WHAT A RELIEF: Tax extenders bill just needs president’s signature
December 22, 2014
Just in time for Christmas, Uncle Sam showed up with a gift for ag producers. The industry is just waiting for President Obama to tie a bow on it before the holidays.
In a last-minute move, both the senate and the house passed the tax extenders bill, which means more of the profits from that calf check can go back into the business, instead of the government coffers.
While the bill hasn't been signed by President Obama, he is expected to approve it before Christmas.
The bill passed the senate 76 to 16 Tuesday, Dec. 16. The same bill passed the house on Dec. 6, with a vote of 378 to 46. Though there was some early speculation that Obama may veto the bill, with bipartisan support and a better than two-thirds majority in both the house and the senate, it's not likely.
The part of the bill that affects producers the most is the Section 179 deduction limit of $500,000 and the 50 percent bonus depreciation, said Sheila Jackson, a certified public accountant with Casey Peterson and Associates, in Rapid City. Before this passed, producers could plan on being able to write off only $25,000 worth of capital expenditures. That includes equipment and breeding livestock. For producers trying to replace cattle, that would cover about 10 head. This bill raised that ceiling to $500,000.
An additional 50 percent bonus depreciation applies to new equipment purchases.
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Ag producers, especially cattle producers who have seen record high prices in addition to large disaster relief payments this year, were facing unusually high tax liabilities.
Casey Peterson, CPA and owner of Casey Peterson and Associates, said this tax break will save some of his clients anywhere from $25,000 to several hundred thousand dollars in taxes. That money will instead help them build their businesses and fuel the local economy. "Sometimes I think they want the ag producers to do all the heavy lifting on the tax thing and the economy but they don't want to give us any benefits for holding the floor in it," said Dave Assman, owner and manager of Assman Implement in Mission, South Dakota,
The tax extenders are temporary tax breaks that have to be voted on periodically, most often every two years.
While the industry breathed a collective sigh of relief, it's going to be short-lived. The bill covers only 2014, so the battle starts all over again in 2015.
Assman said the uncertainty makes it difficult for producers to plan major expenditures, like replacing farm equipment. "They need to give our producers the tools they need to make long-term plans. It's no good to have this up and down. You can't make a good long range plan if your government doesn't cooperate with you," he said.
Bill Redman, who is in sales and advertising at Modern Farm Equipment in Gordon, Nebraska, is keeping his optimism in check until he hears President Obama has signed the bill. He said many of their major manufacturers are offering no payments, no interest on equipment until January of 2016 as an incentive for buyers, but with the short timeframe until the Dec. 31 deadline, they're limited to choosing from the stock on hand. According to http://www.section179.org, the equipment has to be financed or purchased and put into use by the end of the day on Dec. 31.
Many implement dealers have been building up their inventory, both in hopes of the passage of the bill, and in response to the high cattle prices. Mark Buchholz, owner of Kennedy Implement in Philip, South Dakota, said they have an inventory that will allow them to meet about any need, but "need" is the key term. "People aren't buying just to buy. Basically, for the most part, they're buying because they've had a need for many years. While they are buying things they need, they wouldn't be if the tax liability was too high, so this is spurring the economy."
He said most people who come in know what their tax liability is, and how much they can spend for that purchase to still make good economic sense. A couple hours with a tax preparer before the end of the year can help producers figure out how to balance the income and expenses.
Buchholz said they had a long list of customers who wanted to know when the Section 179 bill passed, so they've been making those phone calls since it passed the house at the beginning of December.
Most of the implement dealers have seen an increase in sales of new equipment this year. "We've seen a lot of guys pricing stuff and hoping this would go through," Assman said. He also said some of his customers leased equipment rather than buying it outright because of the tax uncertainty. "Now that they're pretty sure it will happen it will pick up the pace in the final days of the year." F