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Honored Advisor
Posts: 13,739
Registered: ‎05-13-2010
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Re: Staying solvent with sub $3 corn

I`m not against sec 179, it`s just i`m hard pressed to find a senario where it actually does you any good.   Even if you "pay with cash" unless that is real cash, meaning cash that you`ve already paid taxes on.  All you`re doing is kicking your tax liability down the road where perhaps tax rates will go higher.   I think if you used sec 179 every year and were in a "growth stage" and corn stayed $5 $6 $7 $8,  you`d be okay, but that didn`t happen. 

 

The thing is, it`s good to have a few years of depreciation left on the books now.  Because with <$3 corn, a guy is too broke to buy things to depreciate, so it`s nice to be able to use items on that 7 yr depreciation schedule now.   When corn is $5 $6 $7 $8, you can afford to pay taxes, but when corn is <$3, income taxes is the very last expense that you want on top of everything else.

Senior Contributor
Posts: 151
Registered: ‎02-26-2015
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Re: Staying solvent with sub $3 corn

Red, that is my exact strategy.  It is good to hear that someone else agrees with me.  Every time I have told others that is what I am doing I get a "deer in the head light look".  When I ordered my Roundup only seed corn for bean stubble my seed guy said I was going to be sacrificing yield.  He had no answer when I asked why his refuge corn out yielded the smartstax 2 years in a row.  As for the put strategy, I have always lost money on puts.  I realize they are to get a floor in on price, not make money, but in my experience just cash sales would have made more profit.  Plus this year when you are already losing money that $.20-$.30 that they cost adds up quickly.

Veteran Advisor
Posts: 6,101
Registered: ‎05-13-2010

Re: Staying solvent with sub $3 corn

BA, you must be overthinking the sec 179 tax deduction...it is a great and useful tax tool without any downside unless you abuse it. The trick to sec 179 is to use it in years of enough profits that you have adequate cash flow to pay cash for a piece of equipment, or if you buy a farm, to be able to deduct the existing tile and ditching to make your down payment basicly tax deductible in that tax year also.

 

For example, if you were marketing 100,000 bushels of corn each year, and had a $4 cost of production, and you got to the fall harvest and found a $8 corn bid starring you in the face (it happened), you have a windfall of $400,000. If you purchased $400,000 of new equipment with this windrfall money and wrote it off as an expense, like fertilizer, seed, etc. you were none the worse off, and with a new combine and heads and/or tractor.

 

Whats the down side on that?

 

You are overthinking it to believe that you have to use previously taxed money...thats the beauty of sec 179...it allows you to spend the money without worrying about the tax consequences. But, you have to have the cash flow...otherwise, you are digging a huge hole for yourself taxwise.

Honored Advisor
Posts: 13,739
Registered: ‎05-13-2010
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Re: Staying solvent with sub $3 corn

[ Edited ]

Hey Red, the elevator could hold the check until Jan 1 too.  It really depends on alot of things, if corn would stay the $8 or up pretty good and you really needed the $400,000 in new machinery, then it`d be pretty good. 

 

The thing with our latest "best times from Heaven" it ended abruptly.  There`s also small things like If a guy sucked it up and paid taxes, you would now have cash, granted 40% less cash, but you could now go bargain shopping. I guess I`m just looking at my own situation where I 179`d alot...well everything, which was fine as long as grain prices held, but now I look at the piddley depreciation left and the 179 stuff is all in the rearveiw mirror..low grain prices and high taxes..I mean I`m paying more in taxes now than when corn was really $8.  The taxes i`m paying now, I could be looking at farm sales to go to had sec 179 never existed. 

 

That said the few small items like skidloader attachments I bought last year got 179`d..no money to buy anything else  Smiley Sad  if I took insulin, I`d up my dose   Smiley Happy

Esteemed Advisor
Posts: 2,300
Registered: ‎04-29-2011
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Re: Staying solvent with sub $3 corn

All of this Sec. 179ed  equipment is going to bite those guys that are going out of business soon.  With no basis in the machinery left, whatever they get for this stuff at their sale will all be taxable. On the flip side, with no money left in Ag, their stuff isn't going to bring much money either.  Smiley Wink

Honored Advisor
Posts: 6,975
Registered: ‎07-18-2011
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Re: Staying solvent with sub $3 corn

No problem,  It won't bring much..

Senior Contributor
Posts: 2,911
Registered: ‎08-11-2014
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Re: Dog has run off and i'm increasing my insulin dose

BA.. Not much difference than holding minimum wages low so more jobs are created. Even if you get the job it won't be worth having.

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Honored Advisor
Posts: 13,739
Registered: ‎05-13-2010
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Re: Dog has run off and i'm increasing my insulin dose

Well Don, somewhere down the line about 30 years ago it was decided for us that we would "free trade" our way to prosperity by pitting US workers in direct competition with foreigners that are happy as a clam making a couple bucks a day.  As a result GDP is about 80% service based economy, in our sensible past, service based jobs were mostly a teenager`s first job where they learned a work ethic.   These low wage jobs were never intended to feed a family on. but it`s all that`s available out there in many cases.

 

I don`t think the employers out there are sitting on a stash of cash and all it would take is to raise the minimum wage to tap into it.  Employers have it tough, some will risk hiring illegal aliens to stay competitive.  You can raise the minimum wage, but you`ll see more illegal aliens coming in and the unemployment rate go up.