Farmer and Farmland Owner Income Tax Webinar Chris Bruynis, Davis Marrison, and Barry Ward OSU Extension
Chris Bruynis
Circular 230 Disclosure The information provided in this presentation is for educational purposes only. This presentation is designed to provide accurate and authoritative information concerning the subject matter covered, but it is communicated with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.
Teaching Objectives Discuss Key Provisions of Tax Cuts & Job Act of 2017 Which May Impact Farm Operations. General Tax Provisions Schedule A Deductions Federal Estate Tax Depreciation Changes Like-Kind Exchanges Net Operating Loss Qualified Business Deduction 199A and Ag. & Horticultural Cooperatives
2018 Farmers Tax Guide Get a copy of the Farmer s Tax Guide at your local County Extension office or access it on-line at: http://www.irs.gov/pub/irs-pdf/p225.pdf
New Tax Brackets The new tax brackets are effective for years after December 31, 2017 and expire after December 31, 2025. The income tax brackets will be adjusted for inflation after December 31, 2018 and rounded up to the next lowest multiple of $100 in future years.
Head of Household The tax act retains the head-of-household filing status that originally was to be eliminated under the House legislation. However, the new tax act requires the Treasury department to issue due diligence requirements that pertain to paid preparers in determining whether or not an individual qualifies to file as head of household. A penalty of $500 per instance is to be assessed against paid preparers who fail to meet the requirements for determining the correct status.
Individual
Married Filing Jointly 2017 Tax Brackets 2018 tax brackets Rate Income Bracket Rate Income Bracket 10% $0 - $18,649 10% $ 0 - $19,049 15% $18,650 - $75,899 12% $19,050 - $77,399 25% $75,900 - $153,099 22% $77,400-164,999 28% $153,100 - $233,349 24% $165,000 - $314,999 33% $233,350 - $416,699 32% $315,000 - $399,999 35% $416,700 - $470,699 35% $400,000 - $599,999 39.60% $470,700+ 37% $600,000+
Long-Term Capital Gains Rate 2017 Tax Brackets 2018 Tax Brackets Tax Bracket Capital Gains Rate Income Bracket Capital Gains Rate 10% 0% S $0 $38,600 0% 15% 0% MFJ $0 $77,200 0% 25% 15% S $38,601 $425,800 15% 28% 15% MFJ $77,201 $479,000 15% 33% 15% S $425,801+ 20% 35% 15% MFJ $479,000+ 20% 39.60% 20%
Standard Deductions & Exemptions 2017 2018 Filing Status Deduction Deduction Single $6,350 $12,000 Married Filing Jointly $12,700 $24,000 Head of Household $9,350 $12,000 Personal Exemption $4,050 none
Standard Deduction The additional standard deduction for the elderly and blind are retained and, thus, not changed. For years after 2018, the standard deduction will be indexed for inflation using the chained consumer price index for urban consumers.
Schedule A Deductions 1. State/Local/Property Tax (SALT) 2. Medical and Dental Expense Deduction 3. Home Mortgage Interest Deduction 4. Personal Casualty & Theft Loss Deduction 5. Charitable Contribution Deductions 6. Misc. Itemized Deductions Subject to 2% Floor
State and Local Taxes (SALT) Deductions Under the new plan, taxpayers who itemize will be able to deduct their state individual income, sales and property taxes up to a limit of $10,000 in total starting in 2018 ($5,000 for individual filers). Previously, the deduction was unlimited. deduct either individual income taxes or sales taxes. property taxes previously were also entirely deductible.
SALT Deduction - Business Please note that this provision DOES NOT pertain to the taxes accrued or paid in carrying on a trade or business.
Medical and Dental Expenses Medical and dental expenses remain in place but are tweaked. Before tax reform excess above 10% of your adjusted gross income (AGI). AGI $40,000; medical expenses $5,000 $5,000 - (10% x $40,000 = $4,000) = $1,000. After tax reform - 7.5% is in place for two years retroactive to January 1, 2017. AGI $40,000; medical expenses $5,000 $5,000 - (7.5% x $40,000 = $3,000) = $2,000.
