Feed Lot

FEB 2018

Feedlots and cow/calf operations in the beef industry who feed 500 or more has annually on grains and concentrates; maintain 500 or more beef cows; backgrounder, stocker/grower, preconditioner; veterinarian, nutritionist, consultant

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12 FEED•LOT  February 2018 MANAGEMENT Are you ready for tax "reform?" Thanks to the final version of the Ta x Cuts and Jobs Act, the tax rate for incorporated cattle operations and businesses will be reduced from its current 35-percent to 21- percent—for the 2018 tax year and thereafter. And, even better, the business tax cuts are permanent, although the reduced tax rates for individuals expire in 2026. Unfortunately, while regular, 'C' corporations will be taxed at a flat 21-percent tax rate, the majority of small businesses operating as pass- through business entities might find themselves facing new person- al tax rates higher than the new, lower corporate tax rate. Pass- through business entities such as partnerships, limited liability com- panies (LLCs), S corporations and sole proprietorships, pass their in- come to their owners who pay tax at the individual rate. The new law allows pass-through owners who are married and make less than $315,000 (half that amount for single taxpayers) to take a 20-percent deduction. For pass-through owners with income above this level, the new law pro- vides a deduction for up to 20-per- cent of business profits—reducing the owner's effective marginal tax rate to no more than 29.6-percent. Complicating the much-needed tax break for pass through busi- nesses is the necessity that all own- ers with pass through business income receive "reasonable com- pensation." In other words, a feed- lot operated as a pass-through busi- ness, can pass any profits to the owner who will include 80-percent of those amounts on his or her per- sonal income tax return—but only if the owner has received an unde- fined amount of reasonable com- pensation. Although just what is meant by "reasonable" compensa- tion has yet to emerege, there is no doubt that it will be treated as wages subject to withholding and taxed at the new individual tax rate. Lawmakers long-ago created a unique 20-percent tax rate as part of a parellel tax system that limited tax benefits to prevent large-scale tax avoidance. Under this system, incorporated feedlots and other businesses were required to calcu- late both their ordinary tax and the AMT tax, paying whichever was higher. Fortunately, the Corporate AMT has been eliminated, lowering taxes and eliminating the confu- sion and uncertainty that surround- ed it in the past. Obviously, there are many more changes contained in the massive Tax Cuts and Jobs Act. A full 100- percent deduction is available for the cost of equipment and the Sec- tion 179, first-year expensing al- lowance is now $1 million (up from $500,000 in 2017) for business equipment and property expendi- tures. The ceiling after which the Section 179 expensing allowance must be reduced dollar-for-dollar has also been increased from $2 million to $2.5 million. Section 199, the deduction for so-called "domestic production ac- tivities, has been repealed. Partner- ships will no longer cease to exist upon the death or exit of a partner. The dreaded, Corporate Alterna- tive Minimum Tax has been elimi- nated but the tax deduction for in- terest expenses can no longer exceed 30-percent of the opera- tion's adjusted gross income. With few exceptions, the potential tax savings from the Tax Cuts and Jobs won't appear until the feedlot's tax bill for 2018 comes due. Plan- ning to reap those savings should, of course, begin immediately. FL By MARK BATTERSBY THE TAX CUTS AND JOBS ACT: EARNINGS R REFORM 1-800-536-8438 "We can customize a system to meet your needs." ❖ Platform Scales (10 sizes/self-contained) ❖ Single Animal Weigh Cage (self-contained) ❖ Single Animal Scales (under squeeze chutes) ❖ Portable Calf Scales (3 designs for various weights) ❖ Hay Processor Scales

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