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Effect of tax reform’s 199 loss

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While details of the federal Tax Cuts and Jobs Act are still shaking out, loss of the Section 199 (pass-through benefits) will have minimal impact on agriculture. That’s the bottom line.

Section 199 benefits were lost with the tax reform act. But the 20% pass-through deduction of business income was largely restored by its replacement — Section 199A — for noncorporate taxpayers, including cooperatives, S corporations, sole proprietorships, partnerships, and even trusts and estates. This provision expires Dec. 31, 2025. That’s a quick summary from John McKinley, tax law analyst at Cornell University’s College of Business.

While corporations lost the 199 benefits, the corporate tax rate dropped from 35% to 21%, and it’s permanent. “The 35% was noncompetitive on a global scale,” McKinley says. “And 21% was a good fit. Something had to go to pay the bill [federal funding].”

Loss of 199 benefits won’t be a huge issue for agricultural corporations, he says. They don’t use pass-through benefits like cooperatives do. Their tax rates have dropped substantially. And there will be a lot of technical corrections to the law to iron out inequities, just as in 2013.

There’s another caveat: Not all corporations pay wages. As McKinley points out, “Even if you’re a corporate real estate holding company, 50% of W-2 wages is zero.”

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