15 ms·
I have family that farms in Iowa and I also worked in the agriculture industry there for a while after leaving the military. One thing that increases the stres
by gonzoflip 9y ago
I have family that farms in Iowa and I also worked in the agriculture industry there for a while after leaving the military. One thing that increases the stress on the farmers is the way they avoid income taxes at all costs so they rarely save any of the profits from good years to help them float during the bad years. This is all anecdotal but I have personally talked with several farmers that would rather buy new equipment they say do not even need than pay the taxes to take the money as income. This mindset causes them to experience a huge amount of stress every season. The farmers would talk about struggling, but have a brand new semi-tractor sitting in a barn unused 10 months out of the year.
- halestock 9y agoIs this for philosophical reasons about taxes and government? Or is it just a big chunk of money they're trying to save?
- gonzoflip 9y agoI think both, but is it really saving money if you personally are unable to buy food after a bad season?
- rtx 9y agoGovernments need to subsidies farming even more. In India farmers generally don't have to pay income taxes.
- RamenJunkie_ 9y agoIf it's philosophical then it doesn't matter, it's just short sighted. They just see it as "The government taking my money" vs "at least I own this semi, even if it's useless it's mine"
- ambicapter 9y agoWhat? They're unable to buy food after a bad season because of their stupid tax avoidance schemes, not in spite of it.
- pc86 9y agoI think if anything it can be traced to a fundamental misunderstanding about how fractions work (and less glibly, basic personal finance). Choosing to spend $150,000 on things you objectively do not need in order to not have to write a $30,000 check to the IRS and put $120,000 in the bank for next year is not a rational decision for all but the most extreme anti-government/anti-tax ideologies. It's the very definition of cutting off your nose to spite your face.
- ravingraven 9y agoI agree with you that such a strategy is not optimal but it is not quite how you describe it to be. In the mind of the farmer: * $150,000 tractor: something that has value (not easy to calculate, but a $150k tractor has a value above zero, even if not brand new) and utility. * $30,000 to the IRS: money that I will never see again. Literally thrown away money. Option number 1 is very tempting.
- gonzoflip 9y agoI think one of the issues is the farmers are conflating their incorporated farm's assets with their own.
- DannyB2 9y agoI wonder how they see taxes as thrown away? Yes, government is inefficient. And corrupt. But you do need roads. And bridges. And law enforcement. And even military protection, even if it seems far away and remote from your farm.
- clay_to_n 9y agoBut those things were all there back when this hypothetical farmer wasn't making any money. Tragedy of the commons, perhaps.
- Cuuugi 9y agoOne common feeling (i am from a farming community in Canada) is that tax revenue tends to get siphoned to urban areas. Politicians focus on bigger voting blocks, while rural communities (in their mind) pay for those promises.
- gozur88 9y agoNot many people will deliberately throw away money just to avoid taxes that would have been cheaper. Farmers aren't stupid. They're doing what makes them the most money in the long run.
- toomuchtodo 9y ago> The farmers would talk about struggling, but have a brand new semi-tractor sitting in a barn unused 10 months out of the year. Your business having a illiquid depreciating asset that is required for the business to function can still be struggling. You can't eat a combine, you can't trade it away. This is usually solved with coops owning the equipment and time sharing it to distribute the costs among the coop participants. Farmers are indentured servants to the commodities markets, the land owner's they rent their land from, and John Deere.
- gonzoflip 9y agoI am not talking about a combine, I can understand the need for having your own combine during harvest. I am talking about a brand new fully optioned Peterbilt Semi-tractor, or buying a new pickup each year.
- bluGill 9y agoHaving your own semi is very important during harvest: your combine will fill up in 15 minutes. That means every 15 minutes you need to unload it. 2 combines worth of grain is as much as your can haul in a semi (because of road weight restrictions). When the farmer is harvesting they don't want to stop: every delay is a chance that a storm latter will destroy the rest of the crop. Farmers often hard hauling to a elevator 20 minutes away where there is a 20 minute line to dump. As a result it isn't unusual for a farmer to need 2 semis for every combine. Now you can rent semis, but it isn't cheap. For a farmer the rental company will look at it as a semi that won't be rented for 10 months so they charge for it.
- toomuchtodo 9y agoTesla Semis owned by a coop would be killer for this use case, with charging facilities at the elevator. Very similar to the runs Tesla is going to use them for from their lithium evap pond partner in NV and the Gigafactory.
