Understanding the new tax bill.


We’d like to share important details regarding the recent outcome of the Tax Cuts and Jobs Act of 2017, and, in particular, the new 199A deduction for farmer cooperatives and our members. 
 
In the recently passed act, Congress eliminated the old Section 199 deduction which had been very beneficial to many farmer cooperatives and farmers/members for the past 14 years. In its place, Congress created the 199A Qualified Business Income deduction with two separate deductions related to the co-op; one for the co-op and one for the farmers/members.     The farmer/member deduction is more generous than most thought possible a few months ago. Members will now receive a 20-percent tax deduction on all payments from Harvest Land, including per-unit retains (the deduction is limited to the lesser of 20-percent of the cooperative payments for the year, or taxable income minus net capital gains). Legislation clearly includes payments to producers such as grain checks and all patronage refunds. 
 
There are no comparable provisions for farmers/growers doing the same business with a private or investor-owned entity. This is an enormous benefit for those members doing business with Harvest Land Co-op. Please contact your professional tax advisor for further instruction of how this pertains to your personal operation and reference tax code 199A.  It is important to note that as with any tax law, change is subject to IRS interpretation. Please see examples later in this communication.    Harvest Land will be utilizing our membership in the National Council of Farmer Cooperatives and their government affairs office in Washington, DC to ensure our members have the most current information available to plan for 2018 and beyond. This is an exciting time for members of the cooperative system, and even more so for those members who utilize the co-op for grain marketing. Don’t hesitate to contact Ron Smith, Grain Manager, or Kyle Baumer, Grain Originator, at 765.478.4171 for grain marketing assistance. 
 
Sincerely,  
 
Scott Logue President/CEO 

All indications of the changes accompanying the Tax Cuts and Jobs Act of 2017 support tremendous advantages to doing business with the co-op, especially in grain marketing.  
 
The following examples are simplified sets of facts intended to illustrate the potential impact that the tax bill, as currently written, may have on your tax liability as a farmer/member of Harvest Land Co-op.  Please contact your professional tax advisor for further instruction of how this affects your personal operation. 
 
Example 1:  A farm, owned by spouses married and filing jointly, earns $100,000 of taxable income during 2018.  Assume no capital gains.  Their activity for the year included receiving a $5,000 patronage check from Harvest Land Co-op as well as $200,000 in gross receipts from grain sold to Harvest Land Co-op.  This Harvest Land Co-op farmer member would be entitled to a deduction in taxable income of $41,000 (20% x ($5,000 + $200,000)).  Taxable income would drop from $100,000 to $59,000. 
 
Example 2:  A farm, owned by spouses married and filing jointly, earns $100,000 of taxable income during 2018.  Assume no capital gains.  Their activity for the year included $500,000 in gross receipts from grain sold and delivered to their local Harvest Land Co-op Grain Elevator.  This Harvest Land Co-op farmer member would be entitled to a deduction in taxable income of $100,000 (20% x $500,000).  Taxable income would drop from $100,000 to $0, resulting in no federal tax liability. 
 
Example 3:  A farm, owned by spouses married and filing jointly, earns $100,000 of taxable income during 2018.  Assume no capital gains.  Their grain activity for the year included $500,000 in gross receipts from grain delivered direct to corn and soybean processors, but sold through Harvest Land Co-op’s Grain Division.  This Harvest Land Co-op farmer member would be entitled to a deduction in taxable income of $100,000 (20% x $500,000).  Taxable income would drop from $100,000 to $0, resulting in no federal tax liability.