New Tax Law Could Change Commodity Marketing Decisions

Jan 12, 2018  | 2 min  | Ep4321

There is little doubt earning the money to make dreams come true for Christmas 2018 are happening under a new set of rules. Accountants are still reeling over what the Tax Cuts and Jobs Act means for their rural customers.

Changes to the Federal tax structure put in motion by President Trump’s signature last December will not only affect purchases that farmers and ranchers make in 2018, but could also affect who they sell their grain to.

According to many tax accountants, the immediate bonus for farmers will be an allowance for the full depreciation of equipment purchased after September 27th of 2017. Full depreciation will be allowed for the next five years until being phased out in 2026. Used equipment also is eligible for the deduction.

Additionally, the new law allows joint households to deduct 20 percent of pass-through income below $315,000. Anything above that mark will require additional calculations.

The deduction limit has been doubled to $1 million dollars per year, and that limit phases out as operations reach a $2.5 million cap. To avoid returning to reset these limits, both numbers are now indexed to inflation.

An obscure corner of the tax code saw one deduction repealed, only to be replaced with another. The Domestic Production Activities Deduction, or DPAD, also known as Section 199, has been replaced with Section 199A. DPAD was originally designed to encourage domestic manufacturing, but was used mostly by software and entertainment companies. For agriculture, DPAD allowed cooperatives to deduct nine percent of their taxable income and pass shares of the deduction to their members.

The new Section 199A allows for a 20 percent deduction for grain sales to a cooperative by its members. Depending on the producer’s tax bracket, the deduction could result in reducing their burden from 5 to 20 cents per bushel.

Private grain buyers, like Cargill or ADM, are concerned access to crops will become more difficult. Congress may attempt to adjust the terms of the deduction to remove the incentive, which could trigger a 60-vote minimum for passage in the Senate. No Democrats voted for the tax plan when it passed along party lines in late December.

For Market to Market, I’m Peter Tubbs.

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