1-3 NWR Tax season

1-3 NWR Tax season

David Sparks Ph.D.
David Sparks Ph.D.
This is your Northwest report for Tuesday, January 3, I'm David Sparks and the 2017 tax season is coming up quickly meaning it's time for farmers to start getting ready. Jan Shaffner is a Senior Tax Consultant with Badgerland Financial in Wisconsin, and she says the 179 code that just became permanent is a good place to start.  "as of 2015, the Pass Act made it permanent up to $500,000 if the total purchases are $2 million or less. That gives us a very solid number two year-by-year plan now, knowing what the right off could be next year". She says any purchases need to be made by the end of the current year. "You have to make sure that the machine or the equipment or the cattle are on the farm in-service. We cannot have a deposit made on the tractor and we are going to bring it on the farm in January because it is not technically in service. We want to be sure that the equipment is able to be used, the building is operational, but we have to be sure that it is ready to go before we start depreciating anything on it."

 

The ability to depreciate the cost of machinery up front can be helpful for farmers, but she says it can also be a bad thing as well. "It can also be a hindrance. As the saying goes, depreciation is not tax avoidance, it is tax deferral. So if we are taking too much depreciation in accelerative form, where we are writing off the equipment every year that we purchase it, we are not allowing it to go over that seven years."

 

There are standard years of deduction for agriculture equipment, but the option is available to extend those years to help offset expected lower incomes. 

Another thing for farmers to consider is putting money into a retirement account to help defer some taxes. She says farmers can find retirement accounts on the market that are similar to what a W-2 employee would be eligible for through an employer.

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