The next few months may be the most important tax planning opportunity for ag operations in decades, say K·Coe Isom tax experts.
With the recent passage of the Senate budget resolution that authorizes $1.5 trillion in deficit spending over the coming decade, Congress is “poised for a once-in-a-generation rewrite of the U.S. tax code,” says Brian Kuehl, director of Federal Affairs for K·Coe Isom.
After many months of discussion, it appears that the U.S. House and U.S. Senate are both getting close to releasing tax reform bills, he notes. The Senate’s budget resolution was a critical step toward tax reform because it sets up the framework for moving tax reform legislation through the House and Senate and passing it into law.
Once bills from the House and Senate are introduced, “we expect that the tax writing committees will immediately schedule hearings and, in very short order, will take up the bills and send them to the full House and full Senate for consideration,” says Kuehl. While the bills may not pass until 2018, Kuehl expects Congress will consider making benefits retroactive to the 2017 tax year, which may give taxpayers the benefit of reform prior to the 2018 election cycle.
Ensuring that you are prepared for the potential for any tax scenario will take some additional preparation, notes Brad Palen, CPA with K·Coe Isom. “For example, there is a very real possibility that deferring income into 2018 could improve your tax position,” Palen says. “The goal this year should be to make sure you take advantage of all the opportunities while creating as much flexibility as possible should changes occur.”
Estate planning remains another wild card, says Doug Claussen, a CPA with K·Coe Isom who has testified before Congress on agricultural tax issues. Though the estate tax may be repealed, “It’s not known whether the current basis “step up” rule would be retained,” says Claussen. “That’s particularly a big issue for farmers and ranchers.”
President Trump proposed a capital gains tax at death applicable to transfers that exceed $10 million (with certain exemptions for farms and other family businesses). Additionally the administration proposed repealing the gift tax along with repeal of the estate tax. “Gift tax is not just simply tied into the estate tax, it also has income tax implications, and therefore repeal of the gift tax is unlikely,” says Jim Rein, CPA who works with farmers and ranchers on estate and succession planning strategies.
“Even as Congress begins debating these provisions, agriculture operations of all stripes should begin planning with an eye on the state of play on Capitol Hill,” says Claussen. “Tax reform will create real winners and losers.” It’s our job at K·Coe Isom to help our clients stay in the winner column, he adds.
Summary of Current White House Propsal
- Lower Individual Tax rates (12%, 25%, 35%)
- Lower Corporate Tax rates (20%)
- Would cap “Business” Pass-through Income Tax rates at 25% (Partnerships, LLC, S-Corporation, Sole-proprietorships)
- Allow for immediate expensing of new investments in depreciable assets
- Create limitations on deduction for business interest
The best course of action for the impending tax reform is to begin tax preparations now.
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K·Coe Isom’s tax experts will monitor these developments and determine what tax planning strategies are available, and what opportunities exist for you and your business. Stay tuned for more information (coming soon) as tax reform begins to move…
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