Posted October 30, 2013
A proposal making its rounds in the U.S. House Ways and Means Committee would require all entities, other than individuals, with gross annual receipts over $10 million to use the accrual method of accounting for income tax calculation, according to a Farm Futures article available here.
Currently, farmers may use a cash method of accounting unless their businesses are structured as C-corporations, with gross receipts of more than $1 million, or as a family corporation, with gross receipts of more than $25 million.
Under the cash method of accounting, a farmer may recognize an item of income when it is actually received and an expense when it is actually paid. The use of this method of accounting “combined with the ability to accelerate expenses and defer income gives farmers and ranchers the flexibility they need to manage their tax burden.”
Jeff Wald, CEO at Kennedy & Coe, said that the requirement to force farmers with $10 million or more in gross receipts to use accrual accounting for tax purposes would place a “significant burden on many mid-sized farmers, feedlots and hog, cattle and dairy operations.” Wald continued, “Many of these family operations support dozens of employees but run at very thin margins with very low net income. Wald added that the tax proposal would make accounting significantly more complex for farm operations.
House Ways and Means Committee Chairman Dave Camp (R-MI) said that his committee will pass a tax reform bill by the end of the year and “Member-only meetings” are reportedly taking place.
For more information on tax issues affecting agricultural operations, please visit the National Agricultural Law Center’s website here.
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