The Tax Cuts and Jobs Act created hundreds of changes to the U.S. Tax code and changed how a lot of people and businesses will file their taxes this year. The good news is some of those changes are going to benefit farmers and ranchers and help their bottom line! The Tax Cuts and Jobs Act was passed in December 2017 and takes effect for the 2018 tax year. Farmers and ranchers will need to look at their current financial situation and reassess some of their deductions and credits to see if they can benefit more from the tax law changes.
One of the tax reform changes that farmers and ranchers need to pay attention to has to deal with net operating losses. Before the tax law passed, farmers could only carry net operating losses forward for 20 years. Now farmers can carry it forward indefinitely. Along with that extension. net operating loss deductions are now limited to 80% of the taxable income. Farmers can now also only carry these losses back two years, instead of the five years previously allowed.
Farmers should also be aware of the Qualified Business Income Deduction. Starting in 2018, taxpayers who are not corporations may be entitled to a deduction of up to 20 percent of their qualified business income from qualified trade or business. This includes income coming from a pass-through entity but does not include income from a C corporation. There are several limitations for this deduction including those such as the type of trade or business, the taxpayer’s taxable income, the amount of W-2 wages paid and the unadjusted basis immediately after acquisition of qualified property held by the trade or business. The deduction can be taken in addition to the standard or itemized deductions.
Farmers and ranchers will also have to change their accounting method. Farm corporations and partnerships can use the cash basis of accounting for tax purposes. This includes small business taxpayers such as farmers and ranchers with an average annual gross receipt of $25 million or less in a three-year period. You can get some guidance about the process here.
If you’re not sure how the Tax Cuts and Jobs act affects your small business, Polston Tax can help you! Our team of accountants and tax attorneys have studied the new law and know how to apply it to every business. Call us today at 844-841-9857 or click below to schedule a free consultation!