Home Mortgage Interest Interest on up to $750,000 in mortgage debt can be deducted This cap affects home purchases made after December 14, 2017. A mortgage from December 14 or earlier Deduct interest on up to $1 million in debt (the old cap) Prior to the new law, interest on up to $100,000 in home equity debt was also deductible meaning interest on $1.1 million could be claimed. The new legislation wiped out the deduction for home equity debt, including on existing loans, beginning in 2018 unless used to substantially improve home.
Casualty and Theft Losses Casualty losses were eligible prior to 2018 as itemized deductions to the extent that they exceeded $100 plus 10% of your adjusted gross income. Events included natural disasters, fires, robberies, and other qualifying occurrences. The new law now preserves the deduction only for disasters for which a presidential disaster area declaration was made. Property used in trade or business still qualifies
Charitable Contribution Deductions Itemized charitable deduction remained unchanged. However with the higher standardized deduction, this may be a moot point. Filers who plan their charitable gifts may be able to get themselves over the new standard deduction and itemize if they use a strategy called "bunching."
Schedule A Deductions Miscellaneous deductions which exceed 2% of your AGI will be eliminated for the tax years 2018 through 2025. This includes deductions for unreimbursed employee expenses and tax preparation expenses. It includes expenses that you incur in your job that are not reimbursed, like tools and supplies; required uniforms not suitable for ordinary wear; dues and subscriptions; and job search expenses. These expenses also include unreimbursed travel and mileage, as well as the home office deduction.
Schedule A Deductions Please note that the elimination of unreimbursed employee expenses only affects taxpayers who claim an employee-related deduction on Schedule A. As a business owner filing a Schedule C or Schedule F, your business-related deductions are not affected by the elimination of Schedule A deductions.
Hobby Farm Example Hobby farm expenses can be entered to offset hobby farm income on Schedule A under other income. With the larger standardized deduction, these may be lost under the new rules. Before, if you claimed the income and deducted the itemized deduction it cancelled each other out. Now if you claim the income and cannot itemize (standard deduction is larger) your hobby farm may increase your net tax liability
Timber Considerations Ownership Issues Owned as a business schedule C Timber expenses are fully deductible including state and local taxes Owned as an investment Schedule A Timber expenses are no longer deductible Option to elect state and local property taxes as part of the timber costs (capitalize the expenses) and deduct upon sale of timber. Schedule A deductions limited to $10,000
New 1040
New 1040
David Marrison
Topics 1. Estate & Gift Tax Update 2. Farm Equipment Depreciation 3. First Year Depreciation 4. Section 179 Expensing 5. Like Kind Exchanges 6. Net Operating Loss 7. Cash Accounting
Federal Estate Tax
Federal Estate Tax Federal Exemption was $5,490,000 for 2017. Tax Reform increased limit- $11,180,000 for 2018. Excess taxed at maximum of 40%. Annual gift exclusion is $15,000. Step up in basis has been continued. In 2026, will revert back 2017 levels.
Ohio Estate Tax As of January 1, 2013, the Ohio Estate Tax has been repealed.
