Rep. David Kustoff (R-Tenn.) introduced the **Small Business Tax Cut Act on April 13, 2026, proposing several significant modifications to Section 199A of the Internal Revenue Code. The bill would increase the qualified business income (QBI) deduction, broaden the universe of taxpayers eligible to claim it, and extend the deduction to certain dividends from business development companies (BDCs).

Higher Deduction Rate

The headline change is a bump in the QBI deduction percentage from 20% to 23%, effectively raising the maximum pass-through deduction available to owners of sole proprietorships, partnerships, S corporations, and certain trusts and estates.

Restructured Taxable Income Limitations

The bill rewrites Section 199A(b)(3) to modify how the W-2 wage and qualified property limitations apply to higher-income taxpayers. Under the proposed language, taxpayers below the threshold amount would continue to claim the deduction without limitation, and specified service trades or businesses (SSTBs) including health, law, accounting, and consulting would no longer be disqualified at that level.

For taxpayers above the threshold, a new “limitation phase-in amount” equal to 75% of the excess of taxable income over the threshold would apply. This effectively increases the deduction for SSTBs (at least up to a certain point).

New Category: Qualified BDC Interest Dividends

The legislation expands the deduction to cover “qualified BDC interest dividends” which are dividends from electing business development companies attributable to net interest income properly allocable to a qualified trade or business. This change parallels the treatment already afforded to qualified REIT dividends.

Inflation Adjustment and Effective Date

The bill updates the inflation adjustment base year under Section 199A(e)(2)(B) from 2018 to 2025. The amendments would apply to taxable years beginning after December 31, 2026.

We had Claude AI create the new text of Section 199A as if the bill had passed and we are attaching a copy of that text.

Also, here is an example of the 199A deduction for a CPA that nets $700,000 with $600,000 of taxable income filing a joint return:

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We had provided a post back on April 1, 2026, indicating that the guidance on the OBBBA related changes to the payment limit were coming soon. It is almost the end of the month and there is still no guidance from FSA.

Now, we are finally starting to see letters from the local FSA office for the 2026 crop year indicating that an LLC or an S corporation is still stuck with one payment limit. We received on Friday from farmers a letter from the local office (both counties in Minnesota) stating that the LLC and the S corporation (one of each) were still limited to one payment.

One entity was an LLC with four equal owners, and one entity was an S corporation with three equal owners. In both cases, the local office indicated the entity would only receive one payment. Here is a sample of what the letter looked like:

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On April 24, 2026, Agriculture Secretary Brooke Rollins stood in Higginsville, Missouri and announced that USDA was doubling the payment factor on the Supplemental Disaster Relief Program (SDRP) — from 35% to 70%. Producers with approved applications will receive an additional 35% of their calculated payment, and any future payments under the program will be issued at the new 70% rate. The application deadline for both Stage 1 and Stage 2 was simultaneously pushed from April 30 out to August 12, 2026.

For producers staring down spring planting financing, this is real money landing at a useful time. But the more interesting story underneath the announcement is why USDA had room to double the factor in the first place — and it has everything to do with how Stage 1 and Stage 2 demand has diverged from the agency’s original projections.

The setup: $16 billion split into two stages

The American Relief Act of 2025, signed in December 2024, allocated $30.78 billion in farm disaster authority. Of that, USDA carved out roughly $16.09 billion to fund SDRP — the program designed to backstop crop, tree, bush, and vine losses from 2023 and 2024 disasters that weren’t fully covered by federal crop insurance or the Noninsured Crop Disaster Assistance Program (NAP).

FSA structured the payouts in two stages:

• Stage 1 uses pre-filled applications drawn from existing crop insurance and NAP indemnity records. Producers who already received an indemnity check got a streamlined supplemental payment on top.

• Stage 2 is the harder, slower piece — covering shallow losses (losses too small to trigger insurance), uncovered/uninsured losses, and quality losses. Stage 2 sign-up didn’t open until November 24, 2025, and it requires producers to actively assemble and certify documentation rather than receiving a pre-filled form in the mail.

