Farmers Are Going Broke Trying to Avoid Taxes (Ep. 376)

"As we're coming to the end of the year, as you are trying to avoid taxes, are we better off to use the cash? Maybe we want to put it through the infinite banking system. Maybe you want to buy a policy with it, and then we can borrow against that to operate with, and we can slowly get ourselves away from the bank, or at least make the bank plan B, not the only plan. These things are little, but they add up quickly. Do we need those things? Are they nice to have? Yes, but Nelson said we have to beat Parkinson's law, and that is 100% true."

Hello, hello, hello, and welcome back to the podcast. Thank you very much for being here. It's that time of year. I'm actually hitting it a little bit early this year cuz it's October as I'm recording this, but I want to do my yearly reminder of everything's on sale for tax purposes. It is getting to be the end of the year.

We've made a little bit of money, and so now we don't want to pay taxes cuz we absolutely hate the taxman, and so we want to avoid that at all costs, which means we're probably looking for the sales. We're probably going to say, "Hey, John Deere, Case IH, whoever, let's go and buy something to avoid taxes."

And so every year I go over this, every year about the same time, and I am going to beat this dead horse because when I look at people's finances, avoiding taxes is probably the biggest reason that people are in the situation that they're in.

I actually had someone that I talked to last week who is selling some land, and they're saying, "Hey, Mary Jo, I need to, you know, I'm going to have to do a 1031 on on land into a rental property or something because I don't want to have to pay capital gains.

And I said, well, are you still farming? And they said, yep, I am. And I said, so chances are we're not going to have a lot of income because we're going to have a lot of expenses to offset the income. Yep. So, I said, you do realize capital gains are tiered.

And a lot of people don't know that. There's three pieces to capital gains. And those pieces are tiered based on income. And so, if you just do a quick Google search, capital gains tax rates for 2026, you will see that as a married couple, $0 to $98,900 keeps you in a 0% capital gains tax bracket.

So, if your income, taxable income, is lower than $98,900, you are not going to have to pay anything on capital gains.

The second tier is $98,901 to $613,700. And that is then a 15% capital gains bracket. Anything over $613,700, you're having to pay 20% on capital gains.

So, a lot of us are super scared to sell land or whatever we might be selling, a house, whatever, because we're scared to pay capital gains. When in fact, there are tiers to that. And what tier are you on? And is there a way to take the money from that sale to mitigate the capital gains?

If you're selling to somebody, all you have to do is ask them about that. Okay?

And this is what I'm seeing. Farmers and ranchers have avoided taxes for their entire life. So now, when we get to where we're retired or we're having to sell land cuz farming right now isn't the greatest, ranching is okay, but farming isn't the greatest. So if we're trying to sell some land to get our head above water, but we have all these losses that we're going to carry forward, we're not really going to have to worry about capital gains.

So it's this thing that we're told to worry about that really isn't even something to worry about. But we look at taxes and say, "Oh my gosh, they're evil. Absolutely not. No, no, no, no taxes."

Hey guys, with all that said, I have spent 6 months looking at tax strategy. I have now met with three different tax strategists that are supposed to be able to help me save money on taxes. I don't want to pay taxes any more than you do, but I have to look at the numbers. When does it make sense? When does it not make sense? Is what I'm buying that I'm going to save money on taxes, does that make sense to do that? Okay?

So a lot of people do not understand our tax system as a whole either. And so let's just look at that for a minute.

Okay, if we look at our tax tiers. Now, this is a Truth Concepts calculator. These are the calculators that I use for almost everything I do. Everybody has access to them. truthconcepts.com. You got to pay for them, but you have access to them. And in this calculator, this is our tax tiers, right? If I have taxes and want to figure out taxes, I can put in this calculator. So if I am somebody that has a gross income of $500,000. I have sold cows, I have sold grain, I have had off-the-farm income, and that all equals $500,000.

It's just a number I picked so that you guys can see the tax tiers. So, what that means is that out of this $500,000, $24,800 is being taxed at a 10% tax rate. $76,000 is being taxed at 12%.

The next $110,600 is being taxed at 22%. The next $192,151 is being taxed at 24%. The next $96,449 is being taxed at 32%. So, if I say, "Oh, we made a million dollars a year." Okay? The next tax rate is 35%, and then it goes up to 37%.

