• Among the provisions most critical to farmers and ranchers is one related to small business expensing.
More than 50 tax provisions, many of which are important to farmers and ranchers, will expire as revelers ring in the new year, but lawmakers are resolved to revisit the issues in early 2014.
These provisions are collectively known as “extenders” because they’ve been extended a handful of times beyond their original expirations.
Among the provisions most critical to farmers and ranchers is one related to small business expensing. Currently, under the Section 179 small business expensing provision, the maximum amount that a small business can immediately expense when purchasing business assets instead of depreciating them over time is $500,000.
On Jan. 1, that maximum plummets to $25,000.
“If the maximum is allowed to drop to $25,000, farmers and ranchers will lose a valuable income averaging tool that could result in higher taxes,” said Pat Wolff, American Farm Bureau Federation tax specialist.
As part of tax reform proposals, the House Ways and Means Committee has recommended a $250,000 expensing limit. The Senate Finance Committee proposed a one-year extension of current law followed by a $1 million limit. Both the House and Senate levels are permanent and would be indexed for inflation.
Another cash flow-related tax provision set to expire is bonus depreciation, which can be used immediately when new equipment is purchased. This improves cash flow and allows farm and ranch businesses to better match income and expenses.
A number of expiring provisions are related to farmer-supported renewable fuels, such as cellulosic fuels and biodiesel. These tax incentives, like those for biodiesel produced from biomass, electricity produced from wind and alternative fuel refueling property, are designed to boost renewable technologies and support development of the necessary market infrastructure.
Time is also running out on food donation and farmland preservation incentives, as well as deductions for state and local sales taxes and tuition and fees for higher education.
While lawmakers can usually be counted on to reinstate tax extenders retroactively, not knowing if and when this will happen makes it very difficult for farmers and ranchers to make important business decisions, Wolff pointed out.
“For example, not knowing the maximum allowable Section 179 small business deduction could make farmers feel like they should delay or even refrain from making an equipment purchase.”