Tax Tidbits

Teresa Olson
By Teresa Olson January 23, 2019 12:09

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The Tax Cut and Jobs Act or TCJA (signed late in December 2017) will bring about some changes in 2018, and it should be noted that some of this act’s tax provisions are retroactive while others take effect in 2019.  Here are some highlights:

 

  • Individual tax rates are for the most part, lower for the next seven years, but these rates are scheduled to sunset in 2025
  • The standard deduction used by many individual taxpayers has nearly doubled, and because of this increase, many folks who were itemizing in the past will choose this option instead.  For those people that will still itemize, deductions for real estate taxes on a personal residence plus state income taxes paid will be capped at $10,000 in 2018.
    • Farmers and ranchers who pay real estate taxes on land used for crops and pasture will continue to be able to deduct 100% of these expenses.
  • Personal exemptions for taxpayers, spouses and dependents have been suspended so an average family of four will lose a little over $16,000.  This loss may be to an extent offset by the increased standard deduction.
  • Capital gains rates have generally been retained along with the tax breakpoints where the 15% and 20% rates begin to apply.
    • This is good news for farmers who plan to sell land or other appreciating assets and raised breeding livestock.
  • Depreciation rules are more advantageous for 2018 and beyond.
    • Farmers, when you buy and replace equipment and build sheds, these deductions are available for you.
  • The new laws kept like-kind exchanges for real property but put an end to like-kind exchanges of personal property.
    • So in 2018, a 1031 exchanging farmland can still result in a tax-deferred exchange but equipment and livestock trades will be treated as taxable events showing a gain or loss on the sale.  The generous depreciation rules may reduce or eliminate these potential gains.
  • C-Corporation tax rates have dropped to a flat 21% tax rate, so C-Corp Farmers may benefit.
  • Net operating loss (NOL) carrybacks have been abolished, however the new tax laws allow NOLs to be carried forward indefinitely instead of the previous 20-year maximum.
    • The new NOL carryback rules do NOT apply to farmers.
  • A New deduction called the pass-through deduction has been added equal to 20% of a taxpayer’s business income from a partnership, S-corp or sole proprietorship.
    • Farmers, if you’re a sole proprietorship this refers to Schedule F and E

And speaking of Schedule F, remember the IRS program that was launched in Feb 2017 to more closely scrutinize certain aspects of this schedule:

  • Deducting hobby losses.
  • Making a distinction between a deposit and a currently deductible expense.
  • Recording wages paid to employees on the Custom Hire line.
  • The potential personal use of farm fuel and how you account for it.

The subject of taxation is often confusing, frustrating, and something we’d rather not have to deal with, so enlist the help of those professionals who can ensure you explore and maximize your tax deductions.

 

-Terry Olson, Titan Outlet Store Team

 

References:

https://www.agriculture.com/farm-management/finances-accounting/9-key-tax-law-changes-that-will-impact-producers

https://www.agriculture.com/farm-management/business-planning/irs-eyes-2018-payment-on-a-2019-farm-machinery-purchase

Teresa Olson
By Teresa Olson January 23, 2019 12:09
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