Posted by Carmen Garcia

Vital Tax Law Changes for Farmers and Ranchers

Vital Tax Law Changes for Farmers and Ranchers

There are essential elements in the 2018 tax law changes that will affect farmers and their families. These changes span through to 2025.

Effect on Individuals 

  1. Standard Deduction: With this new law, the standard deduction rose to $24,000 for married farmers filing jointly. For the head of households, the value is $18,000 and $12,000 for married and single filing separately.

  2. Personal Exemptions: With this new law, the deduction on personal exemption was suspended. Taxpayers are no longer eligible for individual or dependency exemptions.

  3. Child Tax Credit: With this new law, credit for qualifying kids rose. These are children under 17 years from $1000 to $2,000.

  4. Medical Expenses: health care individual mandate: from 2019, there is no longer a penalty for people that do not get the minimum required health coverage.


Impact on Business Tax 

There are farming losses that qualify for a two-year carryback. The carrying forward of net operating loss occurs indefinitely.

  1. Domestic Production Activities Deduction: With the new law, DPAD is no longer valid for tax years following 2017.

  2. Increased Code Section 179 expensing: With the new law, the maximum expense amount increased to a million dollars.

  3. Bonus Depreciation: the new law allowed a 100% first-year deduction for new and used property that qualifies. These are properties in service after 27th Sept 2017 and not before 2023.  

By 2023, the 100% allowance will no longer apply.

  1. Depreciating Farm tools and machinery: New farming tools, machinery, and equipment under the new law had the cost recovery period reduced to five years. For used equipment, on the other hand, it remained at seven years.

Also, the declining balance under the new law of 200% is applicable. This is preferable, compared to the 150% used for the old law. 

  1. Like-Kind Exchange treatment: with the new law, the rules in charge of gains deferral on the like-kind exchange of properties used by a taxpayer for trade can only take care of like-kind exchanges of valid properties. Like-kind exchange no longer has provisions for personal stuff.

  2. New Deduction for Pass-through income: there is a 20% deduction with the new law for qualified business income. These are income coming from a trade or union. While this deduction brings down the taxable income, it does not affect the adjusted gross income. Should the taxable income be above $157,500 for single taxpayers (couples filing jointly will have it at $315,000), the deduction still applies further.

 

Essential Tax Consideration with Farm Losses 

  1. Under the "optional method" with no income, self-employed people are permitted to pay a token of the self-employment tax for the year. However, for them to qualify for this credit from social security, it is vital to reveal earning. This will allow taxpayers to be eligible for their benefit.

For taxpayers with kids, there is the option to use the additional child tax credits and earned income credit to checkmate the self-employment tax. Earnings having the optional method for farmers make one qualify for the credit. 

  1. Farmers can benefit from farm income average whenever there is profit or loss. Whenever farmers sell their equipment, farm tools, and livestock, the assets will bring about ordinary and capital gains.

In a year with farm equipment dispersal, you will need a tax professional for several tax issues. Farm income averaging can help relieve some tax liabilities.


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THANKS FOR VISITING. 



Carmen Garcia
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