GOP Tax Plan Bodes Well for Equine Sector, IRS Unveils “Winnings” Rule

On September 27, 2017, GOP leaders released a “template” laying out key elements to characterize comprehensive tax reform legislation.  The nine-page document identifies significant tax breaks for individuals and corporations, and includes a special focus on tax relief for small business.   Below are highlights that will have the most significant impact on the equine sector, among other corporate and individual taxpayers:

Business Reform

  • Small Business: The framework establishes a maximum tax rate of 25 percent on small businesses operating as “sole proprietorships, partnerships and S corporations.”  With an increasing number AHC members filing as sole proprietorships and partnerships, this can potentially provide significant tax relief. Under current law, small businesses (pass-through entities) can pay federal taxes at rates as high as 39.6 percent. 
  • Corporate Tax Rate: The plan proposes to lower the corporate rate to 20 percent, down from the current 35 percent corporate tax rate. 
  • Expensing: The GOP framework “allows businesses to immediately write off the cost of … depreciable assets” for five years or more.
  • Business Interest: The plan imposes “partial limits” for deduction of business interest on C corporations.  The tax writing committees will review interest deductions for non-corporate taxpayers during the legislative process.   

Individual Reform

  • Estate Tax: The GOP proposes to eliminate the estate tax and the “generation skipping transfer tax.”  This is positive news for family-owned operations.
  • Streamlined Tax Brackets: The plan consolidates the number of individual brackets from seven to three.  Under the proposal, the IRS will create three tax brackets at rates of 12 percent, 25 percent and 35 percent.   
  • Standard Deduction: The plan will double the standard deduction to $24,000 for married couples filing a joint return, and $12,000 for single taxpayers. 
  • Alternative Minimum Tax (AMT) – The GOP proposes to eliminate the unpopular AMT, which doubles the amount of time taxpayers must endure to calculate their tax liability within any given year.
  • Itemized Deductions: While GOP leaders state that many of the deductions that “riddle the tax code” will go on the chopping block, the plan keeps deductions for mortgage interest and charitable contributions. 

Next Steps

AHC is conducting meetings with congressional tax writers in conjunction with major agriculture stakeholders, including the American Farm Bureau Federation and National Cattlemen’s Beef Association, among others.  So far, the coalition has focused on repeal of the estate tax and the need to expense capital investment as pillars of the tax reform process moving forward, two messages which are clearly laid out in the GOP template.   To view a copy of the GOP framework, please click HERE

To learn more details about the tax plan, Speaker Paul Ryan (R-WI) will officially unveil the GOP template today at 2:15 PM EST.  To view today’s event via livestream, please go to the following link: speaker.gov/live

 

IRS Releases New “Winnings” Rule

Also on September 27, the Internal Revenue Service (IRS) published final rules in the Federal Register (FR) to reform federal withholding and reporting requirements for pari-mutuel winnings.  The new rule arises from a notice of proposed rulemaking issued in late 2016, on which the equine industry submitted comments, laying the groundwork for the new regulatory flexibility.  The tax rules will effectively exempt large numbers of winnings from the federal definition for “amount of wager.”  The new threshold effectively exempts a large number of bets from triggering the imposition of a 20 percent withholding on winnings, thereby reflecting a consumer trend toward “exotic wagering pools” in modern betting.  To view a copy of the final rule, please see the following link:  https://www.gpo.gov/fdsys/pkg/FR-2017-09-27/pdf/2017-20720.pdf