tax advice for next year?

[Pack Rat]

I didn't make enough to last year to have a 'taxable income' , that is IF you exclude all the sales and excise taxes directly paid on nearly everything purchased, as well as all the corporate taxes factored into the cost of products. (Neither Big Oil nor wallyworld nor Mom&PopShop really pay income or property taxes - to stay in business, those costs are passed on to the customer: you and me).

I did look at Pub 225 (the guide for farmers) somewhat extensively, and was amazed at how clear and concise it was... I can now see that once you have figured what applies and what doesn't, it might be a bit easier next year. Kinda makes me wonder about the business of farming, when about half the lines are related to some sort of government payments, be that subsidy payments, crop insurance payments, conservation payments, etc. I can now see how my tax dollars are needed, just to fund other farmers getting payments.

I'm sorta with Erin - if at all possible I'd rather do my tax returns myself, for most of the same reasons. But the big thing, it's easier to come up with the time to do it myself than it is to come up with the cash to pay someone else. Of course, by not paying an accountant or buying tax software with a credit card, then I'm not contributing to growing the economy - passing the cost of things wanted and already unaffordable today, plus interest, to some indefinite future date, when the total cost will be even more unaffordable...

I'm so glad to be a simple farmer, who just doesn't understanding these complicated economic things. I don't know how I'd deal with selling eggs I don't have, or corn I haven't planted. With interest, I'd have to have hens that laid 4 eggs a day eating sawdust, and corn pushing 400 bu/A on salt water irrigated desert sand.


So here's the question: How closely do you plan your income and expenses for next year, to have no tax due? How do you do it?

Thanks

[Taylor R.]

We don't. I'd rather owe a little to my state than give them an interest free loan all year by paying in too much. It's a fine line that we've tried to walk in the past to no avail, so we don't. We just pay them every April.

[Twobottom]

The best and simplest way to profit is to produce goods for your direct consumption. 'Profit' and 'income' are two very different things.

[rambler]

If you reflect upon your message, it is a bit insulting.

Back in the 1960s and 1980s 2 presidents embargoed, or shut down, sales of grains to foreign markets. Since 1/3 or more of our grain gets exported, this instantly led to a huge pile of grain sitting here in the USA, and dropped our crop prices by 50%. Would you like to wake up one morning and have the govt pass a law that your salary was cut in half for the foreseeable future?

The domino effect was that small towns and most of the heartland was thrown into deep ecconomic chaos and depression.

Not because farmers did anything wrong, or were greedy, but because politics totally unrelated to farming plunged them into the worst ecconomic hardship since the Great Depression.

Several govt programs, at some taxpayer cost, were tried to 'help' farmers and Midwestern communities out of the mess that the govt created.

Most of them were typical govt messes, and added more to the problem rather than helping. They tried buying extra grain from farmers, but that only led to more and more grain sitting around and so prices got worse and worse, much below the cost of producing those grains. However, farmers were stuck producing more and more of those same grains to meet the govt programs to get the govt payments so they got a paycheck so they didnt lose their farm. It was a stupid game and poorly set up and it locked farmers into making things worse because not doing so meant you have no market and no govt support and were bankrupt instantly.

Here we are 30 years later and we still have leftovers from that mess.

However, the govt no longer pays anyone not to grow a crop. That was a very short lived program in the 1980s I believe. It actually was a helpful program, along with the drought of 1987-88 it got rid of that artificial pile of grain the govt created with the stupid programs they first had.

These past programs, and the current ones, are as much a bane to farmers as they are to you, but we are stuck with them. Us farmers, big and small, are just along for the ride. Governments found many centuries ago that controlling food costs and supplies is a wonderful political tool, and there is no way, no how, we will ever be free of such political games and programs. As in the 1960s and 1980s, we are but one signature away from the govt totally wrecking our farm prices for decades........

Both the hobby gardener and the 45,000 acre crop farmer are just tools in this game for the government neither has any control over it, both nust work with and around the foolishness.

It would be nice of you put the blame for these programs where it belonged?

Now, as to tax planning, that is a 365 a day job. I am planning what will be going on in 2015 already, as I work with my purchases and sales for 2014, and have only really ended my planning for 2013 a week ago with an Ira decision....

With business assets being depreciated for 1, 5, and 20 years, and a person able to sell some ag products for 2014 back on 2013, now during 2014, and at least carried into 2015....

I will plan for about a 3 year period looking ahead.

