The Tax Cuts and Jobs Act of 2017 did a lot of good for the U.S. economy; it revamped the Internal Revenue Code of 1986, simplified personal taxes by eliminating personal exemptions, and brought the 2018 corporate tax rate down to 21% from last year’s 35%.
Unfortunately, there are still plenty of complications resulting from all these recent tax changes, especially across the business sector. According to The New York Times, corporate income taxes are difficult to restore once cut.
Effective tax rates, which are actual corporate taxes paid as a percentage of profits (pretax), including the effects of all accounting tricks and deductions. These rates can’t be tracked with any accuracy dating back to the early 1900s, but estimates have shown a delicate in recent decades.
Additionally, one specific group that is facing perhaps the most challenges following these new tax laws are farmers across the agricultural sector.
Delta Farm Press states that filing corporate tax returns on postcards was one of the goals cited during promotions for the Tax Cuts and Jobs Act. This new process helps some groups in terms of tax filing, but for many others — especially farmers — the process is likely to be much more complicated.
Approximately 87% of farms in the U.S. are owned and operated by individuals or families. The majority of farms across the country are taxed as sole proprietorships, partnerships, or S corporations, meaning the business income is passed through to the owners who pay taxes based on individual income tax rates — meaning smaller agricultural organizations will likely see their income tax rate spike six or seven percentage points.
“When the tax code was being promoted, there was a lot of talk about ‘we can file our return on a postcard now,'” said Dr. Kristine Tidgren, director of the Center for Agricultural Law and Taxation at Iowa State University. “We’re going to get rid of all the itemization — we won’t be itemizing deductions anymore. We’re just going to take the standard deduction, file your return on a postcard and move on.”
It’s important to note that corporations of any kind with assets of $10 million or more will be required to electronically file their income tax returns.
The bill was sold as a tax simplification measures across all sectors, but agricultural workers and small business owners are finding plenty of complications. The majority of these new provisions will be difficult for virtually everyone to understand until the Internal Revenue Service delivers comprehensive guidelines.
“I think you’ll see more challenges as we go through the different complexities when we’re dealing with an agricultural business,” Dr. Tidgren added. “There may be a postcard, but there may be 30 or 40 addendum pages.”