2012 Taxes

[Shaggy98]

I had my initial visit with my CPA on Friday and all I can say is OUCH.  I am fortunate that my wife as well as myself have excellent off the farm income, but couple that with the farm income now that I have taken over all the family owned acres and it really pushes us way up the tax bracket scale.  Is this a year that I should take advantage of the whole section 179 and update some equipment or should I just pay the 5 figure tax bill and go on.  If memory serves me correct, section 179 is at $139,000 for 2012, but unless something changes, that would fall to $25,000 in 2013.  I have already got most of my 2013 inputs contracted and paid for, should I go ahead and prepay for 100% of my 2013 inputs?  I currently run a debt free farm which includes real estate and equipment, but I would rather update some equipment and take advantage of tax breaks vs. pay all the money to the Gov.  What to do, what to do?

[Jim Meade / Iowa City]

In my opinion, you should make a decision that looks to the future, not just this year.  If you push taxes too far out, you just defer the day of reckoning and pehaps make it worse.

It would seem to me your CPA should be able to talk with you about the implications of continuing to defer.  One of the things I'd think you want to avoid is deferring taxes one year and then finding yourself with a lot of income in a higher bracket next year.  In other words, don't leave a lot of room in this year's 15% bracket and then have a lot in the 25% bracket next.

I'm having the same issues of tax decisions.  There are some creative ways to push it around but around but sometimes I wonder if it's worth the effort.

[Shaggy98]

Good point Jim, I am considering reporting all income on 2012 and updating my tractor.  My current Magnum lacks the hydraulic output to operate a central fill planter and also an air seeder.  I have always told myself I wanted to keep pace with technology, if I don't get on the wagon soon I will be way behind.

[mike se il]

Be careful spending $100 to save $25.  If you can pay cash for it write it off in one year.  But if you are buying with a loan try making the payments and depreciation schedule to match.

[kraft-t]

Make the decision based on economic sense rather than the tax code.  Paying taxes is a measure of your success. Tax avoidance is not the wisest optionin all circumstances.

However, if you have need for updating equipment to improve efficiency, then by all means buy the equipment and exercise the privilige offered to you by the taxcode.. Some folks use tax avoidance as the only legitimate reason to buy equipment. I question th elogic behind that..

PS I like cash in my bank account and thenonly way  can get it there is by paying the taxes due.

[Shaggy98]

You lost me when you said tax avoidance.  I don't see how updating equipment classifies as tax avoidance whether you need the equipment or not.  Tax avoidance is a scenario where a law has been broken.  IMO  I can have a whole shed full of unused equipment and if it was bought legally to take advantage of tax codes, you are saying that is tax avoidance?

PS.  I've got cash in my bank account also, why not have some updated equipment in the shed as well?

[ECIN]

Dang Shaggy are you avoiding the Gov - here?? ---- lmao ! Boy I bet you have a 80 by 300 shed FULL of new Equimpent -- don't yeah ? with a lol How about a new grain set up ? they are pretty cool . Really here , I had my Meeting aout 2 weeks ago , fro some reason my plan this year --- worked ! pretty good shape . But I worked on it all season too . My CPA said that I should drang anything I could to next year , like input's equipment anything , because of the new tax rules comeing .

[Shaggy98]

ECIN, now you've got me scratching my head.  I thought the section 179 was dropping to $25,000 next year.  That takes care of the equipment comment, why would putting all your inputs into 2013 also be an advantage?  Maybe I'm not understanding something correctly about the laws next year.

[clayton58]

Shaggy, so were on the same page,  doing something illegal to get out of paying taxes is evasion-illegal.  buying equipment you don't need, in order to get out of taxes is avoidance-  legal, but probably not a good idea.  But you've got a justification, and it sounds like the money, to update, so go for it.  Having said that, rates for 2013 are likely going to be higher, so you would want to be at the top of your tax bracket in 2012.  At least thats how I look at it.

[Shaggy98]

Thanks for the terminology clear up Clayton.  Sounds like I might need another visit with my CPA before years end.  I appreciate your comments.