My plan is mostly carried in my head, and is not at all formal. If I need a tractor, I will consider when my income will be, if it benefits me to sell stuff now buy tractor now, or wait with either one or both for next January, etc.

It is a never ending balance of my hoped for crop yields, crop costs, crop incomes; and machinery needs, fertilizer needs, seed needs, fuel needs, pest control needs, building needs.

All the time, one has to consider if it looks like crops prices are going to go up or down in the next 3 years, if machinery or fuel or fertilizer will go up or down.

It is a very intricate dance of all those different things, and takes a lot of experience to get good enough at it to know how often you will guess wrong but hope to be above average at it.

None of this really matters tho, if you are not a good business and are profitable. You cannot spend yourself into wealth, nor can you really get out of ever paying taxes. Nor will the govt ever pay you enough to live off heir supports.

Many times we are just shifting taxes off into the future, as the govt reclaims taxes when you sell your equipment when you retire, or takes it as an estate tax when you die, and so forth.

It is not as big a deal as some think, no one escapes taxes, but with some planning you can avoid them for a short time.

Farmers often live very cash poor, but die with many assets. We don't pay as much income taxes, but we pay heavily in social security, Capitol gains, and estate taxes as well as real estate taxes.

Without careful planning, you get to pay even more taxes than the average wage earner....

It is a game the govt created, don't get jealous of those who play that game as your message seems to imply; learn how to play the game better yourself, as the govt will always be there trying to outplay all of us.

Paul

[West5757]

I have recently bought a farm and after paying taxes this year I have kept a close eye on the money spent on the farm. I was reading through this post and I read this....

Rambler said... "However, the govt no longer pays anyone not to grow a crop. That was a very short lived program in the 1980s I believe."

I don't know how this applies but my dad receives a payment to have his farmland in the CRP program. He is basically paid to not raise crops or livestock on the portion of the farm he has in the program. It was created, I believe, to help with watershed waters polluting the groundwater. I'm not sure where, how or when the results will be presented in a tangible manner but he is being paid to do nothing with the land.

[FarmerDavid]

Sell crops before or after the first of the year depending in tax situation. Buy
Equipment a or inputs at year end if need be. Equipment can currently be expensed or depreciated depending on needs. It can be managed. The bad thug is that it usually catches up to you in a down year. You don't have the income to make these purchases for deductions but enough sales to put you in a higher tax bracket. Usually I try to manage it to get myself in a lower tax bracket as opposed to eliminate paying taxes. Use to try to purchase enough to eliminate federal income tax but that cought up to me and I had alot of payments on equipment I'd already expensed and the inly tax relief was interest on the loans. That made for a tough tax year.

[FarmerDavid]

Originally Posted by West5757

I have recently bought a farm and after paying taxes this year I have kept a close eye on the money spent on the farm. I was reading through this post and I read this....

Rambler said... "However, the govt no longer pays anyone not to grow a crop. That was a very short lived program in the 1980s I believe."

I don't know how this applies but my dad receives a payment to have his farmland in the CRP program. He is basically paid to not raise crops or livestock on the portion of the farm he has in the program. It was created, I believe, to help with watershed waters polluting the groundwater. I'm not sure where, how or when the results will be presented in a tangible manner but he is being paid to do nothing with the land.

Set aside was the program in the 80's. you were only allowed to farm a certain % of your farm ground and be eligible for gov payments they then paid you for the set aside acres.

CRP is the conservation reserve program. Highly erodible land could be put into CRP as a resource conservation method and the gov would pay you. It was done in ten yr increments. I believe it started in the 80's. many older farmers simply went into retirement by putting their acres into CRP. I'm not sure if they are still allowing enrollment into CRP but alot of it hasn't gone back in when the term was up. Some of it I don't know how it got in the program we lost 500 acres that we rented when the owner could make more off CRP. There was made a 2 acre corner, that's wasn't farmed anyway, that was highly eridable but the rest was good farm ground.

[rambler]

Originally Posted by West5757

I have recently bought a farm and after paying taxes this year I have kept a close eye on the money spent on the farm. I was reading through this post and I read this....

Rambler said... "However, the govt no longer pays anyone not to grow a crop. That was a very short lived program in the 1980s I believe."

I don't know how this applies but my dad receives a payment to have his farmland in the CRP program. He is basically paid to not raise crops or livestock on the portion of the farm he has in the program. It was created, I believe, to help with watershed waters polluting the groundwater. I'm not sure where, how or when the results will be presented in a tangible manner but he is being paid to do nothing with the land.

