One Possible Section 179 Strategy

We had a reader ask the following question:

“Should I wait to buy section 179 property until the date 179 property is raised from $25,000 to whatever?”

As we have said in a previous post, who knows when the Section 179 deduction will be raised from $25,000 to “whatever”.  In fact, Congress may end up leaving it at the current amount (highly unlikely).  However, we are fairly certain that we will not know the final number until late in the year.

One strategy that is available to farmers is to use deferred payment contracts for amounts equal to what you believe the actual Section 179 deduction will ultimately be.  For example, if you think that Section 179 will be $250,000, you will sell an extra $250,000 (on two or more contracts) on a deferred payment contract calling for payment in January, 2015.  When preparing the income tax return, if Section 179 ends up at $250,000, you will elect to report the $250,000 income in 2014, thus soaking up the $250,000 Section 179 deduction.  If you think it might be $500,000, you may want to sell $500,000 of grain on a deferred payment contract.

Deferred payment contracts call for the actual sale of the grain, however, payment is deferred usually to the following year.  You do want to make sure that the company you are selling the grain to will be able to pay you.  It is much better to pay tax on payment received now, than have a bad debt deduction for deferred payments never received.

This is just one strategy that is only available to a farmer and you may want to consider using it in 2014.

Paul Neiffer, CPA