H.R. 1 - Farmers, Self-Employment Tax and Business Arrangement Structures

H.R. 1, the House tax bill, was publicly released last week.  Of course, it’s getting a lot of attention for the rate changes for individuals and corporations and flow-through entities.  However, there is an aspect that is getting relatively little focus – how the self-employment tax rules would change and impact leasing and entity structuring.  Most farmers don’t like to pay self-employment tax, and utilize planning strategies to achieve that end.  Such a strategy might include entity structuring, tailoring lease arrangements to avoid involvement in the activity under the lease, and equipment rentals, just to name a few.  However, an examination of the text of the recently released tax bill, H.R. 1, reveals that self-employment tax planning strategy for farmers will change substantially if the bill becomes law.  If enacted, many farmers would see an increase in their overall tax bill while others would get a tax break.  In addition, existing business structures put in place to minimize the overall tax burden would likely need to be modified to achieve that same result.