To stay inside the $16.09B box while applications were still rolling in, FSA applied a 35% payment factor to all gross calculated payments. The cost-benefit analysis published with the Stage 2 final rule projected initial outlays of roughly $9.87 billion at that 35% factor — the rest of the bucket would be available later for a top-up payment, if total demand came in below the cap.

What FSA originally projected vs. how it’s actually playing out

In its Stage 2 cost-benefit analysis, FSA estimated that Stage 1 would account for about 72% of total gross SDRP payments, with Stage 2 picking up the remaining ~28%. At the 35% factor, that pencils out to about $7.2 billion in initial Stage 1 outlays and $2.67 billion in initial Stage 2 outlays.

Two things stand out. First, Stage 1 has obviously come in materially higher than the original 35% estimate — mathematically, that’s by design once USDA doubled the factor. But the headroom to double the factor at all is the second, more interesting point: it exists because Stage 2 dollars have been slow to go out the door and look likely to come in below initial projections.

Why Stage 2 came in soft

Multiple sources covering the rollout point at the same set of friction points:

• Late start. Stage 2 sign-up didn’t open until almost five months after Stage 1, leaving a much shorter window before the original April 30 deadline.

• Manual application process. Stage 1 was pre-filled from existing RMA and NAP records. Stage 2 producers — particularly those with uninsured crops, value-loss operations, or quality losses — have to actively gather and certify documentation that USDA doesn’t already have on file.

• Quality-loss and shallow-loss complexity. Practitioners report ongoing confusion at local FSA offices around documentation standards for quality-loss claims (rice farmers in the Mid-South sitting on unsold 2024 crop are a frequently cited example), as well as issues with replant acres and multi-county enterprise units.

• Specialty crop coverage gaps. Over 43% of fruit/nut and 47% of vegetable/melon acreage is uninsured by either crop insurance or NAP, meaning Stage 2 is the only path for many specialty growers — and that path requires building a payment from USDA-assigned county yields and prices rather than from existing records.

The combination meant Stage 2 dollars piled up unspent while Stage 1 dollars flowed quickly. The deadline extension to August 12 is in part an attempt to give Stage 2 more runway to catch up.

Visualizing the shift

Here’s how the picture looks across original projection, what’s actually been paid, and where the doubled factor takes things:

SDRP Outlays: Original Estimate vs. Actual (April 2026), $ Billions
                     0      2      4      6      8     10     12     14     16
                     |------|------|------|------|------|------|------|------|

Original estimate
  Stage 1 (35%)      ████████████████████ 7.2
  Stage 2 (35%)      ███████ 2.67
  Total initial      ██████████████████████████ 9.87

Paid as of 4/24/26
  Stage 1 (35%)      ██████████████████ 6.7
  Stage 2 (35%)      ▏ ~0 (still processing)

After 70% top-up
  Stage 1 (implied)  ████████████████████████████████████ 13.4
  Stage 2 (TBD)      ▏ pending

Funding cap         ███████████████████████████████████████████ 16.09

Stage 1 was originally projected to only consume about $11.6 billion of the $16.09 billion total. Instead, at a minimum it will consume at least $13.4 billion and likely will be higher. This will result in Stage 2 total payments at most being about $2.7 billion (likely lower), or about 16.8% of the total instead of the original projected 28%. This means that Stage 2 producers will see at least a $1.8 billion drop from the original 28% rate and it may be even lower.

We would like to show the amount of payments under Stage 2, but USDA has elected not to show a dashboard for Stage 2, only Stage 1. Some producers under Stage 1 will not get a full payment due to payment limits, but the average payout is about $14,000, therefore, this should not materially affect the projections.

Why the top-up came when it did

USDA Undersecretary Richard Fordyce noted in the Higginsville announcement that the agency had met with the American Bankers Association the prior week, where bankers raised the top-up issue specifically because of how SDRP money was flowing into spring operating loan decisions. With anhydrous ammonia prices reportedly above $1,100/ton which is up roughly 30% since late February and producers negotiating credit lines for the 2026 crop year, doubling the factor right now does better than holding the funds for a final true-up after April 30.

The structure of the doubling is straightforward: producers don’t need to refile anything. If you already have an approved Stage 1 application, you’ll receive an additional payment equal to your original SDRP payment (effectively a second 35% slug, taking the cumulative factor to 70%). All future SDRP payments — Stage 1 not yet processed, plus Stage 2 as those work through — will be calculated at the 70% factor from the outset.

