I was in Walla Walla, Washington with my cousins yesterday.  I helped them move their Case 4 Wheel Tractor and Case IH 2388 combine to get ready for wheat harvest.

After doing that, we went to take a look at the green pea harvest that is just about to finish in the Walla Walla valley.  I will be adding some farm videos and pictures to the site as I take them.  They are located in the page at the top under Farm Videos and Pictures.

To skip going to the page for now, here is the video that I posted from the green pea harvest yesterday.

As a tax advisor, I would normally tell my farm clients to always do a like-kind exchange on their farm equipment.  This would normally result in trading-in an older piece of equipment for a newer one of higher value to defer the tax on the old farm equipment.

However, for 2009, there are many cases where this may not be a good idea.  The recent tax law extended the Section 179 deduction for equipment to $125,000 for 2009.  Therefore, if your total equipment purchases for 2009 will be less than $125,000, I would suggest making sure that non of your equipment that you want to trade in qualifies for the like-kind exchange rules and thus, they will be taxable sales.

Most farmers are probably asking why would we ever want to report a gain-on-sale by selling equipment.  The reason is that the gain on sale from selling equipment is not subject to self-employment taxes and the Section 179 deduction on your farm equipment will reduce your self-employment taxes.  Thus, reporting gain on sale of equipment can result in a tax savings of about 15% on the sale of your equipment.

As an example, say you have an old combine worth $50,000 that you have depreciated to zero.  You want to buy a newer combine for $125,000.  If you traded in this combine, you would be able to take section 179 on the net difference of $75,000.  This would reduce your taxable and self-employment income by $75,000.  However, if you sell the combine for $50,000, you would report a gain of $50,000 which is not subject to self-employment tax and you would be able to deduct the entire combine purchase price of $125,000 which would reduce your self-employment income.  The net result is a potential tax savings of about $11,000 under this scenario.  This assumes you are not over the taxable wage base.

If you have equipment needs this year, please review them with your tax advisor to make sure you take advantage of these rules if they apply to you.

Many are calling the USDA Planted Acreage Report that came out this week “Bloody Tuesday” since the amount of corn acreage planted this year was much higher than what the trade was expecting. 

Even though there was a large amount of rain early in the Eastern Corn Belt, three of the Western Corn Belt states, Iowa, Missouri and Nebraska raised their production by 1.3 million acres to more than offset this.  In all, the planted acreage exceeded the March intentions by about 2.049 million acres.  That was a surprise to many, given the volume of delayed plantings from Ohio to Missouri.  But we know how well farmers can plant crops when mother nature cooperates and this report reflects that for corn.

Unless there is some type of weather scare, it would be my opinion that corn prices have put in their high for the year and may be headed down under the $3 per bushel range.

I hope that most of the farmers that read this site, have locked in much of their 2009 corn farm production near the $4 per bushel range.  Their have been many days when you could have done this and at $4 corn, you can certainly make money.

If you have not locked it in, you need to review your budget and find out how this effects your 2009 bottom line and respond accordingly.

My partner Scot and I have a 1031 exchange company that handles many tax-deferred exchanges each year.  About this time of year I like to remind our clients that they may be able to sell their land or real estate for cash, yet defer paying the tax on the sale until 2011.

Here is how it works.

1.  Starting around July 4 or each year, you can sell your land for cash to a buyer.  You enter into a tax defer exchange agreement with a qualified company.  The money from the land sale will be parked at this company.

2.  You have up to 45 days to identify your property.  By this date, make sure to identify at least one or two properties that you would like to buy.

3.  After the 45 day date, you have an additional 135 days to purchase this identified property.  This adds up to a total of 180 days.  If you close the sale after about July 3, this 180 date will be in early 2010.

4.  If you are unable to purchase your replacement property, then the company holding your funds will refund it to you.

Under this scenario, this qualifies for an instalment sale treat.  This means that the case you receive in 2010 will be reported on your 2010 tax return and the tax will be owed either March 1, 2011 or April 15, 2011.

If you had a lot of debt paid off at the time of sale, this may not result in much of a tax reduction since that is considered paid off in 2009.

I will update you over the next several months on other ways to save money with tax deferred exchanges.