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Mid-Summer Tax Thoughts and Strategies for Ag Producers

Jul 30, 2018

As the sun ripens this year’s crops and talk of optimism for a good year is either full of excited anticipation or wrapped in the proverbial “wait till next year” comments, I thought it would be appropriate to summarize a few of the key strategy points that are starting to gel as the most significant tax law changes in over 30 years start to take hold.  

Five members of Wipfli’s ag team recently attended a national conference for CPAs in the agricultural industry. The attendees included CPAs from all corners of the United States. Now imagine how interesting it must be to observe 260 CPAs debate farm tax strategy while supporting the barley and distillery industries! One observation from the conference is that two very common strategy issues have emerged as a result of the new tax law that was passed in late 2017:

  1. Tax structure of business entities
  2. Estate/business succession planning    


Tax Structure
The determination of the most advantageous form of business entity will vary among different operations, and it is influenced by many factors. Please refer to some of my past articles for detailed discussions of these. One of the factors is the new Section 199A qualified business income deduction. As of now, we are still waiting for the Treasury Department to issue regulations that we hope will clarify several questions regarding qualification for this deduction. The most recent indications from within Treasury are that we should have these regulations by the end of July. We hope these regulations are issued by the time you all wrap up the 2018 harvest season!

Estate Tax Limit
The new tax law doubled the amount that can pass through an estate without creating an estate tax. The limit is now $11.2 million per person. This limit is good only through the year 2025, after which it is scheduled to reduce to approximately half of that amount. The increased exemption is leading some people to believe they don’t need to worry about estate taxes — at least for eight more years. It is important to note that “estate tax planning” is just one part of an effective business and asset succession plan. As farm owners age, it is important to put in place a plan that will provide financial security for their heirs and at the same time provide a structure for the family farm to continue as a viable family business. The increased estate tax exemption has given us some breathing room from estate taxes, but the need to develop and implement a viable business succession plan is greater than ever before. Fortunately, there is a growing number of professional advisors who are skilled and available to help as needed in this process.  

Federal Fuels Tax Credit Remains an Audit Issue
Finally, it seems that the IRS is continuing to pester farmers and ranchers over the federal fuels tax credit that was claimed on 2016 income tax returns. This audit issue first surfaced almost a year ago. For some farmers, this credit is a relatively small amount. However, IRS auditors were basing the qualification criteria on an incorrect reference to a specific section of the tax law. In some cases, the auditors continue to reference the incorrect code section during audits. We continue to successfully refute these IRS challenges. If you are experiencing issues in this area, I urge you to put up a strong and unified front to keep the credits you are entitled to.  

If you have questions or would like to discuss these or other tax matters, please contact your Wipfli relationship executive.