Cattle producers have a new income tax deduction thanks to the Tax Cuts and Jobs Act. The section 199A Qualified Business Income Deduction, also known as the pass-through deduction, generally allows producers to deduct 20 percent of qualified business income (QBI).
Qualified Business Income
QBI is the total amount of income, gain, deduction and loss of certain qualifying items that relate to any qualified trade or business, but not capital gains or investment income. For example, if an owner has separate businesses for cattle, hay and row crops, they must combine the items from each operation to determine the total income of the operations.
Pass-Through Deduction
Dr.
Robert Tufts, a member of the Alabama Extension farm and agribusiness management team, said that there may be a limit to this deduction.
“A producers deduction is limited to their taxable income, and if their adjusted gross income exceeds $157,500 ($315,000 for married filing jointly), it is limited to wages paid,” Tufts said. “The deduction is available to sole proprietors, partnerships, limited liability companies and S corporations.”
A producer claims this deduction on their individual income tax return but not their business tax return. The deduction reduces the taxable income, but not the adjusted gross income.
“This means it reduces income tax, but not the amount of self-employment tax,” Tufts said. “This deduction is available even if the taxpayer takes the standard deduction.”