CMJWW Finwna, Saturday, July 25, 1867 i, S.UI open bu. i. involves >*»*■■&■*■■■■■% penalties to the taxpayer. \ With These Participating The other choice, and the one Becker Professors apparently preferred by drafters of I Thomas a Brewer Jack j Kirkland the new tax law, is to capitalize the I vw&c£3£ preproductive costs, rather than to I tarry c. Jenkins h. Louis Moore deduct them each year. If costs are James w Pease capitalized, they are set aside into a Smitt. . , A|VI o. voigt capital account and may then be a * recovered over a period of years, ■ to The new procedures related to ■ \ preproductive costs are part of the \ uniform capitalization rules pro \ vided by the Tax Reform Act \ 1986. Theserules dale back sever | al years for much of American 1 1 industry but farming was generally I Bl exempt until the new tax law was The uniform rules require that both direct and indirect costs of producing property used in a trade or business are included in capital account rather than New Farm Deduction Rules deducted each year. Direct costs that must be capitalized include rs 5. n n I cost °f bolh mater ' als and labor MJUn l I'ermit Uelays that are used in producing proper- BY LARRY C. JENKINS malic decision for the taxpayer ’ZwhJ om Extension Economist who fails to take action. In this Indirect costs that Farm managers respect, the new federal income dairy heiiers. inmrect costs tna rojui • F ’ „ must be considered arc equipment who are m the tax code is very much like the rules deductible taxes habit of “delaying L as to estate transfer; that is, those P ’ slate a ’ nd local income until tomorrow” ’ who fail to provide a Will to guide ■ decisions about *W die. are provided plaim , “ir Jm ° n preprolcuve costs are the such as orchard trees and vines, are selves in a comer 808 expenses related to support of an Fopeny used in a trade or business next March L That is the deadline enSprise before that enterprise £ -SStS for making a decision about capita- begins to produce income. Farm “P “ t 0 property pro lizmg or deducting a family of examples of preproductive costs PP £ r use in farminetf the ore expenses that the new federal tax are the costs of developing ® code refers to as “preproductive replacement dairy animals or the costs.” Unfortunately, for those cost of growing a young orchard. jj individuals who tend to be procras- Prior law permitted deducting tinators, the law provides an auto- these costs on an annual basis; that , Visit Oar Representative The LEBANON AREA FAIR July 27th thru Aug. Ist See On Display: 11 • New Equipment For Farm/Industrial/ | j Construction 11 A LESSON WELL LEARNED... LANCASTER FARMING'S CLASSIFIED ADS GET RESULTS! Phone: 717-394-3047 or 717-626-1164 COUNTRY CLIPPER ZERO TURNING RADIUS V Cut mowing time up to 50‘ Eliminate most trimming Make mowing a pleasure LET US PROVE IT TO YOU’ ASK FOR A FREE DEMONSTRATION SEE YOUM DEALER MARTIN'S LAWN * GARDEN P.O. Box 97, Rt. 23 Goodville, PA. 215/445-5103 «Mar MM Mv SapMMMr JMi IMI mmww ■ff viNk mnii 133 Rothsville Station Rd. RIJVKXEMURST Lititz> PA 17543 * m m rnm.m. Ix>caled Mile North of Rothsville BROS. INC. (717) 626-4705 Hours Mon-Fn 7 AM-5 PM, Sat 7 AM -11 30 AM SAJL/C2S PARTS SEHVXOJS Sun Closed -lord's Day 1 -“~ ~ . , _ , _ I SATISFACTION GUARANTEED ELMER STOLTZFUS 171 Quarry Rd., Leola, PA 17540 717/656-2120 volume mist blower floes more work and with 1/10 the amount of water that is required with conventional sprayers A mist blower can cover up to 50 acres per hour and cover up to 100 foot swath Different models to choose from include • 3 point hook up PTO powered, (one sided or dual sided) • 3 point hook up or pickup models engine powered • Orchard and vineyard models (one sided and dual sided) • Vegetable models (one sided and dual-sided) productive period is more than two years. Replacement breeding ani mals and young fruit trees are typi cal examples of such property. What Is The “Preproductive Period?” A common question asked rela tive to preproductive costs is “when does the period for calculat ing the costs begin and end?” The new law and regulations issued by the Internal Revenue Service are relatively clear on that point. For plants, the preproductive period begins when the plant or seed is first planted or acquired by the taxpayer and ends when a marketable crop is first produced. The preproductive period of ani mals begins at the time of acquisi tion, breeding or embryo implanta tion. If the animal has more than one yield (for example, multiple lactations for a dairy cow) the pre productive period ends when the animal has its first yield. In the case of an animal that has a single yield, the preproductive period ends at the time of disposal (sale). This means that the preproductive period for a raised replacement dairy animal covers the period from conception of a female calf to the time that calf grows into a mature animal and begins the fust lactation. A second problem related to the new preproductive period rules is how to separate the “preproductive cost” from other farm costs. Most farmers do not maintain the detail ed farm accounts that will permit separation of one category of cost Check Us Out At The Lebai CONSIDER THESE RIBSTONE SILO FEATURES: * Double-sealed walls. * All installation labor supplied * Steel reinforced staves. * Concrete chute * Extra-heavy steel hoops * Colored roof, enamel painted R n VOLUM ASTER W SILAGE DISTRIBUTOR / UNLOADER • Ribstone Silos • Butler Livestock Systems • Silo Unloading & Manure Handling Equipment See Us At The Ribstone & Butler Livestock Systems Displays At Ag Progress Days In August J.A. SWOPE SILO EQUIPMENT, INC. Also Box 121 R.D. 1, Myerstown, Pa. 17067 717-933-4758 from total farm costs. For the majority who are in that position, the rules permit using one of the simplified inventory valuation methods for determining prepro ductive costs. These simplified methods are the Farm-Price method and the Unit-Livestock- Price method. Regulations issued by the Internal Revenue Service describe both these in detail and permit their use in lieu of requiring the farm manager to attempt to separate costs for his/her farm. Farmers Permitted to Continue Deducting The Tax Reform Act of 1986 provides an exception from the generally required capitalization of preproductive costs that permits farmers to continue deducting these costs each year, rather than capitalizing them. Once made, that election is irrevocable; that is, the decision can be changed only with permission of the Commissioner of Internal Revenue. There are two penalties if the taxpayer elects to annually deduct rather than to capitah/c prcprodyc- Uve expense. First, if the property is disposed of (as most dairy cows will eventually be) there is a recap ture as ordinary income of the amount that was deducted annual ly rather than capitalized. This type transaction would presumab ly be reported on the income tax form 4797 along with other recap tures, such as those due to depreciation. The second, and most serious, (Turn to Page C 8) BUTLER^ ON DISPLAY AT THE LEBANON FAIR Fair
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