If an average American farmer liquidated every asset o, and acquired debt simply vanished, they would easily hang among the ranks of Elon Musk and Bill Gates. That might be a stretch, but you can paint a picture in your head from that comparison.
“Farmers and ranchers need a tax code that provides certainty and recognizes their unique financial challenges as they work to provide a secure food supply for our nation.” – American Farm Bureau
For the looming 2021 tax season, American’s stumbled upon some luck. Inflation reached a historic peak in October 2021, but income tax brackets won’t reflect this steep uptick since the numbers were set in stone in 2020.
2021 Tax Brackets
- 37% for incomes over $523,600 ($628,300 for married couples filing jointly).
- 35%, for incomes over $209,425 ($418,850 for married couples filing jointly).
- 32% for incomes over $164,925 ($329,850 for married couples filing jointly).
- 24% for incomes over $86,375 ($172,750 for married couples filing jointly).
- 22% for incomes over $40,525 ($81,050 for married couples filing jointly).
- 12% for incomes over $9,950 ($19,900 for married couples filing jointly).
- 10% for incomes of $9,950 or less ($19,900 for married couples filing jointly)
Even though we’re still operating under the Tax Cuts and Jobs Act of 2017 (TCJA), the Build Back Better Act of 2021 (BBB) made its way through the House of Representatives in November and is bound for the U.S. Senate. Changes to both income tax and capital gains tax are eminent in the new proposed tax code in the BBB, if it were to pass.
“When we see packages in the trillions of dollars [like BBB], there have to be some offsets, which is why we [Farm Bureau] try to be aware of everything that comes through,” said Indiana Farm Bureau Policy Advisor and State Government Relations representative Brantley Seifers. “Stepped-up basis will be coupled with the capital gains tax, which is what we are mainly focused on for our producers.”
Under the TCJA, Estate Tax Exemptions are $11.58 million. Unless Congress makes significant changes to the BBB, that exemption will return to a meager $5 million.
“Farmland value increases in the State of Indiana alone have been astronomical in the last few years,” Seifers said. “Pair that with the value of equipment, new and old, and we could be in some trouble if those exemptions aren’t kept as high as possible.”
In trying times like these, what’s a producer to do? Seifers tells members to forge a strong relationship with their congressional leaders. Even though the elected officials for each state are only human, their time in DC can cut them off from the realities of the decisions they make for their state.
“The best thing producers can do is keep themselves informed of potential changes going on in DC,” Seifers explained. “Producers need to be having those open conversations about the tax revisions and explain how they would be detrimental to passing down farms to the next generation.”
The Indiana Farm Bureau provides unique opportunities for producers to speak directly with their congressional representatives.
“We’ve had producers bring their kids to these meetings and let them talk specifically about how they are a fourth of fifth-generation farmer in their family,” Seifers said. “Then they talk about how difficult it will be for them to inherit the family farm and that has been very impactful in the past.”
Seifers encourages all producers to keep in close contact with their local Farm Bureau to get the latest updates about tax changes that will affect them in the near and distant future. To find your local Farm Bureau or learn more about the organization, visit www.fb.org.