What Did we Learn from the 2019 Tax Season?
One of the best things in life (maybe) from living in an 100 year old farm house is waking up in the morning to your cat flipping a dead mouse into bed with you. That is what my wife and I woke up to this morning.
Yesterday, after I left for work at O-dark 30 my wife woke up to the cat and our chocolate lab playing witha dead mouse and chasing another one ( I even have a couple of small videos at the end of the post dealing with dogs, cats and mice). Now onto the blog post. It has been a little light over the last two weeks for posts. This has been a very stressful tax season to get everything out timely.
- Section 199A – The new 20% QBI deduction was viewed as being very positive for our farmers. However, for most farmers this year, the deduction was likely much smaller than planned. The main reason likely related to lower levels of farm income. Second, many cooperatives had pushed through a large DPAD deduction at the end of 2017 and for 2018, there was either a very small DPAD or no DPAD from the cooperative.
- The IRS still does not have a handle on the new law – We are still waiting for guidance from the IRS on the Section 199A deduction and cooperatives. We have previously posted on some notices going out regarding this deduction. And just yesterday, a client of mine received a notice indicating the two-year farm NOL carryback for a FYE 2018 return needs to be five years (which is wrong).
- The inter-play of state and federal tax rules – It is likely very easy to get taxable income to a very low level for federal taxes, however, in many states, this is not true. Most income taxing states do not allow for bonus depreciation and have reduced Section 179 levels. This can lead to farmer’s assuming low taxes and getting a nasty surprise at year-end.
- Taxable trade-ins – We had numerous emails and comments about how farmers are upset with not being able to contribute to their retirement plans solely due to having taxable trade-ins with offsetting depreciation deductions. This created a farm loss and no retirement plan deduction. They could elect the optional SE method to get a small contribution. There are ways to get around this, but it does make a farmer’s life more complicated.
These are my top lessons from this tax season. If you have other top lessons learned, please leave a comment.
Here are a couple of quick videos dealing with cats, dogs and mice. They do keep you entertained.
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 principal with CliftonLarsonAllen in Walla Walla, 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. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Thanks for all of your great information.
I thought DPAD was over. My client just received a written notice of allocation for DPAD for 2019. The COOP’s year end is January 31, 2019, and they stated that it will be 2019 DPAD.