It was good to hear from an old college buddy over the holidays. After wishing each other well, we began to talk about how the year had been for each of our farming operations and, since he is primarily engaged in row-cropping, it was obvious his year had not been so good. Eventually, the conversation turned to recent purchases and he asked me if I had bought a certain marketing service before the end of the year. When I replied that I hadn’t, he reminded me of what one of our old professors had taught us so diligently about reducing our taxable income.
Mr. Denker taught farm business management at the university that we both attended and he was one of the most admired and respected teachers. He was one of the few that did not have a Ph.D., but I always suspected that the reason he never attained the degree was because he was too busy making money to bother with further education. While most of my professors espoused textbook theory, Mr. Denker preached practical, real-life doctrines that had enabled him to become very successful in both farming and agribusiness. To impressionable 21-year olds, this seemed much more beneficial.
One of the old professor’s sticking points was how farmers could reduce the amount of taxes (legally, he stressed) that they would be required to pay at the end of the year, by targeting some specific purchases. Keeping in mind that these lessons were learned over 40 years ago, under different tax laws, I can still remember some of the loopholes he suggested and one such trick involved fence construction. Back then, new fence construction required the farmer to set up the expenses on a seven-year depreciation schedule, but the wise old professor informed us that leaving a few existing fence posts and at least one strand of old wire would allow the entire cost to be written off in that one year as ‘fence repair’ instead of ‘new construction.’ He shared dozens of these quirks in the tax code that always resulted in immediate tax savings for the farmer.
Those hints were always interesting, made sense and stuck with me because it seemed we were learning ways to legally outsmart the IRS without having to hire some high-priced attorney to figure out the loopholes for us.
Anyway, my buddy also remembered many of these helpful points and was proud of himself for purchasing this marketing service (something that most of us would recognize under a different name) in order to reduce his taxable income this year. However, this particular tax advice of Mr. Denkers’ was three-tiered: First, it’s a good thing to reduce taxable income by purchasing needed equipment. Secondly, avoid the temptation to purchase unneeded equipment just to take advantage of the tax break. And, thirdly, don’t buy anything (needed, or not) that you can’t afford.
Apparently, according to Mr. Denker you can’t make a profit in farming simply by #$%!@^&*) the IRS.
