“Some Assembly Required”
For most males, the three most dreaded words in the English language is “some assembly required”. I would estimate over half of the arguments I have had with my wife in 35 years of marriage involved “some assembly required”. As usual, I would start on putting something together without reading the instructions and then start muttering to myself when it was not going well. At that point, my wife would interject some words of wisdom (at least to her they were) and off to the races we would go.
Now, you may be asking how does this affect farmers and tax planning. Well, I view tax planning as involving “some assembly required”. For example, tax planning usually evolves as follows:
- Financial records are updated and gathered together (the more accurate the better).
- This provides the base numbers for the tax plan.
- We then project income and cash expenses for the remainder of the year.
- We add all of those items together to come up with our new base income for the year.
- We then subject depreciation that will be deducted on prior year assets.
- This is now our final base income and then we start our “what ifs” regarding Section 179, bonus depreciation, deferred payment contracts, prepaid farm expenses, pension plan contributions, etc. to arrive at our final taxable income estimate.
This is the process of normal tax planning and as you can see it involves “some assembly required”. Therefore, if you skimp on any of the steps, the final result can end up looking like some of the furniture I have tried to assemble over the years (not a pretty sight). You should make sure to follow all of the steps to arrive at the best tax plan you can. If you skip any, the final result at tax time may not be want you want.