In December, the United States tax code underwent what many have labeled as the most substantial overhaul in 30 years.
Though most of the changes went into effect this month, Americans’ likely won’t see much change in their tax returns until next year, giving everyone, including the ranchers and farmers at this year’s Black Hills Stock Show and Rodeo, a chance to peruse the more than 1,000 page document ahead of next year’s filing deadline.
Or, they could just attend a seminar being held by two accountants, John Mitchell, CPA, CVA, CFP and Sheila Jackson, CPA, CVA, CGMA, of Casey Peterson & Associates.
The seminar will be held in the Rushmore Plaza Civic Center during the stock show and is geared toward ranchers and farmers. But, Jackson and Mitchell said much of what will be covered affects everyone regardless of income or occupation.
For example, changes to things like the standard deduction, which will nearly double for everyone in 2018, and the personal exemption, which will disappear for everyone, will be covered.
So will alterations to the child tax and dependent credits, deductions related to property taxes, mortgage interest payments, medical expenses and unreimbursed employee expenses like travel expenses.
The new tax rate schedule will also be detailed, as will the elimination of the Obamacare individual mandate and the doubling of the exemption limit for estate transfers and gifts from $5.6 million to $11.2 million per person.
“It’s definitely not simplification,” said Jackson about the new bill in a sit down with Mitchell and the Journal.
“Well, that’s a true statement,” he said, noting that both he and Jackson were tasked with reading the entire document and then comparing notes. “The bottom line [is] most people are going to benefit [but] not everyone is going to benefit equally.”
For individuals, Mitchell opined that whether someone qualifies for specific provisions like the child tax credit or “pass through qualified business income deduction” will determine who the bill helps the most and least.
For farmers and ranchers, changes to rules related to equipment and machinery depreciation, net operating losses, and the repeal of the “domestic production deduction,” which was replaced with the “pass through qualified business income deduction,” will be specifically important, Mitchell and Jackson explained.
Under the new bill, the "domestic production deduction" — which gave domestic businesses with employees a tax credit of up to nine percent of earned income or up to 50% of their employees wages — would be eliminated.
To account for the lost deduction potential for businesses, a new “pass through deduction” would allow businesses to deduct up to 20% of qualified business income, excluding income from investments, annuities or capital gains.
“That’s a huge change. It’s going to benefit farmers and ranchers as well as most businesses,” Mitchell said, explaining that the new "pass through deduction" was much more broadly defined and would allow many more businesses to qualify for the deduction.
Updates will also be provided about which counties were declared to be in drought, which allows for ranchers to defer additional income if, say, they were forced to sell calves in 2017 that were intended for sale in 2018 because of food/grazing shortages caused by the drought.
In South Dakota in 2017, 37 primary counties and 13 contiguous counties were declared by the secretary of the United States Department of Agriculture to be in drought.
Advice can also be sought about the benefits and drawbacks of forming a Limited Liability Company or S Corporation, which Mitchell labeled as “not always the best idea” for ranchers and farmers given USDA rules that limit the amount of payments LLCs and S-Corps can receive from the myriad of USDA programs like the Agricultural Risk Coverage, Price Loss Coverage and the Noninsured Crop Disaster Insurance program.
“By and large, everybody is going to benefit from this tax bill,” Mitchell said when asked to simplify a 1,000-plus page document into one broad conclusion.
“The benefit is not going to be equal and farmers and ranchers have a couple of provisions that are carved out recognizing that their income does swing so wildly that they cannot control.”