The tax reform bill passed by Congress and signed by President Trump last week appears to have provisions that favor farmers, ranchers and agribusinesses.
In a year when the prices of many commodity are depressed, that’s good news.
Among the provisions that are good for farmers and ranchers:
• The bill raises the section 179 expense deduction from $500,000 to $1 million and is indexed to inflation. The deduction allows a producer to expense, with limitations, a capital purchase for business use instead of depreciating the item over time. The provision should facilitate the upgrade of machinery, property and software. Good for producers, good for vendors.
• The bill increases the eligibility threshold for cash accounting from $5 million average gross receipts to $25 million. Cash accounting allows farmers and ranchers to record income when commodities are sold and expenses when bills are paid. It’s a tool that gives farmers flexibility to optimize cash flow and better manage their tax burden.
The continuation of allowing cash accounting had not been in original versions of the bill. Most farmers already use cash accounting, but the bill will allow more producers and processors to use that system.
• Tax rates in all brackets are coming down for both businesses and individuals. That usually means savings.
• The measure doubles the federal estate tax exemption to $11 million per person. We would like to see the estate tax eliminated altogether, but doubling the amount of an estate subject to taxation is a good start.
Critics point out that a relatively few farming operations were subject to the tax, even under the old exemptions. That may be true as a percentage of all properties that meet the federal definition of a farm — “any place from which $1,000 or more of agricultural products were produced and sold, or normally would have been sold, during the year.”
The truth is there are a great many commercial operations that have taxable assets valued in the millions of dollars. The bill’s provisions will make it easier to keep these operations intact and productive for successive generations.
From a philosophic point of view, we have never understood the justification for assessing a tax at the owner’s death on property that was vigorously taxed during the owner’s life.
The bill is not without its sticking points. It eliminates the personal exemption and reduces or eliminates other deductions. And most of it expires in seven years.
On balance, the bill seems good for agriculture. Producers, processors and agribusiness owners should consult their tax professionals early in 2018 to take full advantage.