News

New 199A deduction in tax bill creates imbalance

New risks and uncertainty have been created by the Section 199A deduction for agriculture in the new federal tax bill. Tommy Irvine, a CPA with K-Coe Isom, says language that was added late in the formation of the tax reform bill favors cooperatives but puts private handlers at a great disadvantage, “A grower to selling to a cooperative gets a 20% deduction on their gross income versus, same exact facts, except selling to a private handler gets a 20% deduction on their net income.”

One way around that, Irvine says, is for growers to start selling to cooperatives or for private handlers to set up a cooperative, “Each state does have its own cooperative rules, so you have to make sure you’re meeting those for the state. And, then, the maintenance of a cooperative can also be pretty tricky, to make sure you’re still qualifying as a cooperative.”

He says the risk is if Congress changes the law after a co-op has been set up, saying Congress might also decide that the 199A deduction is TOO generous. Irvine says it’s best for farmers to meet with a lawyer and/or CPA for advice.

Interview with Tommy Irvine: