November 15, 2017

Tax Reform Is A "Net Benefit" For Farmers

 |  By: Anna-Lisa Laca

In early November the House of Representatives introduced the “Tax Cuts and Jobs Act.” This long-awaited tax reform bill would reduce the top corporate rate to 20%, reduce individual rates into four brackets, create a new 25% tax rate for pass-through entities, double the standard deduction, provide for increased expensing of capital assets, phase out the estate tax and preserves the step up in basis.  “The bill will be helpful for the vast majority of farmers and ranchers,” says Patricia Wolf of the American Farm Bureau.

Aside from the repeal of the estate tax, one of the major changes for farmers is how Sole Proprietors and Partnerships will be taxed, Wolf says. “Right now farm profits are determined and then the owner of the business pays taxes on profits,” she explains. “The bill splits farm profits into two categories. It says that part of the profit on your farm is from labor and the other from investments. The income that is said to be from investments will have a maximum tax rate of 30% and the remainder will be taxed as it was before.”

Like-kind exchanges were continued for land but not for equipment or livestock, which has been raised as a concern by some farm groups. Wolf says that loss is negated by an increase in expensing. “Almost any business input that a farm buys will be able to be immediately expensed,” she says.

Possibly one of the biggest concerns of farmer cooperatives is Sec. 199 the Domestic Production Activities Deduction. This deduction that applies to money generated by the sale agricultural products that are manufactured, produced or grown by farmers.  According to KCOE ISOM, currently there are special provisions that allow cooperatives to pass the benefit of the deduction directly through to their farmer members, but the proposed bill stands to change that.

The administration is hopeful tax reform will be complete before the end of the year. Kansas Senator Jerry Moran says the Senate bill will potential for job growth in the U.S. While the House has been working on their version of a tax reform bill, the Senate has been long at work on theirs as well. If approved by the two chambers, the two versions of the tax plan will have to be reconciled before heading to the President’s desk.

“My impression is that the house and senate have worked to try and keep the differences at a minimum between the different versions of the bill,” Moran says adding he hopes the bill will be worked on in a bipartisan way. “It takes two to tango.”