Farmers huddle with accountants over tax cut law

By GAY GRIESBACH - For the Daily News

Jan. 23, 2018

On Dec. 22, President Donald Trump signed the Tax Cuts and Jobs Act. Farmers are beginning to find out what those cuts might mean to those in agriculture.

While Rep. Paul Ryan, Treasury Secretary Steven Mnunchin and the president have touted using a postcard-sized form for filing tax returns, farmers may find the process a bit more involved.

Dave Daniels owns Mighty Grand Dairy in Union Grove. He milks 575 dairy cows and farms about 1,200 acres.

While he works with an accountant, he does the day-to-day bookwork on the farm.

He’s learning about what changes in the tax laws may mean to him, but will leave the heavy lifting to his financial advisor and urges others to do the same.

One portion of the Act he’s been studying is Section 179.

According to a University of Nebraska-Lincoln online article by Tina Barrett, executive director of Nebraska Farm Business Inc., the new law doubles the Section 179 deduction from $500,000 to $1 million and raises the purchase phase out to $2.5 million.

“As most producers weren’t reaching the maximum deduction when it was $500,000, this is not a major change,” Barrett said in the article.

Daniels said that increase may be beneficial to those purchasing big-ticket machinery or adding a building. While those deductions can be used the first year, he said it is also possible to depreciate the investment over a five- to seven-year period.

Bonus depreciation has been reinstated, Barrett said, at a rate of 100 percent, but only through 2022.

Another change is a 20 percent deduction of qualified business income available to owners of passthrough entities. Daniels said for the most part, farmers are passthrough entities because income generated on a farm is “passed through” to a single owner — the farmer.

Barrett said pass-through business income has generated much discussion and the final regulations “will be interesting” as they are unveiled.

Daniels said income exempted from the estate tax — the amount an individual can leave to heirs without having to pay federal taxes — has been bumped from $5 million to $11 million, but that portion of the Act is only in effect until 2025.

Since the date of one’s death is usually unknown, it is difficult to plan on passing on anything more than $5 million, Barrett said.

Daniels said the increase may be beneficial to larger farms and ranches in western states — or Racine County — where Foxconn turned farmland into incredibly valuable property.

“Not a lot of farms will benefit, but the ones that do will be able to keep those farms in their families instead of having to sell off a portion to pay the estate tax,” Daniels said.

Daniels said although there has been a push toward using accrual principles, the Act allows farmers to keep using cash accounting.

He said using accrual principles means, for example, a grain farmer would have to claim both expenses and income from a crop in the same year it was grown.

Daniels said grain may be kept into the following year for other reasons, including hopes that it might bring a higher price.

“With cash accounting, he can claim the income when he sells the crop instead of the year he grows it,” Daniels said.