Tax tips for Farmers
Let’s talk about the details behind the tax reform legislation. All they talk about is whether it will pass or not. We want the details. I am pulling this information from the Journal of Accountancy that I scan when I put down Field and Stream. The House Ways and Means Committee released a draft of the Tax Cuts and Jobs Act, H.R.1. This tax reform bill will cut federal revenue by up to $1.5 trillion over 10 years and require only 51 votes in the senate for passage.
Individuals will benefit from the four new tax rates: 12%, 25%, 35%, and 39.6%, effective for tax years after 2017. The 25% tax bracket would start at $45,000 of taxable income for single taxpayers and $90,000 for married filing jointly. The 35% tax bracket would start at $200,000 for single and $260,000 for MFJ. The 39.6% would apply to taxable income over $500,000 for single and $1 million for MFJ. The standard deduction would increase from $6,350 to $12,200 for single and move from $12,700 to $24,000 for MFJ. Single filers with at least one qualifying child will get an $18,300 standard deduction. Most deductions will be repealed, including the medical, alimony, casualty loss, and tax preparation fees. Mortgage interest deductions on existing mortgages would remain the same. For new mortgages (after 11/2/17), the limit would be reduced to $500,000 from the current $1.1 million. The overall limit of itemized deductions would also be repealed. The current limit of 50% of charity would bump up to 60%. The state and local income tax deduction would go away. The child tax credit would increase from $1,000 to $1,600, with the first $1,000 of the credit refundable. The college credits will be rolled into one credit, providing a 100% tax credit on the first $2,000 of higher education expenses and 25% credit on the next $2,000. Alternative minimum tax (AMT) will go away, thank goodness.
Estates tax would be repealed after 2023, another great idea. In the meantime the exclusion amount will double (currently at $5,490,000, indexed for inflation). Don’t ask how they came up with that number. The top gift tax rate will be lowered to 35%, that’s very giving of them. S Corporations or pass through entities would be taxed at a maximum rate of 25% instead of the ordinary individual income tax rates. Pay attention to this one on section 179 limits. The bill will provide 100% expensing of qualified property placed in service after 9/27/17 and before 1/1/23. It would also increase tenfold the Sec. 179 expensing limitation ceiling and phaseout threshold to $5 million and $20 million, respectively.
In these heavy tax times and families living paycheck to paycheck, we can use a break. I hope our leaders can grasp the impact this will have on our economy and get behind it. I am pretty excited and will push my leaders to support it. Thanks and happy Thanksgiving.
Steve Weber, CPA