Additional Tax Reform Items

Last week, we had a quick overview of the tax reform proposals put forth by Dave Camp of the House Ways and Means Committee.  After reading about the proposal further, there are some additional items that would affect farmers.  Remember, this is just a proposal and nothing will happen this year.  There is a chance that some change may occur next year, but nothing this year.  Here are some additional items;

• The current deduction for fertilizer costs would be eliminated.  Instead, a farmer would be required to amortize the cost of the useful time period of the fertilizer application.
• Although farmers would be allowed to retain the cash method of accounting, it appears that if your average sales exceed $10 million, then you would be required to use the UNICAP method for inventories including farmers.  This would require these farmers to capitalize all costs related to producing a crop (including most depreciation deductions) and not deduct any of these costs until the crop is sold.  This essentially eliminates the cash method of accounting for deductions for these farmers but retains it for sales.
• The one-year deferral of crop insurance proceeds election would be eliminated.
• The one-year deferral of livestock sales due to drought would be repealed.
• Hedging gains and losses would still be reported under the current method.  They would not be marked-to-market.

These are the additional farm related items that I found, however, remember, this is not a law and it will not happen this year.

Paul Neiffer, CPA