Omnibus Bill Includes 199A “Grain Glitch” Change

March 22, 2018 09:55 AM
The omnibus spending bill before Congress this week does include a change to Section 199A of the President’s Tax Cuts and Jobs Act.

The omnibus spending bill before Congress this week does include a change to Section 199A of the President’s Tax Cuts and Jobs Act.

The hotly debated 199A provision gives farmers a financial incentive to sell to cooperatives instead of private companies.

According to Pro Farmer’s Washington Policy Analyst Jim Weisemeyer, the 199A language change would repeal the 20% deduction of gross sales to co-ops.

“This currently gives co-ops an edge over other types of businesses because farmers who sell their commodities to grain firms can deduct only 20% of their net business income,” he says. “Some farmers could write off their income entirely using the gross sales deduction.”

Under the omnibus revision, farmers selling to co-ops would be able to claim a 20% deduction on net business income, with limits set on those with high incomes or capital gains, Wiesemeyer says.

“The deduction would be reduced by the lesser of the following amounts: 9% of the farmer’s income from sales to the cooperative, or 50% of wages attributed to those sales,” he says. “Besides this tax break, a farmer would be able to claim the pass-through deduction from the co-op, if any. Farms structured as C corporations would not be eligible for the farmer-level deductions. And co-ops would be able to determine their deduction based on rules similar to the old tax law under the Domestic Production Activities Deduction.”

The National Farmers Union is not happy with the changes saying bipartisan compromises were “disregarded in favor of corporate interests.”

“Farmers Union is deeply disappointed that Congress included harmful modifications to Section 199A in this must pass legislation,” says NFU President Roger Johnson. “Reverting back to Section 199, in light of double-digit corporate tax relief, leaves farmers and their cooperatives worse off than prior to the passage of the Tax Reform and Jobs Act."

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Spell Check

Providence, UT
3/26/2018 09:53 AM

  164 wheat, I would then suggest that you consider being taxed as an S-Corporation or a Partnership. I am not sure why you are being taxed as a C-Corporation when you are only at the $50,000 mark of net income. I do not think this is common. There is a lot of extra red tape to be a C-Corporation for benefits that are commonly not used in small businesses. I work at an accounting firm and most farms, ranches or dairies are either S-Corporations or Partnerships (LLC). Also with DPAD (Sec 199) you were required to have W-2 wages to take the deduction. Now small business owners without employees can take advantage of this tax cut.

Terril, IA
3/30/2018 02:31 PM

  Zach: Things are surely different in Utah than in Iowa with respect to farms organized as C-Corps. C corps are common here, and owners have historically maxed out the 15%/$50,000 bracket. Many farmers serve as employees of the C Corp, and their employment agreements require that they live on the premises--hence, the house is fully depreciable and the farmer doesn't have to pay rent. There will probably be a flight to electing "S" status, now, because of the 40% tax increase pointed our by 164 wheat.

164 wheat
circle , MT
3/23/2018 09:30 AM

  Congress was not interested in maintaining the Section 199 deduction for any taxpayers. Calling the deduction 199A simply added confusion for taxpayers in assuming it had something to do with old Section 199. We do know that many farm corporations will see a 40% tax increase from 15% to 21% and not receive any Section 199A deduction. These taxpayers are the biggest loser. Paul Neiffer quote


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