It’s Back
President Biden had proposed his Build Back Better Act last year that would raise at least $2 trillion of new taxes. That plan essentially died due to Senator Manchin and Senator Sinema.
However, Senator Manchin was not opposed to some parts of the Act and it appears that we may end up with a slimmed down version of the Act and it may affect some farmers.
The current tax proposal is to apply the 3.8% Net Investment Income Tax (NIIT) to all farm income in excess of certain thresholds. For single taxpayers it would be $400,000 of adjusted gross income (AGI) and married couples would see it applied over $500,000 of AGI. For many farmers, this will be a non-event since their AGI is under these levels.
For other farmers, this will mean this income will be taxed at an extra 3.8% rate. Also, Section 199A deduction is not part of AGI, so many large dairy farmers and other farmres who receive a large DPAD deduction will be hit with this tax. Let’s look at an example:
Sue, a single taxpayer, has a large dairy. Her taxable income is $400,000 which is after a $500,000 DPAD and Section 199A deduction. Her AGI is at least $900,000, therefore, she will owe NIIT of at least $19,000 under this proposal.
There is not much time for Congress to get this passed before the August recess. We will keep you posted.
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.
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