Don t Let Sleeping Dogs Lie
Equipment Depreciation
Class Life of Assets Prior to New Tax All assets are placed into an asset class (regardless of the practical or real useful life of the asset. MACRS Classes: 3, 5, 7, 10, 15, 20, 27.5, & 39 3 year: breeding hogs, non-race horses over 12 years old. 5 year: breeding livestock, goats, dairy cattle, sheep, trailers, computers/calculators, logging equipment, solar property, & farm truck 7 year: farm equipment & machinery, grain bins, fences, office equipment, horses, younger than 12 years old, anaerobic digesters 10 year: greenhouse, single purpose structures, orchards, & vineyards. 15 year drainage tile & paved lots 20 year: farm buildings & storage (apples, onion, potato)
Modified Accelerated Cost Recovery System (MACRS) General Depreciation System 150% Declining Balance- used for farm equipment* 200% Declining Balance Straight line Alternative Depreciation System Straight line
A Comparison of Depreciation Schedules Year MACRS 150% MACRS 200% Straight-Line 2018 (1/2 Year) $5,357 $7,143 $3,571 2019 $9,566 $12,245 $7,143 2020 $7,516 $8,746 $7,143 2021 $6,124 $6,247 $7,143 2022 $6,124 $4,462 $7,143 2023 $6,124 $4,462 $7,143 2024 $6,124 $4,462 $7,143 2025 (1/2 Year) $3,062 $2,231 $3,571 For Used Tractor: Purchase Price of $50,000
Changes for Farm & Machinery Depreciation Cost recovery period is now 5 years (not 7) for new farm machinery and equipment. Grain bins, fences, and used equipment stay as 7 year assets. 200% declining balance is to be used on 3, 5, 7 and 10 year property. 150% declining balance on 15 and 20 year property. Trees and vines are 10 year property previously SL, now 150 DB.
What a Difference a Year Makes $430,000 new combine purchase with out Bonus or Section 179 Depreciation 2017- $46,071 depreciation ($430,000/7 x.5 x 150%) 2018- $86,000 depreciation ($430,000/5 x.5 x 200%) $39,929 more
Accelerated Depreciation Bonus Depreciation Section 179
A Look Back at Previous Bonus Depreciation Rules Bonus Depreciation Requirements: Recovery period of 20 years or less Original use commenced with Taxpayer. Property required to be depreciated through Alternative Depreciation System (ADS) is not eligible for this deduction. Placed in service before1/1/2020.
Old Phase Out Bonus Depreciation Rules 50% deduction allowed through 2017 40% for 2018 30% for 2019 0% for 2020 and later
NEW Bonus Depreciation Rules Expands to 100% for next five years. For property placed in service after 9/27/2017. Recovery period still 20 year or less. Removes requirement that usage must begin with taxpayer. Both new and used equipment is eligible. Family sale restrictions.
New Phase Out Bonus Depreciation Rules 100% through 2022 80% for 2023 60% for 2024 40% for 2025 20% for 2026 0% for 2027 and beyond
Section 179-Equipment Expensing Can expense new or used equipment in year of purchase. Cannot exceed the taxable income derived from the business. Cannot create a loss.
Section 179-Equipment Expensing I.R.C. 179 deduction was $510,000 with $2,030,000 phase-out limit ($1 for $1) in 2017. For 2018, has expanded to $1 million with a $2.5 million dollar phase-out limit ($1 for $1). Will be indexed for inflation for future years. Provisions are not set to expire.
Interest Expense Limitation Taxpayers with 3-year average gross receipts over $25 million are subject to interest deduction limits: Limited to 30% of adjusted taxable income Can elect out, but must then use ADS on property in 10- year or greater MACRS life.
Excessive Depreciation Concerns This increase in the rate of depreciation for many farm assets, combined with the shorter MACRS recovery class for new farm equipment and machinery, may generate more depreciation than is needed by some taxpayers. The taxpayer can elect to use the SL method of depreciation and now may also elect to use the 150% method. Both elections are made on a class-by-class basis each year. To further reduce the amount of depreciation, the taxpayer may elect to use the alternative depreciation system (ADS), which calculates depreciation using the SL method and lengthens the recovery period.
Like Kind Exchanges
No Like Kind Exchange for Personal Property 1031 now only applies to real property (land) under the TCJA. Farm equipment and breeding heifers not eligible. Equipment trade-ins are now immediate (in the year) taxable events. Most likely result will be taxable gain. Offset is increased basis for depreciation.
