On Pasture has no position on the current tax reform legislation, nor are the editors experts in tax law, the proposed legislation, or how it might affect different people and businesses. Taxes are a complex ecosystem of rules and regulations and it always helps to have more information about how different changes will alter the financial environment farmers and ranchers work in. We’re providing the information provided to us by K•Coe Isom so that you can add it to what you already know about the proposed changes. This national, agricultural accounting firm finds some benefit to agriculture in the proposal and also points out some areas of concern that we thought you’d like to know more about. So, here you go!
K·Coe Isom, a national agricultural accounting and consulting firm, had a mixed review of the House tax reform legislation and cautioned that the legislation could actually raise effective tax rates on many farmers and ranchers.
“We applaud Speaker Ryan and Chairman Brady for moving forward with tax reform but encourage them to modify the legislation to make sure it works for agriculture,” said Jeff Wald, CEO of K·Coe Isom. “The eventual phase-out of the estate tax will be welcome news for farms and ranches that would otherwise be subject to this tax. We also applaud the bill for not limiting farmers’ ability to use the cash method of accounting.”
Wald continued, “We are worried, however that provisions in the House tax bill could hamper growth for many farms and ranches and could actually increase the amount of taxes these operations pay. These provisions include the restrictions on interest expense deductions, the curtailment on carry-backs of losses, the elimination of the Domestic Production Activities Deduction and limitations on like-kind exchanges.”
The “Tax Cuts and Jobs Act,” H.R. 1, would reduce the top corporate rate to 20 percent, reduce individual rates into four brackets, create a new 25 percent tax rate for pass-through entities, double the standard deduction, provide for increased expensing of capital assets and phase out the estate tax. At the same time, the bill would remove many deductions used by farmers and ranchers today.
Wald called on Congress to modify the tax reform legislation to ensure that it doesn’t hurt America’s farms and ranches. “As the House moves forward with tax reform, we would ask that they consider four changes to the bill.”
• Exempt farm businesses from limits on interest deductions. Farms and ranches often finance equipment, land and input costs with debt financing. Unlike other sectors of the economy, agriculture rarely turns to equity financing, relying much more heavily on debt financing to operate. While it is good that small business are exempt from interest expense limitations in this bill, it would be better if all farm businesses were exempt from this limitation.
• Allow farmers and ranchers to use like-kind exchanges for farm equipment. The current tax code allows farmers to avoid paying taxes on the trades of equipment provided that the farmer acquires similar equipment. Congress should preserve the ability of farmers to use such like-kind exchanges. This creates an incentive to replace aging farm equipment with new purchases which is good for agricultural competitiveness and good for ag manufacturers and equipment dealers.
• Exempt agriculture from the elimination of the Domestic Production Activities Deduction (Sec. 199). The Domestic Production Activities Deduction is a deduction that applies to proceeds from agricultural products that are manufactured, produced or grown by farmers. There are special provisions that allow cooperatives to pass the benefit of the deduction directly through to their farmer members. It is estimated by the National Council of Farmer Cooperatives that the deduction returns nearly $2 billion annually to rural areas in all 50 states.
• Allow agriculture to carry-back losses to offset taxes paid in previous good years. Agriculture is a highly volatile industry with significant swings in commodity prices and input costs. When a farmer experiences a loss during a bad year, they should be able to continue to apply that loss to offset taxes paid in previous good years.
“K·Coe Isom represents many of America’s most successful farm and ranch businesses. We’re also helping some of America’s leading agricultural organizations assess how tax reform will affect producers of critical commodities,” added Wald.
K·Coe Isom is a national agriculture accounting and consulting firm that represents farmers and ranchers throughout the U.S. In 2013, K·Coe Isom helped launch Farmers for Tax Fairness, a national coalition of farmers who work together to educate Congress on the importance of cash accounting to U.S. farmers.
“Agriculture is the backbone of America, creating millions of jobs, supporting local economies and providing food security for the world,” said Wald. “As Congress works on comprehensive tax reform, it must make sure that its rewrite of the tax code will continue to promote U.S. agriculture.”
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