For any business owner, making financial decisions with critical policies on the line is like throwing darts while blindfolded. Farmers and ranchers face policy and regulatory uncertainty that can restrict their ability to make timely decisions and invest in their business.
Ag opponents have spent significant time ripping apart the farm safety net and imposing overarching regulations, while decisions about key policies, such as a multi-year tax extender legislation – specifically, Section 179 small business expensing and bonus depreciation – are left to the eleventh hour. Rather than stack the deck against agriculture, let’s ensure farmers and ranchers have the tools they need to feed the world.
Farming is a business that requires significant investment in depreciable assets, including machinery and equipment. For the past two years, higher expensing levels under Section 179 have allowed farmers to take the full depreciation deduction of machinery and equipment purchases in the current tax year, with a maximum deduction of $500,000 and a phase-out threshold of $2 million. In December 2014, Congress passed tax extenders to cover the 2014 tax year.
Nearly a year later, Congressional action is again needed by year’s end to determine expensing levels for the current tax year. Without Congressional action before the end of 2015, Section 179 is scheduled to fall to $25,000 with a $200,000 phase-out.
Now farmers are left waiting for a decision.
“We are concerned that the failure to renew these expired provisions of the tax code will place additional burdens on farm and ranch families who are asset-rich and cash-poor and already face the uncertainties of weather, market prices and international competition,” explained members of the agricultural industry in a letter that was sent to Senate and House leadership on Monday. Thirty-nine organizations, representing the interests of farmers and ranchers, signed onto the letter.
The letter calls for House leadership to restore the maximum amount of expensing under Section 179 to $500,000 as it was set in 2014 and reinstate the expired 50 percent bonus deprecation for the purchase of new capital assets.
In the last year, declining farm income, lower commodity prices and increased farm debt have stressed the ag economy. The Kansas City Federal Reserve’s recent report shows a sharp drop in farm income in the third quarter. About two-thirds of ag bankers in the 10th Federal Reserve District reported lower farm incomes relative to the year-earlier quarter. The report findings are consistent with USDA forecasts for 2015.
Agri-Pulse noted in their coverage of the report, “Expectations of further slumps in District farm income have caused agricultural lenders to continue to stress the importance of maintaining adequate levels of working capital, especially for highly leveraged producers.”
Deciding on tax incentives at the end of the tax year leaves little time for farmers to make purchasing decisions. As Paul Neiffer confirms in a recent “Farm CPA Today” post farmers are frequently questioning if they will see higher levels for the 2015 tax year. “We continue to have the question asked about what will Section 179 be for 2015 and when will we know.”
Swift action on a multi-year tax extenders package, focusing on reinstating the previous maximum expensing levels and expired bonus deprecation under Section 179, would provide certainty and reduce purchasing risk for farm operators. Let’s give agriculture the tools necessary to succeed.