Plenty to do in the halls of Congress as we sit squarely in the second term of President Trump. One area that will be examined closely are the tax cuts implemented in his first term that expired at the end of 2025. Those tax initiatives had a profound effect on agriculture and we will see if they are continued into the future.

In the meantime let’s look at how those tax programs helped or hurt farmers courtesy of the American Farm Bureau.

The majority of farm profit nationwide is taxed as a farmer’s or rancher’s individual income, so changes to the individual tax code significantly impact farm tax liabilities. Farmers utilize business provisions like bonus depreciation, full depreciation, business income deductions and alternative use valuations to reduce their tax liabilities from farm profit, but the individual income tax code is the ultimate determination of most farmers’ yearly tax burden.

TCJA individual income provisions that reduced the average farm tax liability across farms of all sizes include reduced federal income tax rates, new income ranges for each rate, increased limits for the alternative minimum tax (AMT) and limits on personal deductions. Combined, these provisions have the single largest impact on farmers and ranchers’ tax liability. Were they to expire, USDA’s Economic Research Service (ERS) estimates the average farmer would owe an additional $2,300 a year in taxes, not including any other expiring provisions. These expirations alone increase farm taxes paid by $4.5 billion.

Nearly 98% of farm operations are pass-through entities: sole proprietorships (which are not legally separate from the operator), S corporations and partnerships. While C corporations, including co-operatives, are taxed at a corporate tax rate on their business income and then taxed again as individual income when dividends are paid out to stakeholders, pass-through entities include business profit in its entirety as personal income.

In pass-through businesses like farms and ranches, all sources of income combined determine what individual income tax brackets the owner’s income will fall into. Ninety-six percent of farm households receive some amount of income from off-farm employment. Midsize, large and very large farm families are the only categories that earn the majority of their income from farming, and even those have a large share of income coming from off-farm jobs, on average.

Adjusted gross income (AGI) is the total income, from all sources, minus deductions or exemptions, for the household. Only farm profit is counted as income, not total revenues. Farm losses can also be carried back to the two preceding tax years or forward to a later year; farming receives this carryover because of the extreme year-to-year volatility of net farm income. AGI is the ultimate amount of money that a farmer will pay taxes on at the designated rates.

TCJA reduced individual income taxes through a twofold approach: lower tax rates and new income brackets for each rate. The average taxpayer saved $1,260 from the individual rate changes, increasing after-tax income by nearly 2%.

The TCJA aimed to simplify tax filing by reducing the amount of itemized deductions a tax filer is eligible to make including a deduction restriction that was used to offset lower TCJA tax rates is a cap on state and local taxes (SALT) deductions, particularly income, property or sales taxes. SALT deductions aim to reduce federal tax liability by balancing income already spent on taxes for local services. Prior to TCJA, there was no limitation on how much of these local taxes a taxpayer could deduct; TCJA implemented a $10,000 maximum SALT deduction. Nearly 65% of SALT deductions are claimed by those with incomes over $500,000 and are concentrated in California, New York, New Jersey and Illinois.

USDA’s Economic Research Service (ERS) estimates that 3.3% of all farmers have state and local taxes greater than $10,000. However, that share increases to 23% and 43% of large and very large farm households, respectively; these are the farm families whose income depends largely on the farm business but also typically have the highest tax bill.

The expiration of individual tax provisions in 2026 is estimated to increase the average farm’s tax liability by nearly $2,300 a year, close to 12% higher than under TCJA tax provisions. While very large farms have the highest dollar value increase in tax liability with over $27,500 in additional taxes a year, lower earning farms are hit hardest in terms of their percentage increase in tax burdens. The $27,000 increase for very large farms is 5% higher than under TCJA. Off-farm occupation, low-sales and moderate-sales farms – more than 1.4 million farm families nationwide – would have tax liabilities increase by more than 10%. Moderate-sales farms are the lowest revenue farm category whose principal operator’s primary job is to farm and which make positive income farming, on average; these would have their tax liabilities increase by over 15% ($2,300 annually), the highest share of any farm category. 

With more than 96% of farms passing business profits directly through to their individual income, provisions in the individual tax code play a huge role in determining the tax burden on farm families. Increased taxes would add to farmers’ current difficulties, as farmers continue to face increasing production expenses and declining farm profits. Decisions made this year about the TCJA’s individual income provisions will have implications for farmers’ and ranchers’ real profitability for years to come. Farm profits have decreased 23% since 2022, driven by a combination of lower crop revenues and higher production expenses. With everyday farm production expenses up 6% in two years, including a 10% increase in taxes and fees, added tax burdens could weaken a farm economy that is already struggling.

“Any politician promising not to raise your taxes is like a vampire promising to become a vegetarian.” -Pierre Poilievre

Ron Kern is the manager of the Ogle County Farm Bureau.