What to watch from here

• Stage 2 throughput between now and August 12. The deadline extension was explicitly framed around giving FSA county offices more time to handle Stage 2 application changes. If Stage 2 demand picks up materially, there’s still capacity within the $16.09B cap to absorb it at the 70% factor; if it stays soft, USDA could conceivably go higher than 70% in a final true-up.

• The 90% statutory ceiling. SDRP payments are capped at 90% of the producer’s loss across all stages combined. That’s the actual ceiling on how high the factor can climb in a final top-up — not 100%.

• The two-year coverage requirement. Anyone taking SDRP money has to maintain federal crop insurance or NAP coverage at 60% or higher for the next two eligible crop years on the same crop and county. Failure means repayment with interest. With payments now doubling, the dollar value of that compliance obligation just grew accordingly.

USDA’s $6.7B already paid through SDRP, layered on top of $9.3B through the Emergency Commodity Assistance Program and $1.9B through the Emergency Livestock Relief Program, brings total American Relief Act disaster disbursements past $17.9B. The 70% top-up isn’t new appropriations — it’s the predictable result of conservative initial factoring meeting weaker-than-expected Stage 2 throughput. For producers with approved Stage 1 applications, though, the practical effect is the same: the check that originally landed at 35% of calculated value is about to double (unless they hit a payment limit).

Secretary of Ag Rollins announced today a final top-up on the Supplemental Disaster Relief Program (SDRP) in Missouri. As expected, (and long overdue), the final top-up is an additional 35% on top of the original 35%.

In our opinion, the final top up would have been a smaller percentage if Stage 2 had been based on the harvest price instead of the discovery price, but that is water under the bridge and there is nothing we can do about it.

The application deadline has been extended to August 12, 2026, however, if you have already applied and received your first 35% tranche, you should receive your top up shortly. But if you already hit the payment limit for either 2023 or 2024 or both, then you will not receive any additional payment for those years.

Also, if you are an LLC or S corporation, you will be limited to one payment (plus a possible extra payment if your farm adjusted gross income exceeds 75% of your total AGI).

The new rules for LLCs and S corporations do not start until likely the 2026 crop and this is a 2023 and 2024 crop program.

Also, remember this is a combined limit for Stage 1 and Stage 2, once you hit the limit in each year, then you will receive no additional payment.

Plus, the AGI test remains under the old rules based on net income and equipment gains may be difficult to count as farm income. The new rules again, likely apply beginning with the 2026 crop year.

The agency now let’s Form 1040-X be e-filed through tax software, and the latest IRS processing dashboard shows amended returns received as recently as February 2026 already being worked, which is a real improvement over the multi-year backlog we saw during the pandemic years. The IRS has also rolled out artificial intelligence tools that cross-check returns against information already on file, such as W-2s, 1099s, payment app reporting, and the new 1099-DA for digital assets. What used to take an examiner an hour can now be flagged in seconds.

Here is the catch, and it is a big one for farm clients. Even though Form 1040-X can be filed electronically, once the IRS receives it an actual employee still has to look at it and manually adjust the taxpayer’s account. The Treasury Inspector General for Tax Administration estimated last year that fully automating this step could save the IRS more than $322 million annually, and the IRS has agreed to prioritize the work. But “agreed to prioritize” and “done” are very different things in Washington.

Why does this matter for farmers? Amended returns come up more often in farm tax practice than people realize. A late-arriving Form 1099-PATR from the co-op, a corrected 1099-G on a CRP payment, a Section 174A election under the One Big Beautiful Bill Act (the deadline for that election is July 6, 2026, and many farms with research expenses from 2022 through 2024 will need to amend), a missed Section 179 election, or a carryback of a farm net operating loss can all send you back to the keyboard. If your client is owed a refund of $40,000 because of an NOL carryback, telling them “Maybe by Christmas” is not a great answer.