Amos Buys Tractor Under Old Rules 2017 New Tractor Cost- $397,000 Tractor for Trade In- $112,000 Reduced Cash Amount- $285,000 Old Tractor Basis- $61,262 So Basis for depreciation Is- $346,262 No gain was recognized on disposition of tractor.
Amos Buys Tractor Under New Rules 2018 Tractor for Trade In- $112,000 Old Tractor Basis- $61,262 Taxable Gain $50,738 (Part III, Form 4797) New Tractor Cost- $397,000 New Basis for depreciation Is- $397,000
So what does Amos Do? Simply think of it as a sale of the used piece of equipment and the purchase of the new piece of equipment. Elect to take offset the taxable gain of $50,738 by using I.R.C. 179 (provided he is under investment limit of $2,500,000.) or use bonus depreciation.
Cautions/Observations Some taxpayers may not always be able to immediately offset the gain recognized by taxable exchanges. May already have used the maximum $1,000,000 section 179 deduction or may have exceeded the $2,500,000 investment limit on qualifying purchases. May not want to use bonus depreciation because it applies to the entire recovery class basis. This may create more than the optimal amount of depreciation expense.
Farm Loss Deduction Limits
Farm Net Operating Losses under TCJA 5-year carryback for farm losses eliminated. 2-year carryback for nonfarm losses eliminated. Farms still have this option. Carryover loss deduction limited to 80%. Unlimited carryover. Farmers may elect out of 2-year carry back.
Cash Accounting
Cash Accounting Expands who may use cash accounting. Can now use cash accounting if < $25 million in gross receipts. Was <$5 million Impacts C Corps
David L. Marrison, Extension Educator Coshocton County Extension 724 South 7th Street, Room 110 Coshocton, Ohio 43812 marrison.2@osu.edu 740-622-2265 Thank You!
Barry Ward
Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (AtPfRPtTIIaVotCRotBfFY2018) Also known as the: Tax Cuts and Jobs Act (TCJA) Signed into law on December 22nd, 2017
New Tax Rate C-Corporations One of the cornerstones of the Tax Cuts and Jobs Act (TCJA) was to reduce tax rate for C-Corporations. Was permanently reduced to a flat 21%.
Corporate Tax Pre TCJA C-corporation Rate through December 31, 2017
New Tax Rate C-Corporations Medium to larger C-Corps benefit Smaller C-Corps don t benefit A C-Corp with net income less than $96,500 was better off with the old C-Corp rates (in terms of rates only!) Corporate AMT is repealed for tax years beginning after Dec 31, 2017.
New IRC Section 199A Deduction for Qualified Business Income A deduction in the amount of 20% is allowed for pass through entities - sole proprietorships, partnerships, and S corporations (LLCs are included) from Qualified Business Income from what is termed a Qualified Trade or Business This deduction allows for continued tax neutrality between business entity types
New IRC Section 199A Deduction Determine Qualified Business Income (QBI). Includes Schedule C, F, E, Form 4797 recapture, Form 4835 There are a number of definitions, thresholds, and limitations that apply to this deduction. Generally the 199A deduction for QBI is the lesser of: 20% of combined QBI or 20% of taxable income minus net capital gain-qualified cooperative dividends.
New IRC Section 199A Deduction for Qualified Business Income Also known as (AKA): 199A Deduction for Pass Through Entities 199A Deduction Business Deduction Pass-through Entity Deduction Pass-through Business Deduction QBI Deduction
Definitions for QBI Deduction Qualified Business Income (QBI) - is the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer. Trade or Business- taxpayer must be involved in the activity with continuity and regularity and the taxpayer s primary purpose for engaging in the activity must be for income or profit. See: I.R.C. 162. & Commissioner v. Groetzinger
QBI Deduction The QBI Deduction is claimed on the individual s tax returns whether an individual itemize deductions (Sch A) or does not itemize. This deduction reduces taxable income and is 20% of qualifying business income (or 20% of taxable ordinary income).