You need to raise a 'crop' tho - the govt decided to rent that land from farmers, it tends to be poorer ground and you are required to plant special native habitat type grasses and mix, and you need to keep weeds out of it.

So you have expenses, and seed to plant, and it is a wildlife/ habitat program.

I see it quite differently than the old set aside program?

Paul

[Pack Rat]

Rambler, no offense was intended to those attempting to make a living growing and raising the food we eat. As you said, it was the government that set off the crashes of the commodity grain markets. In the realm of the political, nothing happens by accident.

If you or I could have been flies on the wall in the halls of Congress, we would have seen who actually wrote the farm commodity and conservation laws, and we would know who they were intended to benefit most heavily, and it wasn't for the good of the ordinary farmer. Not that they don't help out many, but it's a double edged sword, and some are fleecing the taxpayer because it was designed to be that way.

I see it like raising chickens and leaving the coop door open that they can get out to eat grass and bugs and worms - it's good for the chickens, but the sparrows are having a feast on my dime, and I'm always putting out more rodent bait. Wherever there's a 'free lunch' to help the productive ones (the chickens), there will be abusers to game it for their own gain and give back only destruction (mice, rats, and english sparrows that displace bluebirds). That's the part that galls me a bit: I'd rather be the one who decides to help my neighbor as I can and as he needs, rather than pay under threat, for two dozen middle men to administer who gets the 30 cents left of every dollar I'd freely give to Rambler or Farmer David if his crop failed. But then we'd have dozens of unemployed paper shufflers (rats and mice).

And yes, I know about being asset rich and cash poor. Because I was underemployed and cash poor, I lost about 40K in assets in the recession. I also understand the inheritance tax dilemma for big operations. That won't be a problem for me, because not only do I not have anyone to take over this swamp when I'm gone, but with only a few acres and using equipment mostly pulled from hedgerows, it would take a helluva lot of inflation to make a 60K property and a few tons of scrap iron worth over a million when it all goes to auction.

It isn't that I don't appreciate the intention of a lot of things the government does, but I think I am a better judge and manager of where my money should go to help those in need, thus I want to figure out how best to limit what gets extorted that I have enough left to take care of my own needs first, and the needs of my deserving neighbors next.

[Use Less]

I don't care if I have to pay in on tax day. If I could, I'd delay paying the whole shot until then, but doing that prompts penalties. For a few years I have been able to itemize in alternate years, by paying a few things in January and then December of the same calendar year (the following year's amount). I also double up contributions to groups, and make a point of scheduling closet cleanings to make an early and a late drop-off. If you are a small-time farmer, you can look into declaring a small business rather than try to walk through the complicated form for (big) farms, most items of which have nothing relevant to a small operation.

[maddy]

(Neither Big Oil nor wallyworld nor Mom&PopShop really pay income or property taxes - to stay in business, those costs are passed on to the customer: you and me).

Not true. When salaries don't keep up with increases in the prices of goods, the typical result is margin compression--i.e., the seller's profits get squeezed. Businesses in this area, whether large or small, are struggling to stay in business precisely because they cannot pass on their escalating costs.

[Twobottom]

Originally Posted by maddy

(Neither Big Oil nor wallyworld nor Mom&PopShop really pay income or property taxes - to stay in business, those costs are passed on to the customer: you and me).

Not true. When salaries don't keep up with increases in the prices of goods, the typical result is margin compression--i.e., the seller's profits get squeezed. Businesses in this area, whether large or small, are struggling to stay in business precisely because they cannot pass on their escalating costs.

Yes but to counter act that deflationary effect governments print money ( inflation ), that money gets pushed into the stock market which raises the stock of Walmart and other publicly traded large companies despite poor earnings. This provides them with a well needed ( though temporary and unsustainable ) liquidity injection and keeps them afloat while mom&pop go down the toilet.

[West5757]

Rambler,

You are correct...there is still a crop being raised and it does involve expenses to the farmer. I was looking at it in a different way but you are right. I never took into account that there was a cost involved in seeding, spraying and cutting with the CRP set up. It is essentially a "crop" of native grasses.

[rambler]

Originally Posted by West5757

Rambler,

You are correct...there is still a crop being raised and it does involve expenses to the farmer. I was looking at it in a different way but you are right. I never took into account that there was a cost involved in seeding, spraying and cutting with the CRP set up. It is essentially a "crop" of native grasses.