And 37% is the highest tax rate that we have. So, there's no sense in me putting $5 million in there. It doesn't matter. It's going to be 37. So, what happens is now we have Now, we can deduct our standard deduction. Okay? Now, we can say, "Well, what if we had $350,000 of expenses?"

That comes off the top tiers. So, that means that got us down to essentially the 35% tax bracket. 37, $231,299 came off of 37. So, we did not pay tax at the 37% tax bracket. We're paying tax at the 35% tax bracket. Because 118 came off at 35, but 137 still stayed on at 35. If you guys are not watching this on Spotify or YouTube, go there and then subscribe, okay?

So, now, what if we don't want to pay $165,000 in taxes? What do we have to do? We have to buy more things. So, what happens if we spend another $150,000 and we buy something. Well, now our taxes went down to $112,000 on the federal side and we bumped into that 32% tax bracket. Now we're starting to pay taxes at 32 and below. So this is important to know. Where are we at in our tax bracket before we go buy something to avoid taxes? Are we actually saving 37% or are we actually saving 24%?

What are we doing? If we're somebody that only makes $350,000 an income, but we have $100,000 of expenses, well, we only started in the 24% tax bracket anyway. And so we're paying $38,600 on 24%.

But everything under that. So it's funny because farmers that don't make, you know, if we have enough expenses because you say I'm going to make $300,000 in I'm going to have $300,000 of expenses, then you're only in a 12% tax bracket anyway. So now you're going to pay $5,500 in taxes. But if you say, "Well, I don't want to pay $5,500 in taxes, so I'm going to go buy something to avoid taxes."

You're only really saving 12% on that purchase. You're not saving 24 because you already had enough expenses to get you to 12. Make sense?

This is important to understand. A lot of people do not know that our taxes are tiered. We are not always saving at that top bracket of what we're paying at because we have expenses.

All right. So let's look. I ran some numbers for you. So if we want to buy something to avoid taxes, if we are in the 32, let me make this bigger so you can see it. If we're going to buy something, let's say we're going to buy a $300,000 piece of equipment and we're in the 32% tax bracket. That's going to save us, if it's coming off the 32, it's going to save us $96,000.

If it's coming off the 24% bracket, it's $72,000. If it's coming off the 22% bracket, it's $66,000 and the 12% bracket is $36,000. So, when we go to buy the item, the piece of machinery, whatever it is, what is it actually saving us? Now, if we pay cash, we saved $36,000. But, we gave up $300,000 to save $36,000.

Okay? So, if we do $300,000 - $36,000, we gave up access to $264,000.

That's fantastic and great. Are we borrowing money for operating? If we are borrowing money for operating at 7%, that $264,000 actually cost us 7% because had we not paid cash and bought this thing to save $36,000, we would have had the cash to operate cuz we could have just paid the tax on that.

Cuz it wouldn't have been $300,000. So, we could have paid the tax on that, saved the difference, and used it as cash to operate. When I see successful operations, this is what they don't do. They don't buy things to avoid taxes. They pay the taxes, they keep the difference, and they use it as cash to operate. Yes, I see a lot of people operating on cash.

You can call me whatever names you want, but I see them. Sorry, I don't know what to tell you if you're not the one operating on cash except are you using your money correctly?

So now, let's go to the person that's going to borrow the $300,000 to avoid the taxes. So if we do that, that $300,000 is going to save us $36,000, right?

What if that $300,000 we go to the bank and we borrow it at 7%. Here's my calculator screen. We go to the bank, we borrow it at 7% for 7 years. What we did is we created a payment of $55,665.97. So now we've created a payment every single year for the next 7 years of $55,000, almost $56,000.

And if you look at the bottom of my screen, the interest we paid to the bank over those 7 years was $89,662 at 7%, which is not an abnormal interest rate right now. So we didn't want to pay the IRS the $36,000 at 12%, so we just redirected that plus extra in interest to the bank.

$89,000 of interest, well, if we're in a 32% tax bracket, we won, right? Cuz we gave the bank $89,000 and we would have given we saved $96,000 from the IRS. Okay, great. We won in that scenario.

But if we're in a 24% tax bracket, we didn't win. If we're in a 22, we didn't win. If we're in a 12, we didn't win.

So we have to look at the long-term effect of it. What happens if we buy the same thing over 5 years from the bank at 7% interest instead of 7? Now we've given them $65,000 in interest. Exact same loan, exact same interest rate.