QBI Deduction Example: You make $100,000 in a pass-through business but with the new standard deduction ($24,000) your taxable income is $76,000 (assume all income is ordinary) Your deduction is the lesser of: 20% of $100,000 = $20,000 20% of $76,000 = $15,200 Deduction is $15,200
QBI Deduction Married Filing Jointly No Dependents - No Wage Income FACTS FROM 1040 & Sch. 1 BACK PAGE 1040 W-2 WAGES $0 SCH F $100K SCH D (THIS ALWAYS GETS DEDUCTED!!!) SCH C SCH E (Front & Back Page) AGI $100K STD DED/ITEMIZE $24K NET TAXABLE INC $76K QBI DEDUCTION $15,200 TAXABLE INCOME $60,800 1120S NET, 1065 NET, GUARANTEED PAYMENTS, 1041 AGI $100K QBI Deduction: $100K X 20% = $20,000 QBI Deduction: $76K X 20% = $15,200 QBI = LESSER OF: $15,200
QBI Deduction Married Filing Jointly No Dependents - Wage Income FACTS FROM 1040 & Sch. 1 BACK PAGE 1040 W-2 WAGES $24K SCH F $100K SCH D (THIS ALWAYS GETS DEDUCTED!!!) SCH C SCH E (Front & Back Page) AGI $124K STD DED/ITEMIZE $24K NET TAXABLE INC $100K QBI DEDUCTION $20,000 TAXABLE INCOME $80,000 1120S NET, 1065 NET, GUARANTEED PAYMENTS, 1041 AGI $124K QBI Deduction: $100K X 20% = $20,000 QBI Deduction: $100K X 20% = $20,000 QBI = LESSER OF: $20,000
QBI Deduction Limitations Specified Service Trade or Business Specified Service Trade or Business (SSTB): A specified service trade or business such as one that performs services in the health, law, consulting, athletics, financial services, brokerage services, accounting, or any trade or business where the principal asset is the reputation or skill of one or more of its employees or owners. Full 20% QBI Deduction if these businesses are under the bottom of the limitation phase-in range $157,500 Single or $315,000 MFJ No deduction if these business have Qualified Business Income greater than $207,000 Single or $415,000 MFJ (top of the phase-in range) Limited deductions in the phase-in ranges $157-207K Single $315-415K MFJ
QBI Deduction Limitations For individuals with taxable income of less than $157,500 for single filers and $315,000 for joint filers. The deductible amount for EACH qualified trade or business is 20% of the taxpayers qualified business income (QBI) Taxable income above these amounts results in limitation phase-ins
QBI Deduction - Limitations High Income Taxpayers Need Wages and/or Property to qualify For individuals with taxable income of more than $157,500 for single filers and $315,000 for joint filers. Limitation Phase-in amounts: $50,000 for single filers and $100,000 for joint filers Limitation Phase-in range for single filers: $157,000 - $207,000 Limitation Phase-in range for joint filers: $315,000 - $415,000
QBI Deduction Limitations Full 20% Deduction Wage Limitation Phase-in Range Full Wage Limitation Applies $0 $157,500 $315,000 $157,500 $315,000 $207,500 $415,000 $207,500 $415,000
QBI Deduction Limitations - SSTBs Full 20% Deduction Wage Limitation Phase-in Range No QBI Deduction Allowed $0 $157,500 $315,00 $157,500 $315,000 $207,500 $415,000 $207,500 $415,000
QBI - Limitations Once filers reach the top of the limitation phase-in range ($207,500 for single filers and $415,000 for joint filers) the calculations are simple (relatively): The deduction is the greater of: 50% of the W-2 wages paid by the business or The sum of 25% of the W-2 wages paid plus 2.5% of the depreciable property.
