U.S. Sen. John Thune, R-S.D., introduced a tax reform bill last week that he says could be a big help to struggling farmers and ranchers in South Dakota.
The bill, called Investment in New Ventures and Economic Success Today (INVEST) Act, is designed to be part of a larger tax reform package taken up this year by Congress and would expand some tax deductions for small and medium-sized businesses.
Thune's bill would reform parts of the tax code to help businesses write off equipment costs and reduce the depreciation period for farm machinery.
"Whether you’re running a family farm, taking on the risks of pursuing a new venture, or thinking about expanding your business to another state or foreign market, the INVEST Act is designed to ensure the tax code works for you, not against you,” Thune said in a release.
Farmers and ranchers struggling with a downturn in commodity prices would likely see the most benefit from this bill by the implementation of a more lenient tax code on business deductions and depreciation.
Since 2015, commodity prices such as for corn and soybeans have been declining. That drop has led to a decrease in state sales tax revenues for South Dakota, according to Gov. Dennis Daugaard. Provisions in Thune's bill could give farmers and ranchers more cash on hand, which they could presumably inject into the economy.
The bill would make permanent a temporary rule that allows businesses to take a 50 percent deduction in the first year on costs for investment in equipment, vehicles, machinery or most other property. It would also repeal the rule under current law that requires property used in a farm business to be depreciated more slowly than in other industries.
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The INVEST Act would restore the provision that ended in 2009 that permitted farmers and ranchers to depreciate most farm machinery and equipment over five years rather than seven years.
Thune, who is a member of the tax-writing Senate Finance Committee, says shortening the depreciation period would allow farmers and ranchers to redeploy capital into the economy and expand their operations much quicker.
Some accounting methods for farmers and ranchers could change also if they are structured as a corporation or partnered with a corporation. The bill would increase to $15 million the threshold for small corporations and partnerships with a corporate partner to qualify for the cash method of accounting. By using the cash accounting method, farmers could deduct their expenses when they pay the invoice, rather than having to wait potentially months until the income associated with that expense is received.
Farms and ranches that buy light trucks or vans for work would also get a tax deduction of up to $50,000 over six years per vehicle. The bill would allow a business to take full advantage of 50 percent tax expending in the first year, up to $25,000.
This tax bill wouldn't be exclusive to farmers and ranchers, as start-up companies could also see a big boost under the bill.
Currently, new businesses can deduct $5,000 for startup costs in the first year. Thune's bill would raise that number to $50,000.
"The faster a new business can recover its start-up costs, the faster it can establish itself on a secure footing," Thune said while introducing the bill on the Senate floor. "And entrepreneurs are far more likely to take the risk of starting a new venture if they know they will be able to recover their start-up costs quickly."