It is a govt program and it does benefit landowners, and it does remove (poorer) land from production so you have a point too, it does affect farmers incomes and it does cost taxpayers.

But its a little different than the old 'only involves farmers and don't grow anything' programs of the 70s. A lot of outdoorsy, hunters, and environmental folks like the program so it has so e broader uses and support.

Paul

[Pack Rat]

off topic

Originally Posted by maddy

(quote from Pack Rat) (Neither Big Oil nor wallyworld nor Mom&PopShop really pay income or property taxes - to stay in business, those costs are passed on to the customer: you and me). (/quote)

Not true. When salaries don't keep up with increases in the prices of goods, the typical result is margin compression--i.e., the seller's profits get squeezed. Businesses in this area, whether large or small, are struggling to stay in business precisely because they cannot pass on their escalating costs.

Yes, true. Those who can no longer afford to pass along "the cost of doing business", go out of business, especially when customers are getting squeezed with higher costs of living (and taxation) and stagnant or declining wages. It's getting to the point that few can afford to shop anywhere but the cheapest place for their needs and wants. Any place with a higher base cost is virtually doomed, eventually putting more people out of what used to be decently paying work. This creates greater demand on public services, which raises taxes again, which increases business overhead, which eventually puts more people out of work... I'm not sure where it stops, but I decided I'd rather work my butt off for next to nothing doing farming to at least provide some of my own food, than become a public leach.

I agree that taxation overhead is squeezing margins to the point of sinking many small businesses, and as TwoBottom said, it's only the flurry of paper from the fed that is providing the appearance of health in publicly traded corporations.

I read somewhere a while back that cutbacks in the food stamp program due to the lack of a farm bill cost WM about 6billion in sales. If you extrapolate any further cut or restriction to public assistance (including the end of extended unemployment) to their stock price, and we may have another "too big to fail" bailout. Who else will be left to sell groceries to every neighborhood in america?

[rambler]

We need to continually work around and with and through govt and business to keep our little parts of the world comfortable for ourselves.

You have some good questions here Pack Rat, we all need to work our way through the maze as best we can.

Paul

[Pack Rat]

Originally Posted by Use Less

... For a few years I have been able to itemize in alternate years, by paying a few things in January and then December of the same calendar year (the following year's amount). I also double up contributions to groups, and make a point of scheduling closet cleanings to make an early and a late drop-off.

If you are a small-time farmer, you can look into declaring a small business rather than try to walk through the complicated form for (big) farms, most items of which have nothing relevant to a small operation.

You mean a small farmer could file a schedule C instead of an F? What is the break point? What would be the advantage, either way?

I understand the year end contributions, and if I had any extra that would have been taxed, I would much rather have given to any number of good causes, like the local soup kitchen. I already pass surplus production their way when I have it and can't make timely use of it myself.

[kimberlyg]

And yes, I know about being asset rich and cash poor. Because I was underemployed and cash poor, I lost about 40K in assets in the recession. I also understand the inheritance tax dilemma for big operations. [/QUOTE]

One option is to make use of tax free gifts. You can give an individual 14,000 dollars a year. That amount doubles for married couples to 28,000. This may or may not apply to you specifically but is, in general, a great way to reduce the size and value of your estate. We are researching these options as a way of avoiding inheritance tax. Just thought I'd throw that out there.

[grandma12703]

Originally Posted by rambler

You need to raise a 'crop' tho - the govt decided to rent that land from farmers, it tends to be poorer ground and you are required to plant special native habitat type grasses and mix, and you need to keep weeds out of it.

So you have expenses, and seed to plant, and it is a wildlife/ habitat program.

I see it quite differently than the old set aside program?

Paul

A lot of the ground was just required to let go back to grass. No planting or spraying or etc. I am not going to say I am 100% sure but I am going to check with some friends. There were a lot of folks where we came from that put their wheat ground into the CRP program.

[grandma12703]

the CRP usually works like this: You own the land but the part of it covered by CRP is restricted as to what you can do with it. Usually you can not build on it and you may not farm or graze it during the length of the program. You may be able to look at it once in awhile.
You are still the owner of the land, but aside from some limited "forest management" there's usually not a whole lot that can be done with it. You can get an annual stipend, a one time cash payment.
A lot of erosion of land was taking place where we came from due to over use of the land. I believe this was also put into place to help stop some of this.