Massive Spending Bill Includes Good News for Members

Good news emerged for farmers and equipment manufacturers in December when Congress approved the 2,250-page, $1.8 trillion tax-and-spending bill.

Rather than the short-term extensions that have characterized a series of tax breaks relevant to the industry, lawmakers opted to make permanent a series of tax incentives, and in one case, extend an incentive for three years.

Tony Nitti, a tax partner in WithumSmith+Brown’s National Tax Service Group and contributor to Forbes, wrote that the tax package “adds some much needed permanency to the Code, ensuring that we, as taxpayers, can finally act with some certainty over the coming years about the availability of a wide range of tax benefits.”

For farmers, farm equipment manufacturers, and dealers, that certainty comes primarily in the permanent extension of Section 179, permanent extension of the research-and-development tax credit, and the extension of bonus depreciation expensing through 2019.

Research & Development Credit

This is the biggest ticket item of all the tax extenders, and it’s permanent. Businesses with less than $50 million in gross receipts now may use the credit to offset alternative minimum tax.

National tax services consulting firm alliantgroup writes that any company that designs, develops, or improves products, processes, techniques, formulas, inventions, or software may be eligible for the R&D credit. The Association will say more about the R&D credit in upcoming Shortliner.

Section 179

In recent years, taxpayers have been entitled to immediately deduct up to $500,000 of the cost of qualifying asset acquisitions, with a phase-out beginning at $2 million. The thresholds were scheduled to fall to a $25,000 deduction and $200,000 phase-out at the start of 2015. The deal approved in December retains Section 179 at the higher limits while indexing them for inflation in future years.

That means that Section 179 allows a business to deduct, for the current tax year, the full purchase price of new or used, financed or leased equipment up to $500,000.

The Farm Equipment Manufacturers Association is building an online tool for use on members’ websites to help calculate deductions under this provision.

Bonus Depreciation

This 50% immediate expensing of asset acquisitions has been on the books in some form since 2001. In the new tax code, the allowed percentage of depreciation remains at 50% through 2017, then falls to 40% in 2018 and 30% in 2019, its final year.

Bonus depreciation applies only to new equipment. The IRS explains that businesses spending more than Section 179's spending limit, which is $500,000 this year, may also use bonus depreciation on new equipment purchases.

In other bill highlights, lawmakers:

• Delayed until 2020 the start of the so-called “Cadillac tax” on high-cost employer-sponsored health insurance plans,
• Made permanent a provision that abbreviates to 15 years (rather than 39) the recovery life of retail improvements, and
• Permanently reduced from 10 years to five the built-in gains recognition period for S corporations, which eases the tax burden C corporations may face when electing to be taxed as an S corporation.

Advocates for agriculture and manufacturing shared their reactions.

National Association of Manufacturers President and CEO Jay Timmons said: “Across this country, manufacturers have spoken out, and Congress has finally listened by taking action on so many of our top priorities …These important tax law changes will spur innovation and new investment in the United States.”

And from Chip Bowling, President of the National Corn Growers Association: “These tax provisions allow farmers to reinvest in their operations, and that has a ripple effect across the agriculture industry and rural communities.” S