We have less payment. I'm sorry. No, it's higher payment, $73,000 versus $55,000. Okay, cuz we've shortened the term. But we've paid $65,000 in interest. Okay, so if we're in a 22% tax bracket, we won by a thousand dollars, not even. If we're in a 12% tax bracket, we still didn't win. And we won for taxes. But we have five to seven years worth of payments.

And so now all of a sudden year two comes along. Let's just say that this is year one. Year two comes along and we have the same tax trouble. Cattle prices are still high. We've still sold a lot of cattle. Maybe we've had cull cows, whatever. And all of a sudden we're having to pay taxes again. So we're going to go buy another piece of equipment, or we're going to go buy something and borrow money. Now we have two payments.

Year three, same thing. We go buy something again. Now we have three payments, year three and four. What I see is a list of payments that are like 10, 15 payments because in there we also add some land payments to the equipment payments.

And now they're in trouble and they can't make all the payments because commodity prices changed. Cattle prices might drop. Now all of a sudden, all was great while prices were high, we can make those payments. But when we went to the bank to get the loan to buy the thing to avoid taxes, we may have not saved any money cuz we may have just redirected the IRS money to the bank. And we added a payment every single year that we are now on the hook for.

And one thing that is certain in the land of agriculture is that prices are going to go up and down. And we don't know when that's going to happen.

And so, what I see when I'm talking to successful operations that have a lot of cash and very little payment, or a very few things on payment, sorry, is that they do not buy things just to get away from taxes. Are they mitigating taxes? 100% Are they in a 37% tax bracket? Never.

They're buying the things that they need, but they may not be trading every year. They may not have a lot of things that they financed out. If they did finance something out, maybe it's something that they financed out, one or two things, but they haven't taken bonus depreciation, they've depreciated it over a certain period of time.

I am not a CPA, okay? I should have probably led with that. And you should know by now that I'm not a CPA, unless you're new here. You need to talk to your CPA about this.

If they are not explaining the tax tiers and how all of that works, you may want to find a new CPA. You may want to find a tax strategist.

There are things you can do, like the section 180. I've investigated that. I'm hoping to have someone on to talk about that in the very near future, because if we're buying land, we could do a section 180 bonus depreciation instead of buying equipment and buying the land all in one year to get our taxes down.

There are other ways to do it that are not just moving money from one pocket to the other, and neither one of those pockets are on the pants you're wearing. One of them's the IRS, one of them is the bank in interest. How can you better do it? So that you're utilizing your money correctly. I am seeing this as well.

Cattle prices are high. So we are going to buy things we don't need. Maybe we're going to buy three to four pot bellies, but we don't need them. We don't even have enough semis to drive all the pot bellies. We only ship cattle twice a year. Out in the spring and in in the fall. Could we hire somebody to do that instead of having that pot belly or those pot bellies sit around? Tires are going to crack most likely. It's not getting used, right? So we have tires to maintain, we have bearings to maintain.

We have all these things. We have semis that need oil. They've got engines that could blow up. It could be a huge money pit. We've got lots of stock trailers. We've got feed wagons that maybe the old one was just fine, but we're looking for ways to spend money.

Do we have a squeeze chute? We bought a new squeeze chute. Should we be selling the old one? Why are we still hanging on to it?

I am driving by ranches and I am seeing an enormous amount of new equipment, new buildings, new things. That's great, fantastic. But we have to maintain those things. And if you paid cash for them, great, fantastic. You still have to maintain them.

And what I am also seeing is when people come to me, their expenses are very high. And it's funny cuz when I talk to bankers, they are seeing the exact same thing. Okay? Doesn't matter who I'm talking to. I could be talking to somebody from Ranching for Profit, I could be talking to Doug Ferguson, I could be talking to anybody that does accounting or bookkeeping for farmers. Doesn't matter who I'm talking to.

Anybody that is working in the agriculture sector that is working with financials are seeing this. The price of upkeep is high.

And people are coming to me and actually saying, "Hey Mary Jo, I got to sell whatever it is that I bought. Let's just say it's a potbelly. I got to sell that because the expenses on it are so high every year. I had to replace tires. Now, I didn't need that expense, but I didn't necessarily have money for that expense, either. And you're not going to feel that expense until everything goes down. But in the meantime, if we put new tires on it, if we've had to do oil changes on things, whatever that is, we've had to maintain that. How much of that money have we lost? And nearly nobody looks at that.

Because it's just what it is. We've got it. We have to maintain it.

But why are we struggling? Why don't we have any money? Because we maybe didn't hire somebody to haul the cattle.

