Yes snappy, your assumptions may be correct. I would also hope you are basing your numbers on an accrual basis so that you can keep tabs on your deferred tax liability.
I view ownership of land similar to rent. If I have a quarter of land worth $100,000 and its paid for, my opportunity cost is the average borrowing rate, or $6000 per year, plus taxes. If I can rent land for a similar value, its really a wash. In tough years, owning land gives the misconception of reduced costs, but in the financial world, you still need to capture the opportunity cost.
There will be timing differences with every farm, however, if the profit is there and your cash numbers don't show it, it could be an issue of living on depreciation, low principle pmts on loans etc that will cross over and catch you later on. Finding a balance and along the way and dealing with the future tax on an ongoing basis using option inventory adjustments will smoothen out the issues later on.
And dear god, if your a farming as a non incorporated entity (which is okay), please make sure you are structured as a family farm partnership.
I view ownership of land similar to rent. If I have a quarter of land worth $100,000 and its paid for, my opportunity cost is the average borrowing rate, or $6000 per year, plus taxes. If I can rent land for a similar value, its really a wash. In tough years, owning land gives the misconception of reduced costs, but in the financial world, you still need to capture the opportunity cost.
There will be timing differences with every farm, however, if the profit is there and your cash numbers don't show it, it could be an issue of living on depreciation, low principle pmts on loans etc that will cross over and catch you later on. Finding a balance and along the way and dealing with the future tax on an ongoing basis using option inventory adjustments will smoothen out the issues later on.
And dear god, if your a farming as a non incorporated entity (which is okay), please make sure you are structured as a family farm partnership.
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