Feed Lot

MAR 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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20 FEED•LOT  March 2018 MANAGEMENT N eed new equipment? Un- like in past years when feedlots and other busi- nesses were required to claim depreciation deductions, spread- ing the recovery of their equipment costs over several years, thanks to the Tax Cuts and Jobs Act (TCJA), operators will be able to fully and immediately deduct the cost of certain equipment. While the faster write-off of equipment costs is only temporary, the write- off has been made retroactive to September 27, 2017. Specifically, the current write- off is at the 100-percent level for equipment expenditures made be- tween September 27, 2017 and Jan- uary 1, 2023. After 2023 and before 2025, the amount deductible drops to 60-percent with a further de- crease to 40-percent after 2025 and to 20-percent after 2026. Despite the differences between bonus depreciation and the tax law's Section 179, first-year expens- ing, the TCJA has narrowed those differences with both now offering 100-percent write-offs for new and used property. Thus, Section 179 re- mains an improved option. Section 179 allows up to $1 mil- lion (up from $500,000 in 2017) of expenditures for business equip- ment and property to be treated as an expense and immediately de- ducted. 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. The immediate write-off, or "expensing" of capital assets is ap- pealing because, unlike so-called "bonus" depreciation, the use of equipment doesn't have to begin with the feedlot operation. And now, improvements including roofs, heating, ventilation, air con- ditioning systems, fire prevention, alarms and security systems quali- fy under the new Section 179 rules, providing another opportunity for feedlots and other businesses that actually need equipment. When business property and equipment is disposed of, the tax law's Section 1031 governing like- kind exchanges provides an op- tion. Section 1031, the like-kind ex- change rules, currently allows feedlots to defer the tax bill on the built-in gains in property by ex- changing it for similar property. Al- though more a strategy for defer- ring a tax bill when business assets are lost, sold, abandoned or other- wise disposed of, with multiple ex- changes, gains can be deferred for decades and ultimately escape tax- ation entirely. Under the TCJA, like-kind ex- changes will be limited to so-called "real" property (but not for real property held primarily for sale). This ensures real estate investors will maintain the benefit allowing deferral of capital gains realized on the sale of property. In the past, our tax laws have pro- tected the ability of small business- es to write-off the interest on loans. Now, however, paying for that new equipment or business property might be impacted by the TCJA. In an attempt to "level the play- ing field" between businesses that capitalize through equity and those that borrow, the TCJA caps the interest deduction to 30-peercent of the adjusted taxable income of a feedlot business. Exceptions ex- ist for small businesses to protect their ability to write off the interest on loans that help them start or ex- pand a business, hire workers and increase paychecks. Simplifying the method of ac- counting required for a feedlot is a nice option to have. Under the TCJA the current $5 million threshold for corporations and those partnerships with a corpo- rate partner to use the easier cash basis method of accounting has been increased to $25 million. Plus, the requirement that such businesses satisfy the $25 million requirement for all prior years has been repealed. T h e i n c r e a s e d $ 2 5 m i l l i o n threshold has also been extended to farm corporations and farm partnerships with a corporate part- ner, as well as family farm corpo- rations. Also under the provision, the average gross receipts test would be indexed to inflation. With the cash method of ac- counting, a stocker operation or feedlot may account for inventory as non-incidental materials and supplies. Or, as an alternative, a business with inventories using the cash method of accounting would be able to account for its invento- ries using the method of account- ing reflected on its financial state- ments or its books and records. Tax Reform begins in earnest with the 2018 tax year. Partially retroactive to September 27, 2017, the Tax Cuts and Jobs Act, will re- quire professional assistance in reaping its many benefits — and avoiding its pitfalls. FL By MARK BATTERSBY Tax Cuts and Jobs Act: Writing Off Costs

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