants where every order looks different may find value stream costing forced. But for a manufacturer with defined product families and repeatable production, the alignment between operations and finance is worth the effort. The manufacturing team at Cooper Norman has helped Idaho and Utah plants think through the transition. Our fractional CFO group is the right first call if standard costing is fighting your lean operations.