Some New Goodies and Gotchas From the Senate

The Senate Finance Committee released a revised tax proposal today and it mostly has some tax goodies for farmers, however, there are several gotchas that may negatively affect your income tax situation.  Here is a review of the major changes (both good and bad):

  • The Alternative Minimum Tax is repealed, however it is now scheduled to come back after 2025.  With the elimination of state and local taxes and miscellaneous itemized deductions, this may not be a big deal for most taxpayers, unlike the current situation.
  • There are slight reductions to some of the tax rates.  The 22.5% bracket drops to 22%.  The 25% bracket drops to 24%.  Finally, the 32.5% drops to 32%.
  • The child credit would increase to $2,000 up from the previous $1,650 proposal.
  • There would be no wage limitation on the 17.4% deduction for farm income if your taxable income is less than $500,000 (MFJ) or $250,000 for singles.  Also, service income such as doctors, accountants, etc. would see a 17.4% deduction if their income is also under these same levels.
  • Farms who have the interest deduction limitation (their income is over the income level threshold) can elect to deduct 100% of their interest.  However, they would have to use the ADS depreciation method on assets with a life of less than 10 years (not sure if bonus depreciation would still be allowed, but Section 179 would remain unchanged at the $1 million level).  This is good for feedlot operators and large livestock operations that borrow a lot of short-term debt.
  • Net operating loss carryforwards can only offset 80% of taxable income beginning in 2024 (90% from 2018 to 2023).
  • There may be an elimination of any meals deduction for employer provided meals (no details on this yet).  This could affect farmers who provide meals for their employees.
  • It would repeal the ACA individual mandate effective in 2019.  This was added to provide additional revenues for after the 10 year scoring period to allow them to escape the “Byrd” rule.  They need to make sure they do not add to the deficit after 10 years.  This allows them to pass the Bill in the Senate with only 50 votes instead of 60 votes.
  • The special $250 educator deduction that is allowed above the line is increased to $500.  The House had eliminated this provision.
  • A new payroll credit for certain wages paid to employees that are under a Family and Medical Leave (FMLA) would be allowed.  The credit can start at 12.5% and is increased based on the rate of pay paid during the leave.  This credit begins in 2020.
  • A special rule regarding replanting of Citrus trees would allow for an accelerated deduction versus current rules, etc.

There are several other changes, however, I believe these are the items most critical to farmers.  It is extremely important to determine what the final Bill passed by the Senate since this may ultimately become law.  The House has a cushion on votes whereas the Senate has a very small cushion.

We will keep you posted on any major updates.

 

  • Principal
  • CliftonLarsonAllen
  • Yakima, Washington
  • 509-823-2920

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a partner with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation.

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Comments

What about the farmers that are now in nursing homes and are “Spending Down” their savings. Can’t believe that those savings will not be deductible as medical expense. Have you a comment on medical deductions in either the house or senate bill. This is a big concern for many in my area.

I am concerned about the nursing home bills paid by farmers and taking a toll on assets. Some folks desire to pay their way out of this world. There seems to be nothing medical deductible. Have I read this concern correctly?

Do you have any comment on the change in like-kind exchanges – it appears that in both the House and Senate versions, like-kind exchanges for personal property is eliminated. To me that means that if a farmer trades any equipment, they are deemed to have sold it. Is that your interpretation?

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