Potato Grower

14 POTATO GROWER | APRIL 2018 TOP 5 New tax bill impacts to the ag industry On Dec. 22, President Trump signed into law the Tax Cuts and Jobs Act (TCJA). Some argue this is the most significant overhaul to our tax system in more than 30 years. As you might expect, the new tax bill is complex, but fortunately there are also some potential "low hanging nuggets" of tax savings. I recommend that you seek knowledgeable, industry-specific tax advice early this year in order to take advantage of them while you can. Although the lengthy bill is riddled with complexity, it also comes with many positive opportunities for those in the agriculture industry. Let's take a brief look at five of the major changes: By Jeffrey W. Siler, Wipfl i LLP CAPITAL ASSETS AND DEPRECIATION The Section 179 deduction is still available, allowing you to write off assets, but the limit has increased from $500,000 to $1 million. Once acquisitions exceed $2.5 million, the deduction is limited. Bonus depreciation, which is the ability to expense "new" assets in a class life, has been increased from 50 to 100 percent (at the taxpayer's option) beginning Sept. 27, 2017 and extending through 2022. One positive change is that equipment no longer needs to be "brand new," but only "new to the taxpayer" to qualify. Also, most farm machinery depreciable lives have been reduced from a recovery period of seven to five years, with a change from 150 percent declining balance to a 200 percent declining balance. One pitfall to watch out for is that the ability to trade in equipment under the like kind exchange rules has been repealed (not for real estate, however). SECTION 199(A) DEDUCTION This may well be the most complex provision in the bill, but potentially the most rewarding for the agricultural industry. This deduction replaces the domestic production activities deduction (DPAD), which was a 9 percent deduction for qualified production activities income. The primary purpose of this provision is to provide some equalization of tax rates for all business income, regardless of form of business entity. It does not apply to C corporations. It provides individuals a deduction of up to 20 percent of qualified business income (QBI). QBI is loosely defined as "qualified items of income, gain, deduction and loss" and generally includes all U.S. business income other than investment income and capital gains. For example, a farmer who owns a 50 percent interest in an LLC receives an allocable share of net income in the amount of $300,000. Under the new law, the farmer would only pay tax on $240,000 of income. There are potential limitations to this deduction depending on overall income, wages, unadjusted basis of capital assets, etc. TAX RATE CHANGES Another win for the taxpayer is the reduction of tax rates. Prior to the change, corporate rates graduated from the lowest 15 percent bracket up to 35 percent; now those brackets have been replaced with a flat 21 percent rate, and alternative minimum tax has been repealed (C corporations only). Capital gain rates remain unchanged at 0, 15 and 20 percent. Estate tax rates also remain unchanged at 40. Individual income tax rates have been reduced overall, as shown in the following table applicable to married taxpayers filing jointly.

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