What Tax Reform May Entail

The possible tax reform might tax pass-through entities — the business structures used by many farmers and ranchers. CliftonLarsonAllen Principle and Farm CPA Today blogger Paul Neiffer explains more

Neiffer: "With tax reform coming down the road here, one of the key factors with tax reform is that certain items of income are going to be taxed at a lower rate than other items of income. Congress and the President have indicted that they are going to try to prevent people from gaining the system. Some of those ways of doing that prevention is they might have a mechanical rule that would say that 70 percent of your income is subjected to both self-employment tax and a higher tax rate and 30 percent is subject to the lower rate. That is one way of doing it. One that probably they may be leaning towards that may be the fairest is some type of rate of return calculation. So let's say a farmer had $2 million of assets and they are allowed a 8 percent rate return — the first $160,000 would be subject to the lower rate and then the amount above that $160,000 would be subject to the higher tax rate. Still to be determined. We know that if there is tax reform, rates are going to go down but it is likely that farmers would not be able to take advantage of that lower rate on all their income."