We maybe bought a bunch of trailers or something we didn't need. Maybe we bought a baler, but we farm, but we're going to bale cornstalks, or we're going to bale straw, but we're only going to do that once every 5 years when commodity prices are low. We're not going to bale straw and cornstalks when commodity prices are high. We're just going to leave it cuz we don't need the extra money, but we bought this brand new $100,000 baler, $80,000, whatever they are.

I am sticker shocked at balers. I'm not going to lie. It is the one thing that I don't like follow a lot to see what the price is, and I don't see a lot of loans on them. So, when I see a new loan on a baler, crazy expensive. And so, think about those things.

As we're coming to the end of the year, as you are trying to avoid taxes, are we better off to use the cash? Maybe we want to put it through the infinite banking system. Maybe you want to buy a policy with it. And then we can borrow against that to operate with, and we can slowly get ourselves away from the bank, or at least make the bank plan B, not the only plan.

Okay? These things are little, but they add up quickly. Do we need those things? Are they nice to have? Yes, but Nelson said we have to beat Parkinson's law, and that is 100% true.

It's as simple as, "Hey, we have a tractor. How are we going to get the tractor in for service?" Well, we should have a trailer. I'm not buying a trailer to haul that thing in for service once or once every year, once every 3 years, whatever. Scott can do it himself. There's no reason I should have a trailer for such things. How did the tractor get delivered?

They delivered it on their trailer. Or, you know what? I'm happy to rent the trailer to bring that thing home, and then I'm bringing that trailer back. Because I don't want one more thing that has tires to maintain.

Now, if I bought the trailer and I rented it out, and it was a cash flowing asset, by all means, I am going to buy the trailer because I can create a cash flowing asset out of it. But, how are we using those things? Just a FYI, on the trailer rental stuff, I have recently come across a podcast that talks about how stock trailers, people are needing to rent them because, you know, everybody needs a Highlander calf and a little donkey, and how are they going to get that home onto their 5, 10, 20, 30, 40 acres if they don't have a trailer because those people don't typically have trailers sitting around. So, then they're going to go rent one, but most people are not renting stock trailers.

Heck, you might even provide a service to go pick those things up and take them to the vet or whatever needs to be done. I don't know. I'm assuming there's a market out there for it because they said that that was kind of a hot commodity. So, those of you that are listening that are ranchers that live close to a town, wink wink. Might be a business opportunity if it's something that you're looking for or if you have a teenage kid that can pull a trailer cuz they're 16, 17 years old and they just need to go pick up somebody's Highlander cow, game on, man. Who cares? Deliver them their little cow. I don't care. Bring them on.

Okay. That is my tax spiel yet again this year. Just make good decisions. At 12%, at 24%, does it make sense to be buying things to avoid taxes?

Things that maybe we don't have the money for that we have to go to the bank for. I don't know. You guys have to do the math. You guys have to sit down with your accountant, with your bookkeeper, and you have to look at the big picture before you just haul your butt down to John Deere and Case IH and Caterpillar and say, "Hey, let me buy that."

Mhm, I don't know. Should you? Does it make sense? Is it 0% interest? What's the interest rate on it? What's the loan rate going to be? What are the terms going to be?

How many other payments do I have? Big picture. Not just little picture of this year's taxes. Big picture of payments. I like to just bring that horse out and just beat it again this year.

All right, you guys. You let me know if you have questions, comments, concerns. maryjo@withoutthebank.com or you can email john@withoutthebank.com.

Read the book, set up your appointment, and let's get started. This is the time of year that I get busy. So, if you get on now, you can schedule your appointment for January, February, March. But, if you wait until January, February, March, you're probably not going to get in till April, May, or June. Okay? You're already in the field.

So, my calendar is not booked out that far. This is fantastic. I'm only booked out a couple of weeks. So, go in, grab your spot so that we can sit down and meet when it is convenient for you. So, yeah, you're going to have to plan ahead. Sorry. I know you guys aren't planners. Neither am I. But, do it because what happens is in the winter, I get super busy. And then, everything for timing for you is just kind of thrown off a little bit. So, go in, get the book. In the book, there's a link to my calendar. You will get a link to my calendar if you have bought the book. You will get that in an email. Okay? You can go in schedule. If you've not read the book, you don't get a link to the calendar cuz you have to read the book first. Let me know if you have questions on anything. Happy to answer that. And you have a fantastic rest of your day.