- 9y ago
- froindt 9y ago>One thing that increases the stress on the farmers is the way they avoid income taxes at all costs so they rarely save any of the profits from good years to help them float during the bad years. I'm from Iowa and a family member does lots of farm bankruptcies here. This is definitely a thing. Farmers buy new pickup trucks in lieu of showing a profit. Pair that in with land purchases at 7k+/acre and the saying "the neighbors land will never come up for sale again while I'm alive" and you've got a good mix for very high stress situations.
- mistermann 9y ago> 7k+/acre Assuming this is pure farm land (no premium for possible annexation or commercial development), is that not an absolutely batshit insane price? I'm no expert but that seems at least 4x what is reasonable.
- eric_b 9y agoThe 7k price would be for good land with quality soil and a high Corn Suitability Rating. But yes, 7k+ is certainly normal for Iowa. (The surrounding midwest states like MN, ND, IL and WI would be lower - in the 1-4k/acre price)
- kfcm 9y agoThere has been some land in Iowa which has still sold for $9-10K/acre this year. Very good CSR. But it's definitely not the norm anymore. $7-8.5k/acre seems to be the range.
- froindt 9y agoThat's land in the middle of nowhere. If you're near a city you can get a nice premium as the suburbs expand. 4x is a bit extreme (been a long time since it was that much). But it's expensive. In the middle of nowhere there have been quite a number of land sales with $10k+/acre in the past handful of years. Farmland prices have been kinda crazy over the last 5-10 years. As a quick example of some math: * Rent prices for farmland in Iowa [1] averaged $230/acre in 2016 * Yield per acre for corn is 203 in 2016 * Price per bushel averaged $9.27 [3] Throwing averages into the mix, $1,882 revenue per acre. Without any expenses, farmers could be looking at >5 year time to break even at a 10k purchase price as opposed. Tons of farmers are paper millionaires simply because of the land they own. 100 acres of 10k land gets you there. 640 acres is 1 square mile (much of the state is on a 1x1 mile grid of gravel roads). And of course I found most of the work already done after I found a bunch of sources. [4] has some more detailed numbers. [1] http://dreamdirt.com/blog/2017-iowa-farmland-cash-rent-rates/ http://dreamdirt.com/blog/2017-iowa-farmland-cash-rent-rates... [2] https://www.extension.iastate.edu/agdm/crops/pdf/a1-12.pdf https://www.extension.iastate.edu/agdm/crops/pdf/a1-12.pdf [3] https://www.extension.iastate.edu/agdm/crops/pdf/a2-11.pdf https://www.extension.iastate.edu/agdm/crops/pdf/a2-11.pdf [4] https://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf https://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf
- bsbechtel 9y agoThe same mindset exists in many small businesses that require regular asset purchases, especially manufacturing. I'm not sure farming is special in this regard.
- ringaroundthetx 9y ago> The farmers would talk about struggling, but have a brand new semi-tractor sitting in a barn unused 10 months out of the year. Don't you think that PERCEPTION is a horrible mindset? Less sympathy to people's stresses because they haven't lost their dignity. This applies to street beggars, immigrants, etc. The stuff I've heard are appalling. Formally middle class immigrants getting less empathy because they have cell phones. "Hey they should have sold the cell phone thats not a prerequisite to communication in 2017, their priorities are way too off for them to deserve any support" Back to the topic at hand, maybe thats part of the suicide!
- jaredandrews 9y ago> "Hey they should have sold the cell phone thats not a prerequisite to communication in 2017, their priorities are way too off for them to deserve any support" Not to get too off topic here but during my college years I worked at a grocery store. I found it unbelievable how many times I had to listen to a customer complain about the cell phone that the customer who was in front of them had. "I just don't understand how they can afford a cell phone if they are on food stamps!"[0] "Uh cool, would you like plastic or paper?" Keep in mind that a trac phone plan is less than $15 dollars a month and even cheaper if you are careful with it... but I wouldn't have dared tell the outraged customer that. It's always crazy to me how people think they can solve another persons life problems based on a 15 second observation. [0] In Massachusetts the food stamp cards were/are a distinct blue color and easy to spot.
- JBlue42 9y agoTo take it further off-topic, anyone on a cell phone while checking out or delaying the line at the grocery store gets an evil eye from me. That goes for you too granny that counts out every penny! :P
- jeffdavis 9y agoIs it possible to criticize decisions and have empathy at the same time? Or is criticism not acceptable at all?
