FOLLOW UP: Tax Incentives for 2011

Since our post last week, Tax implication clock is ticking for farmers, we've received a lot of tax code questions. Below is an example how growers can save significant money on their tax bill.

As a reminder, The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 contains tax savings specific to the purchase of equipment that are set to be dramatically reduced at the end of the year:

• Through December 31, 2011, for new equipment purchases, 100% of the cost can be written off. This is actually 100% bonus deprecation and it is not capped or limited. In 2012, the program returns to 50% bonus depreciation.
• For used equipment, the section 179 (one time write off provisions) limits are $500,000, with phase out beginning at $2,000,000.

Example for New Equipment:

Cost of Equipment	$500,000
100% bonus depreciation (new only)	$500,000
Section 179 Deduction (new or used)
Normal 1st year depreciation
Total 1st year depreciation	$500,000
Cash savings on your equipment purchase (assumes 35% tax rate)	$175,000
Lowered cost of equipment after tax savings	$325,000

Example for Used Equipment:

Cost of Equipment	$500,000
100% Bonus Depreciation (new only)
Section 179 Deduction (new or used)	$500,000
Normal 1st year depreciation
Total 1st year depreciation	$500,000
Cash savings on your equipment purchase (assumes 35% tax rate)	$175,000
Lowered cost of equipment after tax savings	$325,000

So, on a $500,000 purchase, our government is essentially handing you back $175,000 in year 1, instead of spreading that amount over the depreciable life of the sprayer.  

Tax implication clock is ticking for farmers

(Photo from withholding-tax-refund.com)

For tax purposes, farmers are busy this time of year finalizing deals on new equipment due to the ability to write off specific capital purchases. Previsions in the federal tax code, such as Section 179, give farmers the choice to deduct either part or all of new assets placed in service this year.

Here is an article from the Dairy Herd Network on the importance of taking advantage of these tax incentives.

Farm Bill moves to 2012

There was hope the Super Committee would take care of the Farm Bill during negotiations this past month. However, nothing was addressed and talks will move into 2012.

Congress left on the table numerous funding cuts to Natural Resource Conservation Service programs. These NRCS programs help farmers protect, conserve and enhance their land.

Now the waiting game is on to see what action Congress will take. Below are two links to stories on the upcoming Farm Bill outlook for 2012.

AgWeb | Lawmakers Hopeful for a Farm Bill in 2012
Hoosier Ag Today | Farm Bill Negotiations moves to 2012

Federal Spending Cuts Loom for Agriculture

All eyes are on Congress to see if both houses can pass a stack of budget bills and an extension to keep the government running through mid-December. This week Congress is debating and voting on eminent funding cuts to numerous ag programs, including those tied to the Natural Resource Conservation Service or NRCS.

According to Cox Radio reporter Jamie Dupree, the current agreement provides $844 million to NRCS programs. That's a reduction of $45 million below the 2011 fiscal year level. In addition, the current agreement includes $828 million for conservation operations. This includes funding to help farmers conserve, protect and enhance their land. You can see the list of programs here.

More information can be found in this article.