Q: We’ve read stories about the Tax Reform Act will help everybody. But what do you see as the greatest opportunity for farmers to benefit?
Mike Evanish: Taxpayer-friendly relief
The law is one thing; yet-to-be-written regulations (details) are another. But doubling the standard deduction is likely to reduce itemizers from 30% of taxpayers to 10%. That means a less complicated national return, and who doesn’t like less complication?
• Business friendly. Given increased deductibility of asset purchases and lowered tax rates, it’s easy to see why it’s friendlier to small business than to big business. Businesses grossing under $25 million can deduct all interest paid on loans while larger businesses have limited deductibility.
• Family friendly. Sure, exemption deductions are going away, but are replaced with a large and mostly refundable child tax credit. I’ll take a credit over a deduction any day. And, all workers will see greater take-home pay in each paycheck thanks to reduced tax rates. Most families don’t itemize deductions. So, the near doubling of the standard deduction is major tax relief.
• Cooperative friendly. Most everyone in ag has read about the 20% deduction from income if the farm’s production is sold to a co-op. While this is not a “pure” 20% deduction (there’s more to the calculation), it’ll help reduce tax bills of most that sell production through co-ops.
Dale Johnson: Not simplified for everyone
Many middle- to upper-middle-class taxpayers will reduce taxes by lumping deductions every other year.
One strategy may be to use the standard deduction ($12,000 individual, $24,000 married filing jointly) for 2018. In 2019, you’d lump deductions to maximize benefits from charitable contributions, property tax and other possible prepayments. Of course, many don't have the cash flow to do that.
George Mueller: The great giveaway
I’ll leave the way too complicated and confusing tax bill for professionals to explain. But there does seem to be substantial cuts in it for hard-working farmers.
It lowers most tax brackets 15% to 25 %. And if you don’t earn enough to benefit from the $2,000 child tax credit, our treasury will give you a refund of up to $1,400 per child.
My main concern is that this tax bill gives away trillions that our government doesn’t have. Our national debt ended 2017 at 20.24 trillion dollars — 105.6 % of our yearly gross domestic product, and continues to grow rapidly. I guess I’m getting a bit cynical as I enter the second half of my eighth decade. But we have the most wonderful, prosperous and generous nation. It has been a delight for my family and friends growing up all these years.
I fear we’re in danger of losing it all due to our lack of fiscal discipline. Our democracy won’t survive if we continue to vote for the politician who can dip into the treasury the most and spread it around to all. We face a dictatorship, oligarchy, or worse, anarchy, unless we start teaching and preaching basic economic discipline so necessary in a democratic society. Our “land of the free and home of the brave” is at risk.
Glenn Rogers: Nothing’s simple
A wise old person I met in D. C. once told me not to count on Washington for more than a 10% change in things. The other 90% must come from your own efforts. So, concentrate on that 90%. It'll take months or years to sort out the true impact
Most farmers are small sole proprietorships, not corporations. Consequently, the changes to ones’ personal income tax should be placed first. That’s not to say that positive changes won’ be felt by larger incorporated farms. But there are fewer farmers in this category.
Impact to farm income is harder to determine; not all the rules have been written yet. However, there are a few notable items. The new 20% deduction for qualified business income from a partnership, S corporation or sole proprietorship sounds great. Bu there are wage limitations.
The deduction offsets income tax, not self-employment tax. Dairy farmers may find this new 20% deduction of little use as capital gain sales (raised cow sales) limit its impact.
Cooperatives now have the 20% deduction to help reduce co-op income. However, this one isn’t directly passed on to patrons. The new law does include a 20% deduction specific to co-op members on payments received from the co-op.
I question the benefit of higher estate tax exemptions for farmers. Most don't have estate values that high. Most never hit the $5 million level in the old rules. If they did, it was because of the capital required to produce an income in a capital-intensive dairy business.
Got a question? Our experts await!
Our Profit Planner panel would like to hear it. The panel consists of Michael Evanish, farm business consultant and business services manager of Pennsylvania Farm Bureau’s Members’ Service Corp.; Dale Johnson, Extension farm management specialist at the University of Maryland; George Mueller, dairy farmer from Clifton Springs, N.Y.; and Glenn Rogers, University of Vermont Extension professor emeritus and ag consultant.
Send your questions to “Profit Planners,” American Agriculturist, 5227B Baltimore Pike, Littlestown, PA 17340. Or email them to firstname.lastname@example.org. All are submitted to our panel without identification.