What Farmers Need to Know about Tax Reform

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Are you paying more tax than you’re legally required to?

By William “Bill” Glazner, CPA, CITP

 

When penicillin was discovered in 1928 by Alexander Fleming, the practice of medicine was substantially transformed.  Fast forward to today.  We have the luxury to appreciate penicillin and the many other medical advancements that occurred over the past century.

 

My point in bringing this up is: the way we treated medical conditions 25, 50, or 100 years ago is very different than it is today.  Switch gears from medicine to accounting and finance and the same is true.  The way you strategize and plan from a tax and overall agribusiness perspective has also taken a major shift, especially with the passage of the Tax Cuts and Jobs Act in 2017 (TCJA).

 

The Tax Cuts & Jobs Act’s Impact on Agriculture

The TCJA changed many things for many people, and this is especially true in ag.  As we head into the latter part of 2019, we gear up for tax planning, which is designed to analyze an agribusinesses’ financial situation and ensure tax efficiency.  Tax planning in the agriculture industry is going to be especially important this year.

 

Without proper tax planning, you’re likely to pay more in tax than you’re legally obligated to. Yes – you read that right.

 

Section 199A and Domestic Production Activities Deduction (DPAD)

The way you structure your agriculture operation has an impact on your ability to maximize what you’re qualifying for under the new Section 199A deduction, This new legislation eliminated the prior Section 199 domestic production activities deduction (DPAD), which was designed to provide you with a tax benefit for exporting goods to other countries, and replaced it with a qualified business income (QBI) deduction, known as Section 199A.

 

How Does Entity Structure Impact Agriculture?   

Entity structure is critical to your ability to qualify for certain deductions.  Having a mix of LLCs, partnerships, s corporations, etc. can create limitations as well as additional deductions that you may be eligible for. It’s more critical than ever to plan accordingly with an entity structure that will maximize your 199A deduction.  Another great reason to consult with your tax advisor is that in some cases without proper planning, farmers may be paying as much as 20% more in income tax than they need to. 

 

The Times Have Changed

In the aftermath of the Tax Cuts and Jobs Act, rule changes and clarifications continue to be issued, as recent as a few weeks ago.  When tax planning this year, make sure to reconsider many items including whether a C corporation should remain part of your entity structure.  Are you losing deductions based on your entity structure or are you gaining a benefit?

 

The discovery of penicillin transformed the way we treat infections, and so has the way we approach business and tax planning.  Everyone’s situation is different, but the conversation must be had – sooner rather than later.

 

William “Bill” Glazner, CPA, CGMA, Partner, leads Adams, Brown, Beran & Ball, Chtd.’s Agriculture Industry niche. In addition to extensive research and analysis on emerging technologies in the Agriculture space, Bill has over 30 years of public accounting experience.  He consults with ABBB’s agriculture clients on a wide variety of strategic issues.  For more information, visit www.abbb.com or contact Bill at bglazner@abbb.com.