Income Tax Changes

Written by Michael Baron on . Posted in Taxes

Dear Michael:

We have heard there are going to be a lot of tax changes for the 2014 tax year. Are we still going to be able to use depreciation and Sec. 179 for our machinery and building purchases as we did before? What other tidbits are in the tax law for 2014 we should know about? – Three Months to Go

Dear Three Months: How fast the year flies by, doesn’t it? Wasn’t yesterday the 4th of July and the week before Memorial Day?

The new tax laws aren’t really new tax laws at all. It’s just all the juicy little things Congress added to the tax bill back in the early 2000’s – when our economy was not doing so well – to help stimulate the economy. All of these tax breaks and accelerated depreciation have just returned to their normal schedules – as far as we know! Remember Congress acting as late as December 15th – before they go on Christmas break – to act on tax legislation in year’s past so we never seem to know until the last second.

As we have it now, depreciation returns to normal depreciation of cost over a number of years as it was before. However, one little side note for these last three months of the year, is that if you buy more than forty percent of the year’s depreciable assets in the last quarter (or now) you would be subject to a different and less favorable mid-quarter convention.

Sec. 179 is where the big hurts start coming in for those replacing machinery or other capital expense items. These items have been deductible in the year of purchase to the tune of up to half a million dollars a few years ago to two hundred and fifty thousand last year, but now has been lowered to a measly twenty-five thousand dollars max deduction for 2014.

In other words, you could have repairs on machinery, or replacements for your combine heads that cost more than twenty-five thousand dollars, you’ll need to expense them over a few years instead of in this year.

Again, this has been one those items that has changed before year’s end – but the typical changes have occurred in April, May or June while people are still buying 179 items – not when it’s getting into September so I wouldn’t bet they’ll be changing this before year’s end to any great effect.

Of course, everyone all has new machinery now that’s been depreciated and with crop prices down, this lesser income will be a blessing in disguise as farmers and ranchers finally get a break from paying income tax on too much income. Believe it or not, I’d have some of my old-time clients who hate paying taxes so much they’d actually agree with this philosophy.

Last but not least is the redaction of the ‘bonus depreciation’ whereby you could deduct up to fifty percent of the cost of long-term assets – buildings, etc. up to one half million dollars – in the year of the purchase. Now gone. Also the fifteen-year depreciation schedule has been returned to thirty nine years again – and again – for now.

We don’t know if some or all or none of these tax benefits are going to be put back into 2014’s tax code. It does appear the intent is to lower tax benefits by a huge amount for 2014.

For those of you who can afford it, you can let your grain income ride into 2015 and hope there’s enough screams from the private sector to get the tax laws changed to a more favorable status next year – but there’s no guarantee they won’t be worse either although I don’t know what else you could lose.

We’ve got the new 2014 tax guide out and if you’d like to have a copy mailed out to you, let us know. It’s full of all kinds of tidbits and info on this year’s tax law. 

“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc. 
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917 
Telephone: 701-255-4079
Fax: 701-255-6106 
Toll Free: 1-800-373-4078

Michael Baron is not an attorney. Information given through written, verbal, or electronic means by Michael Baron or Great Plains Diversified Services, Inc. is not to be construed as legal advice. An attorney, tax advisor, or other registered advisor is needed for the completion of the estate planning process. An attorney must be consulted for legal advice and the drafting of legal documents.