- colanderman 9y agoDumb question, as I am neither a farmer nor a businessperson, but is there a way for a farmer to set up, say, an LLC, which holds money from profitable years for use in unprofitable years, from which the farmer takes a steady salary each year?
- InvisibleCities 9y agoWouldn't that just make the overall tax burden worse? You'd have to pay corporate taxes on the farm profits, then pay income taxes on the salary.
- xojp123 9y agoI don't think so. I think LLC's allow one to pass through profits without double taxation. C corps, I believe, are the type that suffer from double taxation. Correct me if I am wrong though.
- brightsize 9y agoYou are correct. LLCs don't pay federal business income taxes. An LLC can retain earnings inside of the company but the members are still going to be taxed individually as if the earnings had been paid out to them. US S-corps work in a similar way: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations https://www.irs.gov/businesses/small-businesses-self-employe...
- wahern 9y agoSalaries are a deductible expense for any business entity, so that money is never taxed twice by any reckoning. The debate about double taxation of corporate profits relates to taxation of dividends, which are neither exempt nor deductible from a business' taxable income. Because shareholders are one and the same as the corporation according to some strains of legal and economic reasoning, by taxing dividends you've taxed the shareholders' profits twice. If you control a corporation, you could achieve the same tax treatment as pass-through entities merely by paying yourself a salary instead of dividends. But if you did that, pass-through entities are easier because there are fewer formalities involved. The real gripe is that because dividends are taxed at a flat 15-20%, paying yourself in tax-preferred dividends is a tantalizing prospect but-for the supposed double taxation "problem". The debate is admittedly a little more nuanced when discussing passive investments, but that's a different context than family farms.
- tomjen3 9y agoDoesn't it make more sense to buy insurance, if they want to forward the money to next year? Insurance is usually overpaying for future events, but if the cost is losing 30% to the IRS or 50% on stuff you don't need it might make sense.
- walshemj 9y agoDepends do farmers avoid tax on fuel like they do in the UK
- bluGill 9y agoIt isn't just a mindset, it is supported by their accountant. Because of the way depreciation works their long term income is higher by buying new equipment than paying taxes. The busiest week for farm equipment dealers is the week between Christmas and new years. That is when their account calls them and says trading in some machine would reduce their tax bill by more than the payments! Assuming the trade in value is high enough of course. Farmers are businessmen running a real business. They understand how to use all the loopholes written for them.
- coliveira 9y agoBut this is not necessarily a good thing. If you don't need a new truck, buying that truck is worse than paying the taxes and getting some profit. The truck will be sitting there unused and it cannot be resold for the full price paid.
- dclowd9901 9y agoEspecially when the truck depreciates so much. That's several thousand right there.
- softawre 9y agoYes, two comments up mentioned deprecation. Maybe you're forgetting that you can offset deprecation in your taxes for the next year?
- Malician 9y agoDeduction, not credit. Deductions aren't nothing, but they're just a percentage. Good if you're already going to spend the money, or if it's close. But spending a dollar to save a fraction of one can bite you.
- bluGill 9y agoOnce again, the accounts have already figure this out. Depreciation in terms of taxes does not me the loss of trade in value. I do not understand the tax code, I just know accountants do
- SomeAmerican 9y agoThere is a more pressing reason that has pushed farmers to continually buy new equipment. Farm credit services pressures farmers into this practice. When giving out a loan for operations, a farmer's ability to pay is heavily weighted on farmers having newer equipment. The excuse that I have heard for the bank to do this, is that the bank can't easily tell which farmers take better care of their equipment, thus favoring the newer equipment across the board. The agents working directly with the farmers advocate for this, as there are internal incentives for making larger loans.
- joeframbach 9y agoWhat kind of logic is that?? In my mind, those with the oldest equipment must necessarily be taking care of it, because if you don't take care of it then it won't survive long enough to be old. But on the other hand, I see people driving antique beaters and doubt they have the capability or interest to manage any maintenance.
- orionblastar 9y agoMy parents almost invested in an Apple II solution in the early 1980s that made robocalls using a wardialer and playing a message to people and telling them where to go or call to buy things. In the meetings where farmers as well. The company said the system was designed by Steve Wozniak at Apple and very reliable. Farmers did not want to buy it but rent it instead. Why? When you rent equipment you can claim it as an expense on taxes, anything from a telephone to a computer to tractors, etc. Another reason is if they broke, rental company would fix it or replace it with another one.