You Could Pay More after Tax Cuts
One of the core issues President Trump and other Republican lawmakers have touted in recent months is a tax reform package, aimed at reducing the tax burden on a majority of Americans. But experts say that be careful what you ask for. Depending on how things shake out, you may end up paying more taxes even after a cut is in place.
There may be adjustments in what is considered farm income and what is considered compensation, which could significantly impact the taxes you pay. If the new tax reform package cuts income taxes, but reclassifies some farm income as compensation, Paul Neiffer, a CPA with Clifton Larson Allen, says farmers could end up paying more in the end.
“The perception is that we are going to lower rates so therefore we will have a net deduction,” Neiffer told AgriTalk host Mike Adams on Tuesday. “Farmers to some degree have always kept income low anyway. If we end up with a rate that is going to be a little lower but more of their income will be subject to payroll taxes, or self employment tax, I have a feeling many farmers will actually [pay more] in taxes even though rates will come down.”
In addition, estate tax will be a key component of the tax reform package. It’s unclear what will become of the estate tax, said Jim Wiesemeyer, ProFarmer’s Washington policy analyst.
“Republican leadership will use the repeal of estate tax and pull it back as a concession to Democrats to get something else they really want,” he told AgriTalk. Here's the full interview:
Neither Neiffer nor Wiesemeyer see the estate tax as a big deal, and have their eyes more on any basis adjustments that will be part of the plan.
“There is talk about eliminating the step up in basis at least for those farmers above a certain level,” says Neiffer. “If that gets eliminated that’s a much bigger tax increase than eliminating the estate tax. The step up in basis is a much more dramatic hit for heirs than the estate tax.”
The big question remains: when will reform happen?
“I have never seen President Trump as focused on a single topic than he has been with tax reform. Not just cuts, but reform,” Wiesemeyer says. “Nothing can be done until the budget is done. The ag interests have general parameters, but until you know the fiscal 2018 budget and any reconciliation, and then how tax reform could impact baselines, [Congress] won’t move.”