Tax Code Recommendations
January 17, 2014
In a letter to Senate Committee on Finance Chairman Max Baucus and Ranking Member Orrin Hatch, more than 20 commodity groups commended the committee for embarking on its thoughtful approach to tax reform and offered comments on several items of particular interest to farmers and ranchers. While the groups generally support the concept of creating a simplified pro-growth tax code, the goal with this letter is to provide guidance as to how the proposed changes will impact the agriculture industry. The groups provided comments on two topics.
Cash Accounting vs. Accrual Accounting -- The discussion draft proposes a fundamental change to a common practice in most agricultural businesses. According to the discussion draft, agricultural businesses with more than $10 million in gross receipts will be required to shift from the cash accounting method to the accrual method of accounting. Due to uncertain and fluctuating income that results from variable cropping practices, weather conditions, and markets, farmers and ranchers need a tax code that allows them to manage the risks associated with agriculture while complying with tax liabilities under the law. Cash accounting combined with the ability to accelerate expenses and defer income gives farmers and ranchers the flexibility they need to manage their tax burden. Requiring agricultural businesses to shift to accrual accounting could dramatically reduce working capital and equity available for investment in many sectors of the agriculture industry as well as increase complexity and decrease flexibility for many agricultural businesses.
Section 179 Expensing -- The discussion draft also proposes setting the Section 179 small business expensing limit in 2014 at $500,000 with a $2 million dollar phase out and increasing the expensing limit in 2015 to $1 million. Section 179 small business expensing provides agricultural producers with a way to maximize business purchases in years when they have positive cash flow and for that reason, we applaud the inclusion of the Section 179 provisions in the cost recovery discussion draft and support maintenance of a $1 million Section 179 small business expensing limitation and $2 million acquisition limit.