Self defeating tax avoiders

[kraft-t]

Those paralyzed with fear of the tax man are their own worst enemy. The tax avoiders or tax postponers fail to raise  working capital to fund ther business. How many are still dealing with operating loans merely because they choose to avoid taxes that allows the acquiring of working capital.

The buy machinery strategy ( because uncle sam pays a third) or the fund the URA strategy( because it avoids taxation) both hinder the accumulation of working capital. The only way I can enhance a cash position is to accumulate with after tax dollars.

Those are the dollars that make operating capital a self financing enterprise. Also that cash position is what supplies that down payment on that 80 you or I want to buy.

In the first place that 80 acres of real estate is just as good as the IRA both of which we expect to increase in value to provide return to fund our retirement. Secondly, your allowable investment in that land purchase is not limited by law or the tax code.

Plus the strong cash position gives you options should that golden opportunity arrive on the scene. Plus the ability to make operational and investment decisions based on their merit rather that having to satisfy the whims of the local banker.

There is nothing wrong with lusting for green paint if that is your objective but realize that decision may obstruct the possibilty of owning that 80 next door. Even with the $100 k in that ira, you will be reluctant to draw it out paying the taxes and penalty for doing so.

So do what you want because there is no right or wrong. It depends on what your objectives are. Want to be machinery rich or IRA rich and land poor, that is OK  just as long as you realize that your decisions are impacting your future decisions. Increasing the land base was important to me but I didn't start soon enough. I loved green paint too much!

[Shaggy98]

Good points Kraft, but what if you are debt free, money in the bank, and are looking to better your operation with updated equipment.  Am I still considered a tax avoider?  By the way, I've also got a fully funded IRA, fully funded 401(k),and also a fully funded company sponsored pension and 80% of my operation is owned free and clear.  The other 20% is share cropped.  Yes I do have a very successful off the farm career in which I am taxed heavily all year long.  Are the pains of my labor not worth a little new paint to lighten my load.  Seems to me that I didn't write the tax code, but would be a fool if I didn't take advantage of tax breaks offered to me.  Every operation is different, why is that so difficult for you to understand?

[4wd]

I'll admit it, I am paralyzed with fear of the tax man is my own worst enemy.

What have those taxes I pay  buy me in return? There has become a deep, dark ditch  from what gov can do to help a farm rather than what the gov can do to limit and regulate a farm. And tax dollars support digging the ditch deeper and larger.

I've done my best to take advantage of all the tax deductions withing the law especially the sec 179 fast depreciation allowance of $144,000 in '12. Got a new machine shed full of shinny green iron, and a large ugly lien at Ag Direct to boot.. Interest payments are a tax deduction too Kraft-t.

I've told you many times, you need a new tax advisor (preferrably a democrat this time:))

[kraft-t]

Thats right that every operation is different. If you are in a strong financial situation, your circumstance may be different than many. Buying things specifically for tax avoidance is different from buying needed equipment. We all need to up grade at sometime or another. but some folks buy machinery out of want instead of buying equipment to get the job done.

Sacrificing the purchase of land due to lust for new paint is counter productive, that is if you want to own land. BTW there is some value in buying assets that appreciate rather than those that depreciate. Machinery doesn't usually appreciate in value.

[Shaggy98]

Any time that I can avoid a tax bill by updating equipment, I will do it every time especially when I can write a check for it.  I will not give to Uncle Sam as long as I've got legitimate improvements to make or updates to equipment to make and there are tax incentives to take advantage of.  They did not write the tax codes for us only to talk about.  Sorry if I am not keeping your standards Kraft.

Who would of thought that all those people that made energy efficiency improvements to their homes a couple of years ago and took advantage of tax credits would be considered tax avoiders according to Kraft.

[kraft-t]

If not tax avoiders, what are they? If the decision is based on saving taxes, then by definition they are striving to avoid taxes.. If the investment is being made based on efficiencies and they would have been made whether or not there was tax incentives, that is entirely different . However, if the tax incentive is the driving motivation for the improvement, then yes that is clearly tax avoidance.

I also stated in a previous post that tax avoidance was not unlawful. It may not even be unethical but it is avoiding taxes none the less.

[Shaggy98]

Do you have an higher education?  I've got 2 degrees from an accredited 4 year university and what you keep saying makes absolutely no sense.  You keep implying over and over that any business owner that puts money back into his business by keeping equipment up with technology is a tax avoider.  Now you have stooped as low as pulling all home owners into your capitalistic thoughts.  Would you go as far as saying the Gov. is guilty by association since they are the very ones writing the tax codes?  I bet if the truth were known, you probably don't do any of your own work.  Are you even involved with Ag?  Sounds like me you are only a land owner that refuses to let go of the reins because you are afraid that the next generation has better plans and procedures than you. Jealously gets you nowhere my friend, I would recommend reading the story of Cain & Able, guess we all know which brother you would be!

[r3020]

I avoid taxes also. On good years I spread more fertilizer in the fall and on bad years I can spread less since the fertility is in better shape. Now to get some one to tax the rich so my Obama insurance doesn't run dry.

[idalivered]

shaggy, thanks for your resume. It really helped your argument.  If I'm reading don correctly, his point is that purchasing something for the sole purpose of avoiding income tax is counterproductive to financial progress. He also makes the point that if one needs purchase something to improve efficiency while still getting the tax benefits of depreciation , then fine. Personally, the equipment i write a check for i will use section 179, but any equipment i borrow for i would still use straight line depreciation.  I agree, because i've yet to find a way to make principal payments deductible. If you are not paying income tax , one of 2 things are happening. (1) you're not making any money (2) you're cheating. Oh yeah and purchasing depreciable assets to deduct from present income would show on any tax return as making less income.  You gotta have income to pay off debt.

[Shaggy98]

I agree with all your points, but what if you have no debt?  Don't get me wrong, I'm not complaining nor am I bragging about no debt.  My point being that if I improve my equipment lineup, I would position myself to be able to take on more acres.  In a few years my area will have numerous acres that will be available, some for rent and some will be sold I'm sure.  Why not take advantage of tax breaks now to better your operation down the road.  If I've got my equipment in place when this day occurs, would that not free up cash to possibly expand my operation with acres owned versus acres rented?