With President Trump’s signature, the biggest reform to the U.S. tax code in over 30 years is now in place. The new tax statute contains many provisions beneficial to small business, and ag aircraft operations. 

Lower Tax Rates

New Corporate Tax Rate

The biggest boon to businesses, large and small, is the cutting of the corporate tax rate. The corporate tax rate will be cut from 35 percent to 21 percent starting Jan. 1, 2018. Personal service corporations would be subject to a flat 25 percent corporate tax rate subject to limitations on the amount of income qualifying for the special rate.

President Trump originally wanted 15 percent, but a cut of that size would leave no room to cut taxes anywhere else. The bills passed by the House and Senate called for a 20 percent rate, and the 21 percent rate in this bill allows space for some other deductions to be maintained.

Personal Income Taxes

The final bill retains the seven different tax brackets, lowering the tax rate in each bracket overall and doubling the standard deduction from $6,500 for individuals and $13,000 for families to $12,000 and $24,000, respectively.

However, the lowering of the overall rates and increase of the standard deduction means some tradeoffs with other deductions. The deduction of state and local property taxes will be capped at $10,000. The mortgages interest deduction will be capped at $750,000 under the new law, down from the current $1 million cap. Student loan interest will continue to be deductible, and graduate-student tuition waivers will not be considered taxable income. 

Estate Tax

The estate tax exemption is doubled from $5 million to $10 million for estates passed on between Dec. 31, 2017, and Jan. 1, 2026. This is an important exemption for the next generation of farmers and ag aviation operations who would otherwise need to sell off land or expensive equipment to cover estate taxes.

Cost Recovery

The taxpayer has the option of using the Section 179 deduction and should the taxpayer exceed that limit, bonus depreciation kicks in. The taxpayer may also just solely use bonus deprecation.

The law allows the additional first-year depreciation deduction for both new and used property. The provision generally applies to property placed in service after Sept. 27, 2017.  In addition, the law follows the phase-down of bonus depreciation to property acquired before Sept. 28, 2017, and placed in service after Sept. 27, 2017.

Temporary 100-percent Expensing for Certain Business Assets

The bill extends and modifies the additional first-year 100-percent depreciation deduction through 2026 (through 2027 for longer production period property and certain aircraft). What was a 50-percent allowance is increased to 100 percent for property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023.

Thus, the bill follows the present-law phasedown of bonus depreciation for property acquired before Sept. 28, 2017, and placed in service after Sept. 27, 2017. The 100-percent allowance is phased down by 20 percent per calendar year for property placed in service.

Expand the Section 179 Deduction and Bonus Depreciation

The maximum amount an individual can deduct for new asset purchases, like an ag aircraft, tractor or combine, would be raised to $1 million, up from $500,000 under current law. The phaseout threshold is boosted to $2.5 million.