The quick write off or accelerated depreciation

[idalivered]

BA, Fantastic explanation of sec. 179 and taxes. Sure I use it , but mostly on things I paid cash for. Many of the guys I talk to , are so caught up in NOT paying taxes that they limit financial progress. I have had times when i didn't pay taxes. That was not  much fun.

[BA Deere]

Thank you Ida, say is the bloom coming off the rose with these land prices?  By your brother, there was admittedly not a high CRS farm that went begging for about $3300.  And one parcel by the bowling alley, that wasn`t all that bad brought $5000, with just 1 bid! no contenders.  i`ve also heard of "no sales" in the area.

So much for any piece of Iowa ground that`ll hold up a plant of corn being worth at least $6000.

[idalivered]

the press likes to report land values that a re alway reported from Iowa realtors. I'd guess they have big interest in reporting and keeping farmland values high. Also, a "no sale" does not get reported so , consequently, has no bearing on the average. I have to call bryon and ask.

[Kay/NC]

Thank you for the professional explanation of what I was trying yo say. I think that too often, people see themselves as some sort of beneficiary of a policy, when in truth, they are simply the means to the rnd, which really benefits someone else. I had always understood accelerated depreciation - as well as the " investment tax credit" farmers enjoyed decads ago -to be simply economic stimuli, engaged for the benefit of equipment manufacturers, for the most part.

[kraft-t]

I don't know the value of postponed taxation in this era of low interest rates, but in previous times postponement meant profits to the taxpayer in that that the postponed payment would earn a fair amount of interest.

Like the postponement of taxation in a land bequest from parent A to heir B. Like My $875 acre being worth $10K on my demise with the gains untaxed upon my death..One farm 1,095,000 nontaxed capital gains and that doesn't include the others.

And those acres may well get anew basis level at that time.

[farawayguy]

Yes, good explanation of normal depreciation matching up deductions with income, that's the tax theory of accrual accounting. But there's also an equally valid theory (in my opinion) called cash accounting and farmers use that when it suits their needs, if allowed under the law. Holding our grain sales back until the following year, is a total violation of accrual accounting, since the expenses are still taken the previous year. If some of you think Sec 179 is a violation of good accounting rules, then I think to be consistent, you should also oppose tax laws allowing this practice. 

[James22]

Agree, but it keeps manufacturers pumping out machines thereby supporting the unions.  Also has helped the building industry.  Huge loss is to small or beginning farmers; this extravagance coupled with the "can't lose crop insurance" is enabling larger operators to gain additional competitive advantage.   In my opinion nearly as devastating to the "have not's" as the record setting farm real estate values.   Farmer's are "double dippers" by receiving incentivies provided to other industries such as the accelerated depreciation and also frequently benefit from government largess when things go awry.   The GM bailout qualifies as government largess but is atypical and only occured because it was so large and envolved so many union employees (voters)..

[Kay/NC]

When you scratch heavy and farm equipment operators, you do hit union workers. That pacification is a Democrat's bread and butter, while keeping the corporate heads happy is the Republican's duty.

What I cannot figure out is whether these stimuli are starting to peter put because the economy is a actually improving in some small but glimmering hopeful way, or if there jig is simply up. When you sit with savings doing nothing, or adjusted for inflation less-than-nothing,for the better part of a decade, it is discouraging for conservative financial types like myself.

[smokeyjay]

I did not say it was a violation of good accounting rules in my post.  However, you may notice that the 179 deduction is available to both cash and accrual accounting methods when reporting for taxes to the IRS.

That said, if anyone really wants to get a true picture of profitability, they would use an accrual method for management purposes to actually guage profit margins.

[kraft-t]

Struggle with tryng to convince the banker that you are profitable and convince the Irs that you are not profitable at the same time.

Accrual accounting methods give a truer picture of profitablitity if you are honest in establishing values to unsold inventory. I have no personal experience with the accrual method but I have known some one that fudged the numbers quite a bit to "income average".

Cash accounting also requires an honest evalution of inventory as well to assure that you know if your business is sustainable.  Some folks might pose a rosey scenario for the lender but may well be lying to themselves. If you're gonna use bogus numbers you shouldn't make decisions based on those numbers.

It is time well spent to due a financial statement annually even if you don't need to borrow money. That is the only way to know if you are moving forward or backwards financially.