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OKdon
Senior Contributor

About Taxes

When you appaud or honor tax avoidance, you are asking for a deficit increase. Cheering for Trump or Mitt or any other tax avoider is a misguided position. Government cannot be starved into submission. If you want lower taxes, then elect people that will do it. However, you first have to persuade a majority that your intent is wise and popular.

 

Republican tax cuts or tax incentives are nothing more than an attempt to starve the majority into submission. Cut the revenues to the government and government will be forced to cut spending. Twenty trillion in national debt is evidence that strategy is not working. In fact tax avoidance is a silly strategy if you wish to raise capital for investment. Go to a lender with a low income in your financial statement and see how that changes his attitude to lend you money. Not only are you short of down stroke money you are also short of debt retiring income.

 

Year after year of consistant income results makes you a better candidate for along term loan. Plus it enables you to accumulate after tax income that is available for real estate investment such as the 80 acres across the road.

 

I used to be where you are and think that tax avoidance was good for the health of my business. Many of us used tax savings to accumulate new or better equipment, whether we needed it or not. Going through thwe age depression of the eighties taught me that capital management is all important. And that means pay your bills and reduce your debt and that requires after tax income to do so. So pay some tax and use your after tax cash wisely. When times get tough your banker will nappreciate your prudence.

 

Besides paying taxes is a measure of your success. How well you are doing in your business. When you borrow money, consider that you must pay it off with after tax money. Perhaps that will curb your indulgent spending. Invest cash and borrowed money where it will increase income. That means investing in what you need and not what you "want"!  

 

 

 

 

 

 

 

 

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7 Replies
Jim Meade / Iowa City
Senior Advisor

Re: About Taxes

I'm not sure I understand your point.  You seem to be discussing farm finances, national government finances and tax policy.

 

I am at the stage where IRAs are no longer attractive.  At my age and income level, the situation is that I'll pay tax on the same income level whether I invest in an IRA or not.  For salary workers who expect a reduction in income after retirement that is not the case, of course.

 

Using tax strategies to buy a nice pickup than I could otherwise afford doesn't bother me.  It is a legal and legitimate tax deduction and the effect is to pay about 60% of the cost of the extra item on the pickup which I might use anyway.  The backup camera is as nice for hooking up a trailer as it is for parallel parking.

 

Tax management has helped me smooth out income levels in past years.  That has help me avoid borrowing money some years by the simple expedient of when I buy inputs and sell produce.

 

It seems to me that legal tax management is a tool that each sophisticated farmer should use wisely for his or her own benefit.  Whether it helps or hinders the federal government is the job of my representative to solve.  

 

 

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sw363535
Honored Advisor

Re: About Taxes

In light of however many trillion in debt our government is....  there is no point..... 

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sw363535
Honored Advisor

Re: About Taxes

For most of farming history there are good years and poor years......

 

Tax management means survival.

 

If farming were a steady income indeavor it might look different.  But it is not.

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OKdon
Senior Contributor

Re: About Taxes

A good argument for supportingself financing. Being prudent with income year after year lessen the risk of low income years. Debt serviceing becomes a particular problem during low income years. Pay off the debt and less risk of forclosure.

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sw363535
Honored Advisor

Re: About Taxes

Don 

Actually I have been amazed since taking the CPA exam 40 years ago, that the IRS and congress have seen fit to allow farmers to carry unsold inventory from year to year, allowing them to adjust income (and postpone tax liability into the future).

 

If you were required to declare production at an appraised value as of 12/31(or whatever the tax year date of the entity), it would have been devastating for many in years when they are healing up or paying off debt.  More grain farmers would have been destroyed by high grain prices than those destroyed by drought.

And those who feed their production would face double problems as they would loose market flexability and an large amount of cash flow.

 

Then consider the affect on markets as farmers are forced to cash in inventory for tax obligations at a time when they would normally be holding grain ------- just another market depressing factor....

 

We have lost farmers steady for 50 years, mostly to improving technology and consolidation.  If those "heal up" years were diverted to "government windfall" years, We would have been converted to corporate agriculture by 3 or 4 food giants 30 years ago.

 

There has to be a risk/reward factor to farming to allow the private individual or family farms to occasionally reap the payoff for lean years.  Otherwise there is no incentive to feed any more than my "hog".

 

I think the IRS is smart enough to figure out what happens when you make farmers pay excessively.

 

 

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WCMO
Senior Advisor

Re: About Taxes

I think you might be giving the IRS too much credit.

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sw363535
Honored Advisor

Re: About Taxes

I dont want them looking for me.  At least not before the WH decides...

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