What We Don’t Know About Section 199A
The last post discussed what we know about Section 199A. This post will discuss what we still do not know about the Section 199A cooperative adjustment.
We know we have to calculate cooperative QBI but what income does this include. Do we include the gains from selling/trade farm equipment. If so, do we do this on a gross or net basis.
Here is a table showing how this may work for each method:
| Data | Schedule F Only | Schedule F Plus 1245 Gains – Net | Schedule F Plus 1245 Gains – Gross | |
| Non-cooperative sales | 750,000 | 750,000 | 750,000 | 750,000 |
| Cooperative payments | 325,000 | 325,000 | 325,000 | 325,000 |
| Section 1245 Gains | 175,000 | – | 175,000 | 175,000 |
| Gross Farm QBI | 1,250,000 | 1,075,000 | 1,250,000 | 1,250,000 |
| Non-wage expenses | (895,000) | |||
| Wage expense | (121,000) | |||
| Cooperative DPAD | (5,000) | |||
| Net Farm QBI | 229,000 | |||
| Tentative Section 199A(a) deduction | 45,800 | |||
| Percent of Coop. QBI | 30.23% | 30.23% | 26.00% | |
| Net Farm QBI Before DPAD | 234,000 | 234,000 | 234,000 | |
| Less Section 1245 gains if applicable | (175,000) | – | – | |
| Gross cooperative QBI to be allocated | 59,000 | 234,000 | 234,000 | |
| Gross cooperative QbI (QBI X %) | 17,837 | 70,744 | 60,840 | |
| Less DPAD | (5,000) | (5,000) | (5,000) | |
| Net Cooperative QBI | 12,837 | 65,744 | 55,840 | |
| Cooperative wages | 36,582 | 36,582 | 31,460 | |
| 9% of cooperative QBI | 1,155 | 5,917 | 5,026 | |
| 50% of cooperative wages | 18,291 | 18,291 | 15,730 | |
| Cooperative Reduction | 1,155 | 5,917 | 5,026 | |
| Section 199A(a) deduction | 44,645 | 39,883 | 40,774 | |
| Cooperative DPAD | 5,000 | 5,000 | 5,000 | |
| Total Section 199A deduction | 49,645 | 44,883 | 45,774 |
As you can see, there is likely at least three ways (or more) to calculate this number. As of now, there is probably is no “wrong” way without further IRS guidance. Will we get this before March 1. Maybe yes, maybe no. We still don’t have final instructions on Form 8995-A which will calculate the Section 199A deduction.
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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