Tax Recorm Bill
Implications for Agriculture By Michael Cox
Too much fanfare, the House and Senate approved ‘Tax Cut and Jobs Act’ was signed into effect by President Trump on December 22nd 2017. The new tax reform was aimed at reducing overall taxation and simplifying the tax code. Republicans claim the tax bill will stimulate investment and expansion by business, repatriation of off-shore profits back to America and further bolster strong economic growth. American Dairymen Magazine recently discussed the major possible implications of the reform for agriculture with accountants from two of the nation’s leading accounting and tax advisory firms; Genske Mulder and Company, California and CliftonLarsonAllen LLP, Illinois. “At the moment, the bill is a set of guidelines to allow lawmakers to work on the finer details,” says Gary Genske, of Genske Mulder and Company, “but we do have a clearer picture now of what the big changes will be.” The most unprecedented change is the new 20 percent deduction on business
income. “For a married couple with income less than $300,000, 20 percent can be deducted ‘straight off the top’, says Genske. For higher income businesses, the deduction is limited to 50 percent of W-2 wages paid, or the combined sum of 25 percent of W-2 wages plus 2.5 percent of business depreciable property. It is yet unknown if the 20 percent deduction will apply to both income and social security, which would affect self-employed farmers. A potential ‘glitch’ in the new bill is the advantage it infers to sales made to cooperatives. “Under current interpretation, if a farmer sells to a co-op he gets the 20 percent deduction off total income, but if he sells to a private company, the deduction only applies to profit,” says Patrick Sturz of CliftonLarsonAllen LLP. This section of the bill has raised controversy in recent weeks and is likely to be reviewed and possibly amended before the end of the year. C- Corporations have also seen
changes. For farmers utilizing a C-Corp, the old tax rates of 15 percent, 25 percent, 34 percent and 35 percent have now been merged into a single 21 percent rate. “Overall this is positive, says Sturz, “but lower income farmers of $100,000 or less need to be careful as their tax liability may actually rise by 6%”. A minor C-Corp deduction change was made to the ‘household meals’ deduction, which has been halved to 50 percent and will be phased out over time. Although all tax brackets have dropped, in some hightax states such as California or New York, the reduction will not compensate for the repeal of some deductions that were applicable in the past. Capital Investment Sect. 179 has also been re-written. Genske says, “The deduction has doubled from $500,000 to $1 Million, with phaseouts coming in at $2.5 Million.” ‘Bonus Depreciation’ has been altered from the old system of 50 percent write-off before depreciation, to a new 100 percent write-off on new or
Michael Cox is a freelance writer for American Dairymen. His background is in Animal Science, where he graduated from University College Dublin Ireland with a First Class Honors degree in 2016. He is currently involved with a dairy business in Missouri, managing a 750 cow grass-based grazing farm and am also a research scholar with University of Missouri- Columbia.