A few practical reminders while we wait for the IRS technology to catch up. E-file the 1040-X whenever the software allows it; it goes into a faster lane than a paper amendment. Include direct deposit information, since paper checks are being phased out anyway. And do not file a second 1040-X to “check on” the first one. That just kicks the return to the back of the line and frustrates everyone, including the IRS employee who eventually opens it.

The direction is right. The pace is, well, the IRS pace. Stay tuned.

We are still months away from harvest, but spring planting is the right time to start thinking about how a 2026 crop insurance check would land on your tax return. The discovery prices are set, policies are in place, and the planning decisions you make over the next few weeks will shape what your options look like next December.

Every fall we get the same question: “Can I push my crop insurance check into next year?” The answer is the favorite answer of every CPA — it depends. Better to know the rules going in than to scramble in November.

To defer a crop insurance payment received in 2026 into 2027 under Section 451(f), a cash-basis farmer must clear three hurdles:

1. You must be on the cash method of accounting.

2. The proceeds must be received in the same year the damage occurred.

3. Under your normal business practice, more than 50% of that crop would have been sold in the year after harvest.

Clear all three and you still are not necessarily home free, because of the big one: only the portion of your check tied to yield damage is deferrable. The portion tied to a price drop is not.

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The U.S. District Court for the Southern District of Texas ruled recently that the IRS exceeded its statutory authority when it designated micro-captives as listed transactions. The Court indicated that the IRS did not meet the requirement that micro-captives are by default designed to be “tax-avoidance” activities.

If the IRS requires you to report it as a listed transaction but do not, then the penalties can be extreme. Therefore, the micro-captive industry has fought this rule and finally, at least in this district won removal of the requirement.

However, the Court did rule that the IRS can continue to require these companies to be “listed” as a “transaction of interest”, essentially still requiring companies and taxpayer to list this transactions.

It is a small win, but the IRS will still know you are involved in a micro-captive which will flag the transaction for their review.

We have had readers reach out asking about the new Section 1062 four installment (three-year) deferral for sale of qualifying farmland. We have posted on this before, but we don’t we have emphasized that this deferral is available only for:

• 1. Sales and exchanges that occur after July 4, 2025, and

• 2. For taxable years beginning after same date.

You must meet both requirements in order to defer the tax. This means that all calendar year 2025 taxpayers are unable to use the new provision. This would start applying for entities whose tax year starts August 1, 2025, or later and for most individuals it would apply starting in 2026.

The original Tax Cuts and Jobs Act of 2017 introduced the Excess Business Loss limitations under Section 461. Farmers who incur large business losses could see the use of those losses in the current year be curtailed.

The original limit was $250,000 single / $500,000 married, but it was indexed to inflation and for 2025, the limits were $313,000 single / $626,000 married.

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We are starting to use AI to create some images such as the one included with this blog post. We will continue to use it as appropriate.

Many farmers understand that there are Adjusted Gross Income (AGI) limits on many farm programs.

ARC and PLC have a $900,000 overall limit; however, this is applied on an as if married filing separate basis. For farmers in community property states, this effectively means that your overall AGI limit is $1.8 million since income is automatically split 50/50 on tax returns in these states.

For other states, it gets trickier. AGI will be based on who owns or controls the income.

As example, assume that Bob is a doctor earning $1.0 million and his spouse Barb and him have a general farm partnership that generates $600,000 of net farm income each year.

In a community property state, Bob is only deemed to earn $800,000 ($1.6 million divided by 2) but in a separate property state, he is deemed to earn $1.3 million ($1 million plus half of the farm earnings). Therefore, in the community property state they qualify for two payment limits, in the separate property state, only one limit.

If you filed a married filing joint tax return and your AGI exceeded the $900,000 limit, but you would be under if you had filed married filing separate, your CPA or attorney can write a letter letting FSA know what that number would be. You are not required to amend your income tax return but just work up the numbers.

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I started preparing tax returns when I was attending school at the University of Washington. I worked at a very small firm in downtown Seattle, and my wife would drop me off at the office after school and I would work for several hours and then head home.

I still vividly remember being handed the first tax return to prepare (which was by hand). A very simple partnership tax return with a couple of rental properties. I was so proud of myself to present the finished return to the owner who then burst my bubble by asking where the workpapers were.

