The Sidney herald., 1962-02-14
FARM EXPENSES

6aN1NhS AfOfn OF other
types of businesses?
Not really. The normal and or
dlnary expenses of operating any
business r deductible, and this
ho1dS true for farmers. Of course
Wnere are certain deductions 10
winch farmers are entitled that
most other businessmen would not
hSve, such as fertilizer. for ex-
ample. However, most of the ex-
penSeS are common TO any balsi-
neS; such things as wages, ma
crime hire, repairs and mainten-
ance, interest, taxes, supplies, and
freight T deductfble.
What r some of the common
errors made in claiming expenseS9
"A very common error is tne
claiming Of expenses which r
either wholly or IN part, personal
expenses. For instance, the total
real estate taxes on a farm. in
Guiding a personal residence on
Vhe farm, Is often deducted IN
Iull, as a business exDelse. Only
uhe portion pertaining to the
farm land and the farm assets is
oeducuole as a business expense.
me taxes on the residence would
De deductlble as an itemized de-
duction if the standard deduction
ISN'T claimed. We might 90 into
that a little later.
Another rather common error
Is the claiming of capital expen
dftureS, such as the cost of erect
mg a new barn, as an expense
Inc cost Of such am item Is not
ueduchOle, but, normally, is sub
Ject to anallowance for depre-
ciatfCn.
Another error is the claiming Of
eXpeuseS of raising livestock and
poulIy consumed by the farmer
and his family.
How does a farmer claim taxes on
n farm when only one tax bin is
received for both the farm and
his residence?
The taxes must be prorated he
tween the farm assets and the
nonOuSineSS assets. One way 10 do
0hls would be on the basis of the
real estate assessed valuations.
fou mentioned capital expendi-
lures; r these only the pur-
chase or the erection of new
buildings?
NO, the definition isn't that mar
row. AT the risk of being some
what technical, it is an amount
paid for or the -incurrence of a
debt for the acquisition, improve
ment, or restoration of an asset
having a useful life of more than
one year. For instance. the costs
OF purchasing a tractor, putting
a new roof Gu a barn, purchasing
livestock for dairy or breeding use,
or drilling a well would all con-
s1tute capital expenditures. These
costs would not be deductible as
current business expenses.
Does the farmer ever get a tax
deduction fer these costs?
Yes, he gets a depreciation al
fowance which allows him to claim
the cOSaS less salvage value ove-
Uhe hfe of the asset. However. as
sets, such as land, that do not have
a limited useful life cannot be
deprecated.
How is depreciation computed?
The most common method of
computing depreciation is by what
Is called the straight line" meth
90. The cost of an asset less its
estimated value at the end Of its
useful life is deducted in equal
amounts over the life of the asset.
For example, a farmer might buy
a tractor for $4,000 which should
hast him ten years and be worth
approximately 5000 at the end of
that time. The allowable depreci-
alton for each of the ten years
would be $40, one-tenth of the
cost less the estimated salvage
value.
There other methods which
csn be used, the most common of
which are known as the "declin-
ing balance" method and the "sum
of the years - digits" method.
These methods give a larger de-
pnec1aion deduction when the
asset is first purchased, and a
smaller deduotioo when the assets
nearS the end of its useful life.
There is also a provision for
additional depreciation in the year
of purchase for personal property
purchased afoer 1857, having a
useful Life of six years or more.
The additional allowance is 20
percSut of the cost without any
for salvage value. There
is a maximum cost OF assets on
which the additional first year