You might look at the down cycle in hog prices and figure there's one advantage: income and social security tax planning won't take as much time this year.
However, if you're really against paying more tax than you have to, that could be the absolute wrong attitude. For producers with operations the size of Business Strategies readers, the down cycle in prices can be a time to play "catch up" and capture some tremendous tax savings over the longer haul.
Duane Murken is an Iowa Farm Business Association consultant at Swisher, IA, who digs deep to come up with the best, long-term income tax and social security tax savings for his clients.
Basic Tax Rules Start with some of Murken's basic tax planning rules of thumb.
* All else being equal, one primary idea of income tax planning is to postpone taxable income. Time value of money means it's better to pay a dollar of tax 10 years from now than to pay it today. Delay paying tax and you're basically borrowing from Uncle Sam interest free. (See Time Value Of Tax Dollars Saved on page S-2.)
Realize, of course, that all else is not always equal. The best long-range planning may mean paying some tax before you would have to.
* Income tax planning is a tax bracket game. From the lowest federal income tax bracket of 15%, you jump right up to 28%. Then the rates go up somewhat gradually to 31% and 36% for a married couple with a taxable income of between $102,300 and $278,450. Above that, there's a 39.6% rate. But you need to be looking at different maneuvers long before you get there - such as a different business structure, maybe incorporation - to ease the tax blow.
* Level your income over the years. Occasionally there are exceptions. But, spreading your taxable income pretty evenly over the years is usually the most solid income tax planning you can do. You'll pay tax on more of your income at the lowest 15% rate and less at the higher percentages.
* Never, ever have your income so low that you don't use up all your "free" exemptions and deductions.
"Those basic rules are the same whether you are a sole proprietor, partnership or corporation," says Murken. "The numbers such as taxable income amounts and tax rates will just be different."
Set Your Target A good starting point for planning that will work no matter where the price cycle is now.