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Showing posts from December, 2017

2017 Year End Tax Planning Ideas

link to farmdocDaily article

by Dwight Raab, Illinois FBFM

With the recent passage of the Tax Cuts and Jobs Act (Congress passed on 12/20; President signed on 12/22) there are significant changes to the deductible amount of state income, property tax and real estate tax used in calculating itemized deductions beginning in tax year 2018. Under the new law, beginning in 2018, there is a $10,000 maximum combined limit of state income, property and real estate tax that may be deducted when itemizing deductions on IRS Form 1040, Schedule A. For 2017, there is no limit on the amount of these expenses. Thus, there are two tax planning opportunities with the potential to allow taxpayers to maximize the amount of these deductions if they take action prior to December 31, 2017. These two planning opportunities are available only to those using Form 1040, Schedule A to itemize certain deductions on their individual income tax return.

The first planning opportunity involves the advance payment of property and real estate tax on the taxpayers' personal residence or other personal use property prior to December 31, 2017. This advances payment of these taxes that would normally be paid in 2018 into 2017 and then itemizing them on IRS Form 1040, Schedule A. Please check with your local county treasurer or collector to make certain that they will accept such an advance payment of real estate tax. To make a distinction between personal real estate tax and business real estate tax - this IRS Form 1040 Schedule A limit on the maximum amount of deduction does not apply to property or real estate tax paid in the operation of a business. Those taxes continue to be deducted on Schedule F or Schedule C and are not subject to the $10,000 limit for years after 2017.

The second planning opportunity involves paying any 2017 state income tax due by December 31, 2017 for personal income tax returns due in April 2018. For example, if a taxpayer is making quarterly estimated payments of State of Illinois income tax, the fourth quarter payment is due January 15, 2018. If that amount is paid by December 31, 2017 then that amount can be deducted on the 2017 tax return, since the liability is related to the 2017 return. This includes farmers making a 4th quarter state income tax payment - making that estimate payment prior to December 31 allows for a 2017 deduction and avoids the 2018 Schedule A limit. Care must be taken to not prepay any 2018 state income tax liabilities, as any prepayment of a 2018 state income tax is not allowed to be deducted on the 2017 return. That payment would be treated as being paid on January 1, 2018 and would then be subject to the $10,000 limit. Taxpayers should use the 2017 state estimate vouchers to make these payments.

This is a 'one-time' potential strategy to put in place prior to the $10,000 limit on state income, personal and real estate tax is put in place and don't forget that the standard deduction increases markedly beginning in 2018 which will make it more difficult to itemize deductions on Schedule A of IRS Form 1040.

Before utilizing either of these strategies taxpayers should consult their tax advisor. Not all taxpayers will benefit from advancing the payment of these taxes into 2017. This would especially apply to taxpayers subject to the alternative minimum tax as there may be no tax benefit on the 2017 return by making these payments in December.

Corn Use for Ethanol Update


University of Illinois Commodity Markets Specialist Todd Hubbs discusses prospects for the ethanol exports to Brazil and China with Extension Farm Broadcaster Todd Gleason.

by Todd Hubbs, University of Illinois
farmdocDaily article

The recent strength in ethanol production has led to speculation about changes to USDA’s estimate of corn used for ethanol in the pending WASDE report. Ethanol production for the week ending December 1 set a new ethanol production record with an average of 1.108 million barrels per day, continuing eight consecutive weeks of more than a million barrels a day of production. Currently, the WASDE forecast for corn consumption for ethanol production is 5.475 billion bushels, up 36 million bushels from 2016–17 marketing year estimates. The ability to surpass this projection is possible, but foreign demand for ethanol will be crucial as we move into 2018.

Domestic ethanol consumption is influenced by domestic gasoline consumption, due to the ethanol blending requirement, and the biofuels volume requirement associated with the Renewable Fuels Standard. The EPA final rulemaking for the Renewable Fuels Standard for 2018 was released on November 30. The renewable fuels volume requirement is set at 19.29 billion gallons for 2018, up slightly from the 19.28 billion gallons required in 2017. The conventional ethanol requirement is set at 15 billion gallons for 2018, the same as in 2017 and equal to the statutory requirement level. If the gasoline consumption forecast used by the EPA is correct, the E–10 blend wall will be near 14.3 billion gallons in 2018. The EPA believes an ethanol supply of 15 billion gallons is reasonably attainable in 2018 with a total domestic capacity of 16 billion gallons. Since the ethanol blending requirements did not change, the possibility for greater corn usage in 2018 due to blending is low unless gasoline consumption increases beyond current expectations.

According to the most recent Energy Information Agency (EIA) Short Term Energy Outlook, U.S. retail gasoline price is projected to average $2.45 per gallon in 2018, an increase of five cents from the current expected price in 2017. Despite the projection of higher gasoline prices, gasoline consumption is forecast at 143.27 billion gallons in 2018. The 2018 gasoline consumption projection is up from the 143.03 billion gallons projected for consumption in 2017. EIA’s forecast of ethanol production is set at 1.04 million barrels per day. If the EIA projection is correct, approximately 15.9 billion gallons of ethanol will be produced in 2018. To exceed the current USDA projections for corn use in ethanol, exports need to repeat the impressive performance of the 2016–17 marketing year.

Ethanol export numbers are available from U.S. Census trade data for 2017 through October. For the 2017 calendar year, U.S. exports of ethanol are at 1.09 billion gallons, up almost 16.6 percent from the similar period in 2016. A note of caution is warranted when considering ethanol exports in the current marketing year. During the first two months of this marketing year, ethanol exports are down 19 percent from previous marketing year levels. The large reduction is due to drastically lower export levels to Brazil and China. Chinese imports of U.S. ethanol are minimal thus far in the marketing year. Brazilian ethanol imports from the U.S. are down 49 percent from last year for the first two months. During the 2016–17 marketing year, U.S. ethanol exports totaled 1.37 billion gallons, with exports to Brazil comprising 36.5 percent of the total. The imposition of the 20 percent tariff rate quota on Brazilian ethanol imports on September 4 is curtailing Brazilian imports. The tariff becomes active at export levels greater than 150 million liters per quarter (39.6 million gallons) and restarted in December. U.S. ethanol exports will require increases in other markets to meet or exceed the export levels attained during the 2016–17 marketing year.

Corn consumption levels for ethanol production during this marketing year is provided in the USDA Grain Crushing and Co-Product Production report. Grain crushing for fuel alcohol is available through October. For the first two months of the marketing year, 915.6 million bushels of corn has been processed for ethanol. The grain crush is up 2.8 percent from 2016–17 marketing year processing numbers over the same period. Using EIA weekly ethanol production numbers, November ethanol production averaged over 1 million barrels per day. These production levels place corn use for ethanol production in a range of 555 to 565 million bushels for the month. With a conservative estimate of corn crush in November, total corn consumption for ethanol production through the first quarter of the marketing year would be well above the current WASDE projection. While this is an encouraging sign for corn use, ethanol stocks have risen for five consecutive weeks to reach 22.5 million barrels as of December 1, a level not attained since June. During the same period last year, ethanol stocks fell around 700,000 barrels under strong export demand.

The December WASDE report may increase the corn use in ethanol projection due to the strong production during the first quarter of the marketing year. Lower ethanol export totals and growing ethanol stocks may create a wait and see scenario. Another strong year of ethanol production is highly likely, but flat projections for gasoline consumption and lower ethanol export levels may limit growth over last marketing year’s performance.