For most producers reviewing their farm’s succession plan, it makes good sense to avoid any major changes as 2016 ends and a new year begins. That’s according to Paul Neiffer, CPA and principal at CliftonLarsonAllen and author of the AgWeb.com blog The Farm CPA.
“The IRS back in August came out with some new proposed regulations that would sort of crimp the amount of valuation discounts that farmers could use when they pass on their assets to the next generation,” Neiffer says. “However, with [President-Elect Donald] Trump being voted in, and the Republicans still in control of the House and the Senate, that is likely even if the IRS wanted to put into place those proposed regulations, I’m fairly certain that Trump would overturn them or not allow them to go into place.”
Another possibility is the elimination of the estate tax, though it likely wouldn’t be permanent.
“That might only be for 10 years because of the fact that the Senate doesn’t have 60 votes that are Republicans. There’s a lot of discussion out there,” Neiffer says. “We’ll either eliminate the estate tax for 10 years, or we might increase the lifetime exemption or the amount that people can give away each year that’s not subject to gift tax. To pay for that, there’s a lot of discussion that farmers would not be able to use step-up in basis when they pass away if their estate is over a certain amount.”
A final consideration related to tax policy: The tax rates assessed to farm businesses are likely to change.
“If we’re able to push that rate from [the top rate of] 40% down to 15% or 20%—and let’s say that starts next year effective Jan. 1—in that situation we certainly do not want to be reporting a large amount of income in 2016,” Neiffer explains. “With farmers, that might be tough anyway for them to report a large amount. But if they had a very successful year, they definitely should be looking at trying to get that income down to that 15% or 25% bracket at the highest and push that income into next year because it’s likely going to be taxed at a lower rate.”