QBI Depreciable Property What is the depreciable property and how to calculate: Tangible property, subject to depreciation (meaning inventory doesn't count), which is held by the business at the end of the year and is used -- at ANY point in the year -- in the production of QBI. The depreciable period starts on the date the property is placed in service and ends on the LATER OF: 10 years OR the last day of the last full year in the asset's "regular" (not ADS) depreciation period.
QBI - Depreciable Property To illustrate, assume Ohio Farm purchases a piece of machinery on November 18, 2018 for 100,000. The machinery is used in the business, and is depreciated over 5 years. Even though the depreciable life of the asset is only 5 years, the owners of Ohio Farm will be able to take the unadjusted basis of $100,000 into consideration for purposes of this second limitation for ten full years, from 2018-2027, because the qualifying period runs for the LONGER of the useful life (5 years) OR 10 years.
QBI - Depreciable Property The basis taken into consideration is "unadjusted basis," meaning it is NOT reduced by any depreciation deductions. In fact, Section 199A(b)(2)(B)(ii) requires that you take into consideration the basis of the property "immediately after acquisition." Any asset that was fully depreciated prior to 2018, unless it was placed in service after 2008, will not count towards basis. Just as with W-2 wages, a shareholder or partner may only take into consideration for purposes of applying the limitation 2.5% his or her allocable share of the basis of the property. So if the total basis of S corporation property is $1,000,000 and you are a 20% shareholder, your basis limitation is $1,000,000 * 20% * 2.5% = $5,000.
QBI Limitation Calculation For example: You have $1,000,000 of qualified business income and you re potentially entitled to a $200,000 deduction but you exceed the threshold. Your business s wages equal $300,000 and you hold $1 million in depreciable property: Your deduction is the greater of: Wage: $300,000 x 50% = $150,000 Wage/Property Combo:$300,000 x 25% + $1mil x 2.5% = $100,000
Qualified Business Losses & QBI Worksheet Qualified Business Losses (QBL) are carried over to subsequent years to offset QBI
Domestic Production Activities Deduction (DPAD) Repealed The deduction under IRC Section 199 known as the Domestic Production Activities Deduction (DPAD) is repealed effective January 1, 2018. This deduction was beneficial for Cooperatives and farms with employees earning W-2 wages.
Grain Glitch Fixed (Cooperative Glitch) Consolidated Appropriations Act 2018 signed on March 23, 2018 The 20-percent deduction calculated based upon their gross sales was eliminated and replaced with a hybrid Section 199A deduction Grain sales made prior to March 23 to Coops do not qualify under the temporary provision
Sales to Cooperatives Step 1: First, patrons calculate the 20 percent 199A QBI deduction that would apply if they had sold the commodity to a non-cooperative. But they don t stop there. Step 2: The patron must then subtract from that initial 199A deduction amount whichever of the following is smaller: 9 percent of net income attributable to cooperative sale(s) OR 50 percent of W-2 wages they paid to earn that income from the cooperative Step 3: Add back in cooperative's qualified production activities income (QPAI) attributable to that patron's sales.
