Ways to Build Wealth ?

[Stocker Steve]

Working on my taxes this week. I am tired of paying income tax on profitable growth. :help: What are proven ways to efficiently increase ranching wealth ?

 

[Caustic Burno]

Working on my taxes this week. I am tired of paying income tax on profitable growth. :help: What are proven ways to efficiently increase ranching wealth ?

If it's profitable it's taxed.
Spending on exemption items not needed has loser all over it.
Your spending dollars to save pennies.

My goal was always to strive for the highest bracket.

 

[Bright Raven]

Working on my taxes this week. I am tired of paying income tax on profitable growth. :help: What are proven ways to efficiently increase ranching wealth ?

You are asking how to build wealth without incurring an annual income tax burden. The only way I know is what I referred to in the profitability thread. That is: increasing the value of your estate. This can be done in several ways.

1. Infrastructure. Barns, shops, handling facilities, fences, etc. During active operation, these capital investments can be depreciated against your annual revenue thus reducing your tax burden. Over the period of depreciation, the investments are written off. Thus, when the estate is sold, the value of the improvements are unencumbered.

2. Land improvements. Such as clearing low value land and converting it to pasture. Thus, the land value increases. Improvements to land productivity also increases land values.

3. Building your cattle herd. It is like putting money in the bank.

Items 1, 2 and 3 build wealth without the annual tax burden, however, at the time of estate sale, the increased sale price of the estate is going to result in capital gains tax.

 

[sim.-ang.king]

Working on my taxes this week. I am tired of paying income tax on profitable growth. :help: What are proven ways to efficiently increase ranching wealth ?

If it's profitable it's taxed.
Spending on exemption items not needed has loser all over it.
Your spending dollars to save pennies.

My goal was always to strive for the highest bracket.

I wish I paid million dollars in income taxes, because that means I made a lot more than a million dollars.

 

[Caustic Burno]

Working on my taxes this week. I am tired of paying income tax on profitable growth. :help: What are proven ways to efficiently increase ranching wealth ?

You are asking how to build wealth without incurring an annual income tax burden. The only way I know is what I referred to in the profitability thread. That is: increasing the value of your estate. This can be done in several ways.

1. Infrastructure. Barns, shops, handling facilities, fences, etc. During active operation, these capital investments can be depreciated against your annual revenue thus reducing your tax burden. Over the period of depreciation, the investments are written off. Thus, when the estate is sold, the value of the improvements are unencumbered.

2. Land improvements. Such as clearing low value land and converting it to pasture. Thus, the land value increases. Improvements to land productivity also increases land values.

3. Building your cattle herd. It is like putting money in the bank.

Items 1, 2 and 3 build wealth without the annual tax burden, however, at the time of estate sale, the increased sale price of the estate is going to result in capital gains tax.

Again you spent dollars to save pennies in taxes. Your better off maximizing out your IRA first secondly investing in long term interest bearing funds or tax free bonds.
You can not spend yourself to prosperity on limited income.

 

[Bright Raven]

Working on my taxes this week. I am tired of paying income tax on profitable growth. :help: What are proven ways to efficiently increase ranching wealth ?

You are asking how to build wealth without incurring an annual income tax burden. The only way I know is what I referred to in the profitability thread. That is: increasing the value of your estate. This can be done in several ways.

1. Infrastructure. Barns, shops, handling facilities, fences, etc. During active operation, these capital investments can be depreciated against your annual revenue thus reducing your tax burden. Over the period of depreciation, the investments are written off. Thus, when the estate is sold, the value of the improvements are unencumbered.

2. Land improvements. Such as clearing low value land and converting it to pasture. Thus, the land value increases. Improvements to land productivity also increases land values.

3. Building your cattle herd. It is like putting money in the bank.

Items 1, 2 and 3 build wealth without the annual tax burden, however, at the time of estate sale, the increased sale price of the estate is going to result in capital gains tax.

Again you spent dollars to save pennies in taxes. Your better off maximizing out your IRA first secondly investing in long term interest bearing funds or bonds.
You can not spend yourself to prosperity on limited income.

You are missing his question. He stated that he is tired of the tax burden on income as he said on "profitable growth". You are responding on an annual taxes basis. I don't think that is what he means. I may be wrong and Steve can correct us. The way I read his question is how can he accumulate wealth without the annual burden of taxes. The only way I can see doing that in a farming occupation is to increase the value of the estate. It is similar to tax deferral.

 

[Caustic Burno]

Your still spending dollars to save pennies. Your actually ahead paying the taxes versus buying unnecessary equipment and buildings to be taxed and upkept.
There is no free ride.
That's like looking at the salebarn check without the inputs. People do it every day on land and fool themselves after cost, taxes insurance and improvements. When the sell it thirty years later they will tell everyone how they made 100K. Won't hear a peep about the 250K they put in.
You really fail the IQ test when you con yourself.

 

[Lucky]

I believe Bright Raven is correct. However everyone's situation is different. In my case I don't need any of the money the cattle make so I reinvest it into the ranch to avoid being taxed so hard. Any investment I make either saves money on the operation or improves the ranch so the value goes up. I do invest in a 401k and an IRA also but its important to be diversified too. Overall I would say the ranch makes more than the stock market does, mainly due to increasing land values. Cattle are a great asset because they are liquid and should pay for themselves while providing countless hours of enjoyment.

