Proposed tax reform could have significant impact on Hoosier farmers

11 Nov, 2013

Source: Hooser Farmer
Author: By Kyle Cline, Public Policy Team

U.S. House Ways and Means Committee Republicans have been having member-only meetings since returning from the August recess to hash out the details of a tax reform bill now expected to be released in November.

While information coming out of the committee’s closed-door sessions has been limited, there are reliable reports that cash accounting remains one of the unsettled items. Farm Bureau has become increasingly concerned about the future use of cash accounting by farmers because of changes proposed in the committee’s small business discussion draft. That draft would:

  • Reduce the threshold at which family corporations are required to switch from cash to accrual accounting from $25 million of gross receipts to $10 million.
  • For the first time impose a threshold for S-Corps and partnerships, also at $10 million.

Farm Bureau supports the continuation of unrestricted cash accounting for farmers and ranchers who pay taxes as individuals and cautions against reducing the number of corporate farms eligible to use it. Cash accounting combined with the ability to accelerate expenses and defer income gives farmers the flexibility they need to manage their tax burden by allowing them to target an optimal level of annual taxable income.

In addition, cash accounting allows farmers to improve cash flow, reduce the need to incur debt, simplify record keeping and offer an accurate reflection of a farmer’s financial situation since cash accounting records revenue and expenses when they occur.

Another proposed change causing concern among farmers is the small business discussion draft’s proposal to continue only $250,000 of Section 179 small business expensing. Tax provisions that accelerate expensing allow farmers and ranchers to better manage cash flow, minimize tax liabilities and reduce borrowing. In a year when a farm or ranch business has the funds to make major purchases, for example a combine for $350,000 or a tractor for $200,000, business expenditures will spike and can easily top the proposed threshold. The ability to immediately expense capital purchases also offers the benefit of reducing the record-keeping burden associated with the depreciation.

Farm Bureau supports maintaining the current Section 179 expensing limitation of $500,000 and phase out threshold of $2 million.

It is important that any new taxing system provide Hoosier farmers with tools to manage their way through the volatilities of an industry characterized by unpredictable weather and unpredictable markets.

Farmers are asked to make contacts with their members of Congress, especially the House Ways & Means Committee and Senate Finance Committee, about cash accounting, Section 179 small business expensing, capital gains taxes and estate taxes.

Additionally, Hoosier farmers are encouraged to contact Congressman Todd Young, a member of the House Ways & Means Committee, regardless of whether or not he is represents their congressional district.

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