doc martens boots Nebraska Farm Bureau explains new Tax Bill to farmers and ranchers
The following limitations will apply:The deduction is limited for partnerships and S corporations to 50 percent of W 2 wages paid to employees OR the sum of 25 percent of W 2 wages paid plus 2.5 percent of depreciable business property.The W 2 limitation does not apply to taxpayers when taxable income does not exceed $315,000/$157,000 joint/individual and would be completely phased out when income reaches $415,000/$207,000 joint/individual.The deduction is not available to some service businesses, for example, veterinarians with taxable income over $150,000. The deduction for service businesses starts to phase out at $50,000 of income.
C Corporation Businesses: The law sets the corporate tax rate at a flat 21 percent instead of the current 15 percent, 25 percent, 34 percent, and 35 percent brackets.
Implications for 2017: Depending on your individual circumstances, farmers and ranchers may want to consider deferring income to next year as the lower rates take effect for the 2018 tax year. 179 small business expensing from $500,
000 to $1 million and increases the expenditure level at which the deduction begins to phase out from $2 million to $2.5 million indexed for inflation.
Immediate Expensing (bonus depreciation): Farmers and ranchers generally use bonus depreciation when expenditures exceed the Sect. 179 small business deduction limits. All farm structures qualify for the bonus depreciation deduction. The bill allows businesses to fully and immediately write off business investments through 2022 and expands the deduction to include used as well as new purchases. After 2022, the percentage deduction reduces by 20 percent each year until bonus depreciation is eliminated beginning in 2027.
Depreciation of Farm Machinery: The bills shorten the depreciation period for farm equipment and machinery from seven to five years.
Implications for 2017: Farmers and ranchers might consider making some year end purchases of new or used equipment. The new law’s effective date for the expanded bonus depreciation rules start for property purchased on or after September 28, 2017. The new law does limit an individual’s ability to deduct their local property taxes and state income taxes at a combined $10,000, for those who itemize deductions. Unfortunately, the increased exemption expires on December 31, 2025. The bill does not change current stepped up basis rules.
6.1031 Exchanges are Continued for Real Property The new law continues like kind exchanges for buildings and land, however it would end for equipment and livestock. Carryover rules are available to apply the excess interest expense to future years. The new law also maintains the deduction for medical expenses for those who itemize deductions.
Implications for 2017: This should be discussed with your accountant. The new law allows farmers to receive a 20 percent deduction on all payments from a farmer cooperative. The deduction cannot exceed the taxpayer’s taxable income for the year. The cooperative will then receive a 20 percent deduction on gross income less payments to patrons, limited to the greater of 50 percent of wages, or 25 percent of wages plus 2.5 percent of the cooperative’s investment in property.
The Nebraska Farm Bureau is a grassroots, state wide organization dedicated to supporting farm and ranch families and working for the benefit of all Nebraskans through a wide variety of educational, service and advocacy efforts. More than 61,000 families across Nebraska are Farm Bureau members,
working together to achieve rural and urban prosperity as agriculture is a key fuel to Nebraska’s economy.