Distinguished Professor and Rutgers Cooperative Extension Specialist in Financial Resource Management Dr. Barbara O’Neill spent the last week before the holiday break analyzing the newly passed Tax Cuts and Jobs Act (TCJA). In the process, she found some information about the law’s impact on farmers. She says basically there are 4 key impacts for agriculture:
- Increased (doubled) federal estate tax exemption: $11.2 million for individuals and $22.4 million for a couple (2018 figures), with proper estate planning.
- 20% deduction on co-op payments to farmer members.
- Lower tax rates for pass-through business income (new Section 199A deduction); “pass through” businesses include partnerships, LLCs, S corps, and sole proprietorships.
- New farm equipment depreciation schedule: five years instead of seven.
Many of these changes are complex so first and foremost, she advises consulting your professional tax advisor to determine how they affect you personally.
There was also much debate among her peers about prepaying state and local taxes in 2017 in case they are eliminated or capped in the new law. The final conclusion is that if your municipality is able to collect property taxes, prepayments are allowed and will be deductible on your 2017 tax bill. However, state and local income taxes are specifically excluded in the new law, so prepayment of 2018 income taxes are NOT deductible on your 2017 tax bill. Again, consult your professional tax advisor to determine if prepayments will benefit you.
