“WHICH IS BEST: Do I buy or do I lease?” Business owners have been asking themselves this question since the choice became available — which likely goes all the way back in human history to the dawn of private trade.
In modern times, business owners can supplement a “gut feeling” about the best route to take by drawing on previous experience, by doing some personal research, and, advisably, by making a visit to see the company accountant or tax expert.
In the realm of farming and agriculture, land and equipment leases have been financial options in America since the Colonial days. A relatively new consideration is leases for farm buildings. To be clear, the idea here isn’t leases for buildings owned by a third party and located off a farmer’s agricultural property, but rather leases for new structures built on a farmer’s property.
Several companies that specialize in agricultural financing have programs that allow qualifying farming businesses to lease new buildings — sheds, barns, equipment shelters, machine shops, grain and seed bins, silos, and livestock corrals, for example — and maximize the tax advantages that leasing affords.
Aaron Jenson, writing for Farm Credit Services of America, reports that “when it makes sense” as a tax-management strategy, a farm building lease offers several benefits:
• Lease payments typically are 100 percent deductible as a business expense. Over a period of just a few years, this tax deduction can far exceed the deductions allowed for both depreciation and interest on a purchased and financed building.
• Leases often are flexible and can be constructed to fit a farmer’s tax strategy.
• The farmer essentially rents the building after it is completed. This preserves capital that otherwise might have gone toward a down payment and loan fees on a purchased building.
• Leasing improves cash flow and preserves bank credit lines for operating needs.
• At the end of the lease term, the farmer can either purchase the building, renew the lease, or give up the building.
CREDIT
column by BAXTER TROUTMAN
BIO: Baxter Troutman is founder and chief executive officer of Labor Solutions, a staffing company with offices in Bartow, Winter Haven, Lake Wales, and Arcadia. A cattle rancher and citrus grower who served in the Florida House of Representatives, Troutman understands the challenges and concerns of today’s farmer.
Posted April 22, 2016