 

[Bright Raven]

Your still spending dollars to save pennies. Your actually ahead paying the taxes versus buying unnecessary equipment and buildings to be taxed and upkept.
There is no free ride.
That's like looking at the salebarn check without the inputs. People do it every day on land and fool themselves after cost, taxes insurance and improvements. When the sell it thirty years later they will tell everyone how they made 100K. Won't hear a peep about the 250K they put in.
You really fail the IQ test when you con yourself.

You have to assume that there are necessary capital expenses to run a cattle operation. These are essential such as a squeeze chute, fence, a barn, a tractor, etc. I am not suggesting any expenses that are not essential. Essential expenses are then depreciated over the allowed period of depreciation. That equipment and infrastructure has value after depreciation. Therein lies your wealth. In addition, there is the land. Unless you operate solely on lease or rental. That land increases in value and builds wealth. That can be accelerated by land improvements.

 

[Caustic Burno]

Y'all are ate up with spend 50K on a John Deere to save a few pennies on a 1040. You have less in the bank an another asset to upkeep.
It's a great deal if you need the assets a fools game if you don't.

It's only worth what you can liquidate it for today.
It's scrap wood and iron if you need cash right now.
Assets on the farm are nothing but a liability that has to be bought and upkept until you sell hopefully for a profit.
If you don't sell it all you have is a liability to take care of.

 

[Bright Raven]

Y'all are ate up with spend 50K on a John Deere to save a few pennies on a 1040. You have less in the bank an another asset to upkeep.
It's a great deal if you need the assets a fools game if you don't.

It's only worth what you can liquidate it for today.
It's scrap wood and iron if you need cash right now.
Assets on the farm are nothing but a liability that has to be bought and upkept until you sell hopefully for a profit.

No. I am not suggesting making frivolous purchases. In fact, I don't have my own hay equipment because it does not pencil out. There are essential investments that have to be made. You have to be able to move a round bale of hay. It takes a piece of equipment to do that - a tractor or skid steer. I am simply stating that those capital expenses can be depreciated. At the end of depreciation they have value. For example, my tractor was depreciated over a 5 year depreciation period. It still has value. If I sell my estate this summer, that equipment has value after being written off against my income. Which includes my retirement annuity.

 

[Caustic Burno]

Y'all are ate up with spend 50K on a John Deere to save a few pennies on a 1040. You have less in the bank an another asset to upkeep.
It's a great deal if you need the assets a fools game if you don't.

It's only worth what you can liquidate it for today.
It's scrap wood and iron if you need cash right now.
Assets on the farm are nothing but a liability that has to be bought and upkept until you sell hopefully for a profit.

No. I am not suggesting making frivolous purchases. In fact, I don't have my own hay equipment because it does not pencil out. There are essential investments that have to be made. You have to be able to move a round bale of hay. It takes a piece of equipment to do that - a tractor or skid steer. I am simply stating that those capital expenses can be depreciated. At the end of depreciation they have value. For example, my tractor was depreciated over a 5 year depreciation period. It still has value. If I sell my estate this summer, that equipment has value after being written off against my income. Which includes my retirement annuity.

You still don't get it.
Your writing off pennies on the dollar.
You are not getting dollar for dollar back on your taxes.You reduced your taxable income over several years saving a few hundred by spending thousands.
Again great deal if you need the equipment.

It only has value when you sell it.
The rest of the time it's a liability to pay taxes, insurance, upkeep etc. on.
Your fooling yourself to think otherwise.

 

[Bright Raven]

Y'all are ate up with spend 50K on a John Deere to save a few pennies on a 1040. You have less in the bank an another asset to upkeep.
It's a great deal if you need the assets a fools game if you don't.

It's only worth what you can liquidate it for today.
It's scrap wood and iron if you need cash right now.
Assets on the farm are nothing but a liability that has to be bought and upkept until you sell hopefully for a profit.

No. I am not suggesting making frivolous purchases. In fact, I don't have my own hay equipment because it does not pencil out. There are essential investments that have to be made. You have to be able to move a round bale of hay. It takes a piece of equipment to do that - a tractor or skid steer. I am simply stating that those capital expenses can be depreciated. At the end of depreciation they have value. For example, my tractor was depreciated over a 5 year depreciation period. It still has value. If I sell my estate this summer, that equipment has value after being written off against my income. Which includes my retirement annuity.

You still don't get it.
Your writing off pennies on the dollar.
You are not getting dollar for dollar back on your taxes.You reduced your taxable income over several years saving a few hundred by spending thousands.
Again great deal if you need the equipment.

It only has value when you sell it.
The rest of the time it's a liability to pay taxes, insurance, upkeep etc. on.
Your fooling yourself to think otherwise.

Let's let folks read this. They can decide.

 

[Caustic Burno]

Doesn't look near as pretty when you see the true outputs.

 

[Lucky]

Doesn't look near as pretty when you see the true outputs.

