Several provisions in the Tax Cuts and Jobs Act of 2017 will begin to expire at the end of 2025. While most of the attention will be on extending the expiring provisions, Congress may wish to consider the inclusion of Tax-Deferred Farm Savings Accounts (TFSAs). Over the last 20 years, a number of different TFSAs have been proposed. The most recent proposal—the Farm Risk Abatement and Mitigation Election Act of 2017—was introduced by Congressman Rick Crawford (R-AR) and referred to the House Ways and Means Committee. Despite dozens of attempts by several Members of Congress, TFSAs have never gained traction.
The premise of past TFSA proposals has essentially been the same: create a mechanism that allows producers to shelter taxable income in a good year to utilize in a future year. In current practice, the common tax management strategy for producers who have made money is to utilize Section 179 immediate expensing. Immediate expensing allows agricultural operations to fully depreciate (or expense) equipment or on-farm structures such as barns or grain storage in the year it is purchased. This sometimes results in producers purchasing equipment or farm structures that are not integral to the operation of the farm but were purchased to limit income taxes. As an alternative, TFSAs would allow producers to deposit (and earn interest on) taxable income and either save it for a rainy day or have time to plan how they will use it moving forward.
While many different versions of TFSAs have been proposed in the past, we would argue that most of them were needlessly complicated, which likely helps explain why they’ve never been implemented. In our view, these accounts could be quite simple: taxable income generated by the farm could be deposited in an interest-bearing, tax-sheltered account and be treated as taxable income—and subject to ordinary income tax rates—on withdrawal from the account. While policymakers likely would want to weigh in on how much money producers could shelter each year and how long the funds could be held in the accounts, the more complicated they get, the less effective they become (and the less likely they are to become a reality).
Some may ask why now would be an appropriate time to implement these accounts. After all, most row crop producers are more worried about losing money in 2025 than managing income. But, at some point, farm income will recover, and growers will once again find themselves feeling the pressure to purchase equipment to avoid taxation. Imagine a scenario where prices have recovered, net operating losses have been exhausted, and producers make a bumper crop. With a TFSA, they would be able to shelter the income—tax free—and then use the savings in the future to help weather a downturn or to buy equipment when it makes sense for the business. Some may argue that this would result in less income tax revenue for the government, but that ignores the fact that farmers can already avoid taxation by using Section 179. Ultimately, TFSAs could simply be another tool in the toolbox—alongside the farm safety net and current tax management strategies—to help farmers and ranchers weather the extraordinary risks they face.
Nelson, Henry, and Bart L. Fischer. “Is Now the Time for Tax-Deferred Farm Savings Accounts?” Southern Ag Today 5(11.4). March 13, 2025. Permalink
