Year End Tax Planning

This year has proven to be quite a ride with tough spring conditions and delayed planting that resulted in a late harvest for many farmers. As we approach the end of 2019, the focus is now on year-end tax planning and managing income tax liability. Like any year, equipment needs continue to be an avenue to reduce this liability through the tax advantages offered by depreciation and leasing.

2019 DEPRECIATION INFO:

**2019 FEDERAL Tax Law Depreciation Limits**
Section 179 - $1,020,000 (dollar for dollar phase out starting at $2,550,000 in purchases)
 Bonus Deprecation - 100% on new and used equipment

**Remember 2018 tax law change on “traded assets”. Any equipment trades (personal property) must be treated as a sale and purchase on Federal side (trade-ins consider income) **

EXAMPLE:  If you trade in a tractor with a value of $80,000 and paid a $120,000 trade difference (boot price), you will report the trade as a sale of $80,000 and recognize any taxable gain (trade-value minus tax basis).  Then you will report the purchase of the new tractor at $200,000.

**2019 STATE Depreciation Limits**
State limits vary by state, some states have “coupled” with the Federal Laws discussed above.
Some states like Iowa have not.

2019 STATE OF IOWA Depreciation Limits
 Section 179 - $100,000 (dollar for dollar phase out starting at $400,000)
NO Bonus Deprecation


LEASING TAX ADVANTAGES

Leasing is often a forgotten option that can benefit a producer from a tax perspective.  A properly structured lease can allow a producer to deduct lease payments vs taking depreciation on an asset and giving customers a year over year consistent deduction.  Lease structures can also be set up to help you from a cash flow perspective (low payments / higher residual) or from an accelerated write-off perspective (larger payments / lower residual).

EXAMPLE: LATE MODEL USED TRACTOR

LEASING Advantage – Generational Transfer

Leasing can be advantageous for producers looking to transfer assets as they wind down their farming careers. Leased equipment can be easily transitioned to the next generation at the end of the lease term. The older generation originates the lease and makes all the payments, and then at the end of the lease, the younger generation makes the residual payment and the bill of sale is issued directly to the party making the residual payment.

Balloon Financing Options

With the tighter margins in row crop farming over the past few years, cash flow remains as a very important part of a farming operation.  As producers look to upgrade their equipment and take advantage of the current tax laws around depreciation but also remain focused on the cash flow needs of their operation, balloon financing is an attractive financing option for producers to consider. 

EXAMPLE:  USED COMBINE

Along with a great selection of NEW and USED equipment, AGRIVISION EQUIPMENT also has the financing/leasing resources available to help accommodate your end of year equipment buying/leasing needs. 

**Producers need to consult with their CPA/Accountant regarding how lease/finance options affect their tax situation**