fm6e-chapter16 - Farm Management Chapter 16 Managing Income...

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Farm Management Chapter 16 Managing Income Taxes
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farm management chapter 16 2 Chapter Outline Objectives of Tax Management Tax Accounting Methods The Tax System and Tax Rates Some Possible Tax Management Strategies Depreciation Capital Gains
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farm management chapter 16 3 Chapter Objectives 1. Show the importance of income tax management 2. Identify the objectives of income tax management 3. Discuss the difference between cash and accrual methods of computing taxable income 4. Explain how marginal tax rates and social security taxes are applied to taxable income 5. Review some tax management strategies 6. Show how depreciation is computed for tax purposes 7. Know the difference between ordinary income and capital gains income
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farm management chapter 16 4 Objectives of Tax Management The goal of the manager should be to maximize long-run, after-tax profit. Effective tax management requires continuous evaluation of how decisions will affect income taxes. The manager will want to avoid payment of any taxes not legally due and to postpone payment of taxes whenever possible.
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farm management chapter 16 5 Figure 16-1 Three types of income taxes Insert figure 16-1 here, no title
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farm management chapter 16 6 Tax Accounting Methods The cash method The accrual method
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farm management chapter 16 7 The Cash Method Income is taxable when it is received as cash or “constructively received” Income is constructively received when it is made available for use before the end of a tax period Expenses are deducted when they are paid Inventories do not figure into taxable income
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farm management chapter 16 8 Advantages of Cash Method 1. Simplicity 2. Flexibility 3. Sale of raised breeding livestock likely to qualify for capital gains treatment 4. Delaying tax on growing inventory
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farm management chapter 16 9
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