I had no clue what workpapers were and likely many of my staff over the years still don’t think I know what workpapers are.

That was over 40 years ago, and I am still doing tax returns primarily for my friends and family (my son has me in a bunch of real estate investments and I have to do those returns).

For the CPAs who are finishing up your returns today, make sure to celebrate the end of a successful tax season and get some golf in tomorrow or however you celebrate it.

If you’re a farmer planning to file Form 4868 to extend your 2025 tax return, there’s one thing to understand before anything else: the extension buys you more time to file, not more time to pay. April 15, 2026, is still the deadline for paying what you owe, and missing that mark can cost you.

Many farm operators know that qualifying farmers have some built-in flexibility around estimated tax payments. For example, you can often make a single payment by January 15 or file and pay in full by early March to avoid the estimated-tax underpayment penalty. That’s a real benefit. But it’s a separate rule from what happens when you extend. Once you file a Form 4868, the IRS still expects the bulk of your 2025 tax to be in by April 15, regardless of the farming rules.

The 90% Rule: Your Practical Target

The practical benchmark to aim for is simple: have at least 90% of your total 2025 tax liability paid in by April 15. That includes withholding, prior estimated payments, and any additional payment you send with the extension form. If you hit that threshold and pay the remaining balance when you file by October 15, you can generally avoid the standard failure-to-pay penalty during the extension period.

One point worth clarifying: the 90% target doesn’t mean you should lowball your estimate on Form 4868. The IRS requires a good-faith, reasonable estimate of your full tax liability on the form itself. The 90% rule is simply a payment threshold. It’s what protects you from the penalty, not an excuse to underestimate.

What the Penalty Looks Like — and What It Costs

The standard late-payment penalty is 0.5% per month on the unpaid balance, capped at 25%. It runs from April 15, not from the extended filing deadline. So, if you owe $10,000 and haven’t paid enough, that penalty starts ticking in April even though your return isn’t due until October.

Here’s a quick illustration. Suppose your total 2025 tax is $40,000 and you’ve only paid $30,000 by April 15 which is short of the 90% mark. You file the extension but send no additional payment, then pay the $10,000 balance in October. At 0.5% per month over roughly six months, the penalty comes to around $300. Add interest at approximately 6.5% annually (a blended rate based on the IRS’s published 2026 quarterly rates) and you’re looking at another $325 in interest, for a total added cost of about $625.

Now run the same scenario where you send an additional payment with the extension to get to $36,000 paid which is exactly 90%. The same $4,000 balance sits unpaid from April to October, but the late-payment penalty goes away. Interest still applies, coming to roughly $130. That’s the difference between a $625 bill and a $130 one, just by getting that extra payment in the door by April 15.

Interest Is Always in the Picture

Even if you avoid the penalty entirely, the IRS charges interest on any unpaid 2025 tax starting April 16 and running until you pay. For 2026, the individual underpayment rate is 7% annually for Q1 and 6% for Q2, with later quarters subject to change. Interest is compounded daily, so it adds up even if the rate seems modest. There’s no way around it. The only question is whether you’re paying interest alone or interest plus a penalty.

The Bottom Line

For most farmers using Form 4868 this spring, the extension itself is straightforward. The more important question is how much to pay with it. Getting to 90% of your estimated 2025 tax by April 15 won’t stop the interest clock since nothing will. But it can keep the penalty out of the picture and meaningfully reduce what you owe when you file in the fall. If you haven’t already run an estimate of where you stand, now is a good time.

Estimated 2025 ARC/PLC national payments peaked back in September 2025. Since then, we have seen a steady erosion in the payment levels and the latest April WASDE report continues that trend.

First, let’s take a look at our original September report. Remember, that this is a minimum amount of payments. Since farmers will receive automatically the higher of ARC or PLC for 2025 crop year, we need to add about an extra $1 - $2 billion of payments to these estimates, however, it is good to see how the trend has changed.

Here is the original report:

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SDRP Stage 1 and 2 is sign-up period is scheduled to close at the end of April 2026. Once it is finally closed, USDA will then calculate the amount of funds available to “top-up” producers.

Originally, USDA elected to cover 35% of the expected losses and based on our previous posts, we expect that there may be sufficient funds to pay producers perhaps another 30% on top of the 35%.