I see your line of thinking..... This was shaping up to be an excellent thread.....maybe you can start one on how every dollar you spend on the farm is waste and how the sun never shines. Lets get this one back on track.

 

[Caustic Burno]

Doesn't look near as pretty when you see the true outputs.

I see your line of thinking..... This was shaping up to be an excellent thread.....maybe you can start one on how every dollar you spend on the farm is waste and how the sun never shines. Lets get this one back on track.

No just reality apparently it hit home pretty hard.
Ok I bought a Massey 265 in 1977 for 18k sold it last year for 3k.
That is a loss of 15k along with 41 years of upkeep.
Every piece of equipment you buy devalues and has incurred cost besides the purchase price.
Again the deduction is a great deal if you need the equipment.
Your fooling yourself to the poor house spending thousands to save hundreds on a 1040 form .

 

[Lucky]

Doesn't look near as pretty when you see the true outputs.

I see your line of thinking..... This was shaping up to be an excellent thread.....maybe you can start one on how every dollar you spend on the farm is waste and how the sun never shines. Lets get this one back on track.

No just reality apparently it hit home pretty hard.
Ok I bought a Massey 265 in 1977 for 18k sold it last year for 3k.
That is a loss of 15k along with 41 years of upkeep.
Every piece of equipment you buy devalues and has incurred cost besides the purchase price.
Again the deduction is a great deal if you need the equipment.
Your fooling yourself to the poor house spending thousands to save hundreds on a 1040 form .

I bought a new 2008 Kubota 8540 cab tractor for 37,500 sold it for $37,000 in 2013 to get a new 100 hp Kubota for 50k. Got offered 48k for that tractor last year but kept it and bought a new skid steer instead. Sold old skid I'd been using for 3-4 yrs for a 2k loss. Bought a dozer for 30k 3 yrs ago and put a 1,000 hrs on it cleaning this place up. Probably sell it for 30k this summer. Tractors had no break downs, skid maybe couple hundred bucks, dozer probably 3k in repairs but it got abused pretty hard. Those are my numbers. Explain to me how I lost a bunch of money on that stuff and we'll talk cross fencing and hay barns.

 

[Caustic Burno]

I guess it was free for five years.

P.T. Barnum sucker born every minute that's a 25k tractor all day 29k super clean low hours.

 

[CattleMan1920]

Working on my taxes this week. I am tired of paying income tax on profitable growth. :help: What are proven ways to efficiently increase ranching wealth ?

You are asking how to build wealth without incurring an annual income tax burden. The only way I know is what I referred to in the profitability thread. That is: increasing the value of your estate. This can be done in several ways.

1. Infrastructure. Barns, shops, handling facilities, fences, etc. During active operation, these capital investments can be depreciated against your annual revenue thus reducing your tax burden. Over the period of depreciation, the investments are written off. Thus, when the estate is sold, the value of the improvements are unencumbered.

2. Land improvements. Such as clearing low value land and converting it to pasture. Thus, the land value increases. Improvements to land productivity also increases land values.

3. Building your cattle herd. It is like putting money in the bank.

Items 1, 2 and 3 build wealth without the annual tax burden, however, at the time of estate sale, the increased sale price of the estate is going to result in capital gains tax.

I think you just about covered it A to Z Ron, but you forgot "GENETICS". That's almost an intangible, but let's say a rancher says to himself/herself "Hey, I'm going to AI 50 cows/heifers this year versus letting the bulls do the job" then let's assume that said rancher gets serious and AI's all 50 using sexed semen from ST Genetics, SAV Raindance, for example. Let's then assume that maybe 40 settle, and out of the 40 let's assume 38 make it. You now have 38 Raindance daughters, which are, as you said "money in the bank", and easily marketable.

Let's compare that to "let the bull get them" which results in calves on the ground, but calves that have a far different value proposition than the calves mentioned above.

That is one way I see to increase your "net worth" with marginal capital expenditure.

$75 x 100 straws (for good measure) $7500
AI Tech (not sure what you pay, assume $50 per AI) $50 x 100 tries $5000
Lutalyse, synch etc (not sure how much, I don't use this)
Labor (not sure how much you are worth per hour)

All told you might invest $15k give or take $1k

38 Raindance heifers are probably worth a minimum of $2k, so let's stick with that assumption.

38 x $2000 equals $76k. A registered Angus heifer around here from Stone Gate brings a minimum of $2k, but closer to $3k, and that is not even for a heifer from AI.

$15k to $76k???? Try that day trading on Etrade, harder than it looks, you can't turn real estate from $15k to $76k in the same time period, at least not under normal conditions. Maybe day trading Bitcoin, flipping muscle cars, etc. You asked about ranching wealth however, I digress.

Now let's assume you keep those super nice heifers and AI them, now you are ready to double your money and make it stack.

Don't forget, that semen, AI tech, and everything else is most likely a deduction. Now this idea is looking even better.

 

[Lucky]

I guess it was free for five years.

P.T. Barnum sucker born every minute that's a 25k tractor all day 29k super clean low hours.

Tractors aren't free. If you find one for 25k let me know I'd like to have another one.