What does this mean for farmers and businesses now?

In decades past, farmers and businesses have lowered their tax liability by purchasing machinery and placing it in service before the end of the year then writing the majority of the cost off through accelerated depreciation offered by the Internal Revenue Service. The Accelerated First Year Depreciation or Bonus Depreciation allowance combined with I.R.C. Section 179 allows for an immediate write off of capital expenditures, minimizing taxable income.  

Section 179 and Bonus Depreciation offset a significant portion of upfront cash needed for purchasing a new or used tractor and many times offsets the entire down payment. Under the American Taxpayer Relief Act, Section 179 expensing limits were increased up to $500,000 in 2013 and Bonus Depreciation was reinstated to 50% for purchases that exceeded the $2,000,000 cap. This means that small businesses that do not profit in 2013 can use the 50% Bonus Depreciation on new equipment and carry the loss forward to future profitable years.  

Current tax proposals will eliminate the Bonus Depreciation altogether. However, Section 179 will be increased to $1,000,000 and extend the $500,000 limit through 2014. The new $1,000,000 limit will then begin in 2015 and be indexed to inflation in $100,000 increments. This is the only good news for farmers and businesses as the current proposed pool amounts will significantly increase self-employment taxes with no further tax depreciations.

What's a farmer and business owner to do?

Tax specialists and business and farm organizations are recommending that farmers or businesses that need to purchase new machinery and want to take advantage of the higher limits in 2013 make those purchases before December 31st. They are also advising that anyone concerned about the new tax changes and how it will affect them consult with a tax professional and are urging everyone to contact their Senator and Representative NOW before these proposals are enacted into law.

For more information visit: section179.org, agweb.com, farmanddairy.com