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Farm tax considerations for 2023 and beyondFarm tax considerations for 2023 and beyond

Legal Matters: There have been no major tax law changes in 2023. However, some changes will expire at the end of 2025.

Tim Halbach

November 9, 2023

4 Min Read
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PERSONAL EXEMPTIONS: In 2017, taxpayers could generally take a personal exemption of $4,050 for themselves, their spouse and each of their dependents. The TCJA temporarily ceased personal exemptions, but they are scheduled to return, indexed for inflation, in 2026.Richard Drury/GETTY IMAGES

There have not been any major tax law changes so far in 2023. However, some tax law changes under the Tax Cuts and Jobs Act of 2017 will expire at the end of 2025. This means it may make sense, in some cases, to take in more income in 2023, 2024 and 2025, because unless new tax laws are passed, income will be taxed at higher rates after 2025.

The TCJA lowered the individual tax rates, which meant the 15% bracket was lowered to 12%; the 25% bracket went to 22%; the 28% bracket went to 24%; the 33% bracket went to 32%; and the 39.6% bracket went to 37%. In 2026, the lower tax brackets will revert to what they were prior to the TCJA.

QBI deduction expires in 2026

For 2018 through 2025, the TCJA allowed most individuals receiving income from a sole proprietorship or a pass-through business — including an S corporation or a partnership — to take a 20% qualified business income deduction, often called the QBI deduction. This QBI deduction is set to expire in 2026, which will significantly impact small businesses. It should be noted that the TCJA also lowered the tax rate for C corporations from 35% to a flat 21%, but that is a permanent change.

The TCJA also raised the standard deduction in 2018 from $13,000 to $24,000. The standard deduction rises with inflation and will be at $27,700 for married filing jointly in 2023 and $13,850 for single filers. It will reset to prior levels in 2026, indexed for inflation.

There is one positive. In 2017, taxpayers could generally take a personal exemption of $4,050 for themselves, their spouse and each of their dependents. The TCJA temporarily ceased personal exemptions. Personal exemptions are scheduled to return, indexed for inflation, in 2026.

A few minor changes start taking effect in 2023. The TCJA allowed a 100% bonus depreciation through 2022. Bonus depreciation begins being phased out in 2023 at 20% increments. That means in 2023, it is only an 80% bonus; in 2024, it is a 60% bonus, and so forth.

Another tax law change that takes effect in 2023 is regarding business meal deductions. For 2021 and 2022, businesses could take a 100% deduction for business meals provided by a restaurant. In 2023, businesses are only allowed a 50% deduction for otherwise deductible business meals.

Estate tax exemption

One item frequently discussed in the column is the lifetime estate tax exemption. That amount is currently $12,920,000 per person. In 2024, the estate tax exemption is rising with inflation to $13,610,000 (which means a married couple can be worth $27,220,000 at death before they owe estate tax). If you are worth more than the estate tax exemption at death, the tax owed is basically 40% of the amount you are over the exemption amount by. In 2026, this estate exemption amount will be cut in half to somewhere between $7 million and $7.5 million per person.

Similarly, the annual exclusion for gifting purposes will rise from $17,000 in 2023 to $18,000 in 2024. This means that in 2024, one person can gift to another person $18,000 before a gift tax return must be filed. If a person gifts more than $18,000 to one person in 2024, a gift tax return must be filed to inform the IRS, as the value of the gift above $18,000 reduces the donor’s lifetime estate tax exclusion amount dollar for dollar.

Finally, many of you have likely been contacted by companies regarding the Employee Retention Credit. While this is a legitimate tax credit in certain circumstances, companies have offered to apply for the credit for you in exchange for a percentage of the credit received. Because so many businesses have applied for this credit, the IRS recently suspended accepting applications for the credit and is closely reviewing those applications that have been filed. If you retained a third party to apply for this credit and have failed to inform your accountant, it is important to discuss this with him or her.

As always, do not take tax advice from this article. Talk to your accountant, attorney or other financial professional.

Halbach is a partner in the agricultural law firm of Twohig, Rietbrock, Schneider and Halbach. Call Halbach at 920-849-4999.

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