Allocating the Deduction to Patrons Allocate the coop s deduction to patrons based on value of business w/ coop Sales to coops may result in a net QBI Deduction: Greater than 20% if the farmer taxpayer pays no W2 wages and coop passes through all or a large portion of the allocable QBI Equal to 20% if farmer taxpayer pays enough W2 wages to fully limit their coop sales QBI deduction to 11% and the coop passes through all allocable QBI Less than 20% if farmer taxpayer pays enough W2 wages to fully limit their coop sales QBI to 11% and the coop passes through less than the allocable QBI
QBI Deduction Coop Patron No Wages Paid Pat sold grain through coop $230K PURPIM, $20K patronage dividend $200K expenses no wages $50K QBI QBI Deduction is $10K (20%) reduced by lesser of ($50K x 9% = $4,500 or $0 x 50% = $0).so $10K
QBI Deduction Coop Patron with additional Pass-Through Deduction Same fact pattern as previous except Pat also got $2,500 deduction from coop QBI deduction is $12,500 ($10,000 + $2,500)
QBI Deduction Coop Patron with Wages Paid Same fact pattern as first example except. Pat paid $25,000 W-2 wages QBI deduction is $5,500 ($10K reduced by lesser of $4,500 or $12,500)
Sales to Both- Need to Segregate Income/Expenses Sales to Non- Cooperatives Sales to Cooperatives
Tracking and Calculating Coop Sales and Expenses Track expenses (including labor, machinery expenses, etc.) per field and allocate to those bushels sold to cooperatives Prorate total expenses from Schedule F on a per bushel/per cwt basis There may be incentive to increase NFI on coop sales vs non-coop sales depending on W-2 wages paid and the portion of QBI passes to patrons
Farm Lease Income and QBI Deduction Farm lease/rental income qualifies for the QBI deduction if conducted: For income/profit With continuity and regularity May be QBI even if: Not subject to SE tax Passive activity
Farm Lease Income and QBI Deduction Crop share landlords filing a Schedule F are eligible Crop share landlords filing Form 4835 may qualify (if they are materially participating they likely will) Landlords will likely have to pass as a trade or business according to IRC Section 162 Cash rent landlords filing a Schedule E may or may not qualify pending final regs Landlords will likely have to pass as a trade or business according to IRC Section 162
What Do You Think? Landowner who completely turns over management of the land to an agent, such as a professional farm management company, and does not otherwise materially participate in the farming operation, does not have SE income from renting land for agricultural use? A triple net lease arrangement, where the tenant pays the taxes, insurance, and maintenance, may not give rise to material participation, and it may not qualify for the QBI deduction. What minimum activity will qualify a cash rent income as QBI?
Farm Lease Income and QBI Deduction Farms with Multiple Entities: Proposed regulations indicate that common ownership of business entities allows the farmer to combine the rent income with the farm income an advantage Section 1231 Capital Gain Income: Will not qualify as QBI if the gain is treated as a capital gain likely not good for dairy producers
Conservation Reserve Program Payments CRP payments quality for QBI if is a regular activity and for profit Subject to SE tax if actively engaged (unless receiving social security) 8 th Circuit not SE income So Outside 8 th Yes QBI, Inside 8 th No QBI? pp. 318-19
QBI Deduction The QBI deduction will offset income tax liability and AMT however It will not reduce self-employment income or net investment income
QBI Deduction Things to remember if nothing else. The very large majority of farmers will be eligible for the entire 20% deduction! Qualified Business Income from sales to cooperatives will need to be tracked separately Cash rent income to cash rent landlords may or may not qualify
QBI Deduction Ohio Tax Ramifiactions Ohio bases individual tax calculations on adjusted gross income. This deduction is taken after the adjusted gross income calculation and therefore can not be claimed for Ohio taxable income calculations. Ohio does have a separate Business Income Tax Deduction
Business Meals Deduction The TCJA reduces the deduction for meals provided for the convenience of the employer to 50 percent through 2025 (was 100%) After 2025, the deduction is eliminated fully
Farmer Tax Strategy Entity Choice Which is best: Sole-proprietor, partnership, S-corp, C-corp Multiple entities Plan for some income to take advantage of QBID Zeroing out income may not be a planning goal Avoid NOLs if possible Conversion out of a C-Corp - lower penalty Avoid hobby farm filing Gross sales cost of goods sold Avoid investment ownership of timber
Farmer Tax Strategy Some W-2 wage income will allow farmer to maximize the QBI Deduction Charitable giving One possible method for farmers to contribute charitably is to gift commodities to the charitable organization escapes tax and avoids the limits due to new higher standard deductions Bunching personal deductions
Chris Bruynis: bruynis.1@osu,edu David Marrison: marrison.2@osu.edu Barry Ward: ward.8@osu.edu