But what happens if the producer is close to or has already hit the payment cap. Does this mean that there is a separate payment cap for the “top-up”. The answer is no. Once you hit the payment cap, you will receive no more funds.

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The Kansas City Federal Reserve issues various reports related to the ag economy and in a very recent report they just updated their estimate of the profit per bushel for a corn farmer in 2026.

Here is their chart of the trend:

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I had a speaking engagement in Kearney, Nebraska yesterday that I elected to drive to and back all on the same day. My final mileage count was almost 800 miles, and I am feeling it this morning.

I had a 15-minute session on AgriTalk on Monday regarding the Qualified Pass-Through Entity changes that should be coming soon from USDA, Base Acre update, and a few other topics.

Here is a link to the session.

We had a reader reach out to us asking how the R&D credit can affect farm program payments.

Remember that there is a $900,000 AGI limit for individuals and entities. If you are bumping up against that limit and get an R&D study done which creates a larger R&D tax credit, this could put you over the AGI limit. Here is an example:

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First, I will be on AgriTalk today discussing some of the key guidance that we need to get from USDA on qualified pass-through entities and related adjusted gross income (AGI) limits for S-corporations and LLCs and other limited entities.

As we have discussed before many times any entity taxed as a partnership and S-corporations will now have limits based on the number of owners. However, remember that unless the owners are all equal and actively engaged in farming, you will not see full payment limits.

Also, if the AGI limits remain for LLCs and other entities taxed as a partnership, you may still need to remain a general partnership if your entity’s net income exceeds $900,000. If it exceeds the limit, you will get no payment which is even worse.

We will keep you posted once it comes out and we will post a link to my AgriTalk discussion later today.

We have written before about Executive Order 14247, the “no more paper checks” order signed in March 2025. We focused then on what it means for making tax payments. Today we want to flip it around and talk about what it means if you are expecting a tax refund and you did not provide direct deposit information on your return.

A recent article by Nathaniel Puffer, director of New Mexico Legal Aid’s Low Income Taxpayer Clinic, lays out the situation clearly and it is not pretty for taxpayers without bank accounts.

Here is what happens. If you file your return without providing bank account information, the IRS is no longer simply mailing you a check. Instead, the IRS sends a letter called a CP53E. That letter informs you that your refund cannot be issued and asks you to provide direct deposit information. What the letter does not tell you and this is the key problem Puffer highlights is that you have a 30-day deadline to respond. Miss the deadline, and you are looking at waiting an additional six weeks for a paper check to eventually arrive.

Now here is something critically important: the phone number included on the CP53E notice (866-325-4066) provides recorded guidance only and cannot be used to speak with an IRS representative or update banking details. Do not waste your time calling that number. The IRS has removed the option for telephone-based resolution entirely. Bank account information can only be updated by accessing your IRS Online Account at IRS.gov. If you need to speak with a live person, call the main IRS taxpayer assistance line at 1-800-829-1040 (and wait on hold for a long time), or to schedule an in-person appointment at a Taxpayer Assistance Center, call 1-844-545-5640.

For most of our readers who farm or run a business, you likely already have a bank account and use direct deposit. If so, this change probably does not affect you directly. But you may have employees, family members, or seasonal workers who are unbanked or underbanked. The IRS reports that over 830,000 CP53E notices were sent out in the early weeks of the 2026 filing season alone.

The bottom line: if you or someone you know receives a CP53E notice, act within 30 days, go online to IRS.gov to update your banking information, and do not bother calling the number on the notice since it will not help you.

We will keep you posted as additional IRS guidance on this issue becomes available.

SDRP Stage 1 and 2 were authorized by Congress in December 2024. It is now April 2026 and currently SDRP will close at the end of this month.

We continue to hear that Stage 2 has had several issues getting correct information to the local FSA office to process claims especially with replant acres and Multicounty Enterprise units. We are not sure if these issues will ever get totally fixed, but let’s assume that SDRP will close as scheduled on April 30, 2026.

At that point, USDA will then calculate how much money is available to “top up” farmers who have already filed their claims. Congress essentially authorized a little more than $16 billion for SDRP.

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