Dec 22, 2017

Tax bill passes – what does it mean for agriculture?

Reviews are coming in regarding the impact on the agriculture community of the tax reform bill passed by Congress and signed by President Donald Trump on Dec. 22.

Tom Stenzel, president & CEO, United Fresh Produce Association, issued the following statement:

“This week the U.S. Congress passed the Tax Cuts and Jobs Act, marking the most significant overhaul of the U.S. tax code in 30 years. While there has certainly been a strident political debate over various provisions of the bill, this legislation will have a profound effect on your businesses and you as individuals. United Fresh has been involved in many coalitions addressing tax reform, from farm and agriculture groups to more broad business groups. Our goal has been to make sure that the voice of small businesses, family businesses, and corporations alike are heard. And again, although there will continue to be debate as this rolls out in the coming years, we feel that our voices were heard and that many changes in the tax code will be good for you and your businesses.”

From the U.S. Chamber of Commerce:

Provisions in the Final Tax Cuts and Jobs Act Benefitting Small Businesses

New 20 percent Deduction for Pass-Throughs (Sole Proprietorships, Partnerships, LLCs, and S-Corps):

The bill includes a new 20 percent deduction on the first $315,000 of joint income ($157,500 in the case of a single return) earned by a pass-through. For example, if a small business earns $200,000 and the owner files a joint return, then the owner will not pay taxes on $40,000 (20 percent of $200,000) of their income. The 20 percent deduction is in addition to the overall lower tax rates for individuals and pass-throughs provided by the bill.

For larger pass-throughs with joint income above $315,000, the deduction is restricted as follows:

– It is phased-out for “professional services” which includes: businesses in the fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of the business is the reputation or skill of one or more of its employees or owners, or which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities.

– For other businesses, the deduction is limited based on W-2 wages paid or capital invested by the business owner. Specifically, the deduction is limited to the larger of:

– 50 percent of the W-2 wages paid by the business, or

– The sum of 25 percent of W-2 wages paid plus 2.5 percent of the initial cost of tangible, depreciable property used in the business.

The official explanation of the bill includes this example:

For example, a taxpayer (who is subject to the limit) does business as a sole proprietorship conducting a widget-making business. The business buys a widget-making machine for $100,000 and places it in service in 2020. The business has no employees in 2020.

The limitation in 2020 is the greater of (a) 50 percent of W-2 wages, or $0, or (b) the sum of 25 percent of W-2 wages ($0) plus 2.5 percent of the unadjusted basis of the machine immediately after its acquisition: $100,000 x .025 = $2,500. The amount of the limitation on the taxpayer’s deduction is $2,500.

Expanded Ability of Small Business to Immediately Write-off the Cost of New Equipment:

Under current law (section 179) small businesses are accustomed to deducting purchases of new equipment immediately, subject to certain limitations. Under tax reform, these limitations are waived so all businesses will be able to deduct all equipment purchases.

Small Businesses Continue to Deduct Net Interest Paid:

While the bill imposes a new restriction on the ability of large businesses to deduct their net interest payments, small businesses with gross receipts of less than $25 million are excluded from this restriction. As a result, small business will continue to be able to deduct their interest expenses.

The California Association of Winegrape Growers assembled some reactions:

The sweeping $1.5 trillion tax bill was scheduled to be signed by President Trump on Dec. 22. Early Wednesday morning, the Senate voted 51-48 in favor of the bill.In a do-over vote on Wednesday afternoon, the House approved the bill 224-201. Twelve House Republicans voted against the bill and all Democrats in the House and Senate voted against it. Trump praised the legislation, calling it a “big, beautiful tax cut for Christmas.” Democrats were united in opposition.

On farmers

President Trump: “It makes the vast majority of family farms and small businesses exempt from the estate tax. The estate tax was killing the farmers. They were forced to sell farms at bargain-basement prices. They don’t have to do that anymore.”

USDA Secretary Sonny Perdue: “I know that the hard-working, tax-paying people of American agriculture need relief. Most family farms are run as small businesses, and they should be able to keep more of what they earn to reinvest in their operations and take care of their families.”

The White House and the American Farm Bureau Federation (AFBF) have provided detailed breakdowns of the legislation. AFBF’s article includes a chart comparing 17 elements of the new bill with current law.

• FARM BUREAU: WHAT DO THE TAX CUTS MEAN FOR FARMERS AND RANCHERS?
• WHITE HOUSE: DETAILS ON THE TAX CUTS ACT