New Tax Law
The new tax law signed on December 22, 2017 by President Trump impacts all taxpayers in some way. We have previously issued summaries of how the tax law impacts your cooperative, member farmers and non-member farmers. Here is a summary of the high points of the law covering items of interest for cooperatives, member and non-member farmers, employers and individual taxpayers. Plus some thoughts on the potential for the new tax law to be changed….already. Please note that this analysis is based on the tax law. The IRS will likely issue further guidance in the form of proposed regulations which may clarify and change our current understanding – but as of January 19, 2018 the law is unchanged from the version that was passed on December 22, 2017.
New Tax Law – Impact on Cooperatives:
- Section 199 eliminated for tax years beginning January 1, 2018 and later.
- Fiscal year cooperatives will be able to use section 199 through November 30, 2018 fiscal year ends – must use deduction at cooperative level – cannot pass to members.
- New Section 199A – 20% deduction on non-member gross margin
- Limitation on interest expense – possible coop workarounds available
- Increased limits and deduction (section 179) for first year assets – larger coops may not qualify
- First year asset write off (bonus depreciation) now applies to new and used assets.
- Elimination of Alternative Minimum Tax – impacts favorably the utilization of many Federal tax credits
- New corporate tax rate of 21%.
Impact on Farmer Members:
- 20% on gross payments from member cooperatives – designed as a replacement of a section 199 allocation from a member cooperative.
- Limited by taxable income/capital gains
Impact on Non-Member Farmers
- 20% deduction on net farm income
- Possibly limited by filing status, taxable income, wages paid, fixed assets, capital gains and potentially other items.
- Standard mileage reimbursement rate for 2018 – 54.5 cents per mile.
- Companies with 250 or more W-2’s must include medical benefits in box 12 – smaller employers may elect to do so (unchanged from prior year)
- Should consider receiving new W-4 forms from employees to use in connection with new withholding tables released by IRS on January 11, 2018
- Personal use of company owned vehicles – be sure to appropriately address
- Car allowance paid to employees? Consider changing this policy to benefit cooperative and employee to an accountable plan.
- Involved in a merger? Be sure to investigate how your State unemployment division treats mergers to avoid a double up of State Unemployment Insurance. Also look at the rules for FUTA (Form 940) and FICA (From 941) in regards to successor employers to potentially avoid a double up of these employer taxes.
- New – lower tax rates across the board
- No more personal exemptions
- Higher standard deduction
- Limitations on deductions for state and local taxes – ie property taxes
- New pass-thru entity deduction
- No more miscellaneous itemized deductions. This includes employee business expenses.
- Alternative minimum tax reduced.
New Tax Law – Possible Changes?
A concern has surfaced that the new 199A favors cooperatives and farmer members over non cooperatives and non-member farmers. This is no different than prior section 199 where cooperatives increased their section 199 tremendously by virtue of PURPIM’s paid; non-cooperatives were not afforded this adjustment. Cooperatives that passed the 199 to their members, provided a deduction far more useful than the non-member farmers section 199 deduction computed on their operation.
There has been rumblings the new law creates an unintended benefit to cooperatives and their member farmers at the expense of non-cooperatives and non-member farmers. We will monitor this situation and will update you as soon as (if) any changes to this law are passed.
This is not intended to be an exhaustive in-depth look at every possible tax situation – rather a brief covering of the high-points contained in this new law. Please contact Chuck or Cristina in the Des Moines office should you have any tax related questions.