Profit management provides challenges

Casper – Planning is the key to managing profitability of any operation, said speakers during the 2014 Wyoming Stock Growers Association Winter Roundup. By looking at short- and long-term financial goals, producers can save money and control assets, they added. 

A team of speakers shared advice for this planning, including Kevin Murphy and Kyle Henriksen of Murphy-Henrikson Wealth Management of Stifel, Richard Reimann of Lenhart, Mason and Associates LLC and Tassma Powers of Schwartz, Bon, Walker and Studer, LLC.

“Two of the hardest things to do are save when we are young and spend when we are old,” stated Murphy.

Planning

With 2014 coming to a close, it is time to understand how financials are set up for the year, Reimann and Murphy noted. 

“Producers have about one month to do some planning and make a difference in how our tax reporting and tax liability turn out this year,” said Reimann.

With high cattle prices this season, as well as drought relief money coming in from the last few years, it is important to assess the differences in this year’s taxes, he continued. 

“Tax planning is really about, in the short run, this year and next year,” said Reimann. 

With this season’s high cattle prices, as well as drought money coming in from the last few years, deferring taxes or accelerating expenses might be advantageous this tax season. 

Reimann encouraged providing good information to a tax preparer and also warned, “We don’t want to create expenses. Let’s accelerate expenses where it makes sense, but don’t go spend a buck for something we don’t need where it’s only going to save 35 cents.”

“There is nothing wrong with paying a little tax,” he added. “We may feel like we are going to end up paying a lot of tax, but we’re still putting the bulk of it in our pocket, at the end of the day.”

Short-term

Reimann’s suggestions for this year include looking at income averaging, solar credits and permanent easements.

Income averaging is only available to agricultural producers and considers the last three years of finances. 

“If income is much higher this year than it has been in the previous three, be sure to consider this income averaging provision. It could make a really meaningful difference in your taxes,” stated Reimann. 

Solar credits are available on new wells equipped, or old wells re-equipped, with solar equipment, and the tax credit is 30 percent of equipment costs. 

Permanent easements may apply to contracts for pipelines, gas compressor stations or other energy industry access points. Under Section 1231, these may qualify for capitol gains treatment. 

“If we have had some easement money come in, in the last year or two, take a look at it and make sure it is being treated properly,” said Reimann.

Long-term

Henriksen highly recommended incorporating professionals in the financial planning discussion, and  noting that it is important to  make sure everyone is on the same page. 

“It’s very easy to talk about getting stuff done, but actually accomplishing it is a different story,” he said. “Finding the time to sit down with all the professionals, get all of the paperwork is a little more tedious than just talking about it.” 

But Henriksen had examples as recent as November 2014 where he has helped families with retirement accounts, insurance policies and other aspects of estate planning.

Estate planning

Estate planning, an important aspect of long-term financial planning, is a constant process, the specialists continued. 

Even if paperwork has already been completed, it is beneficial to review it on a regular basis, for managing operational finances. Big changes in estate planning have occurred in the last two years with recent fiscal cliff legislation.

“If families haven’t revisited their estate planning in the last two years, they really need to,” said Reiminn.

One important tax to be aware of is the Generation Skipping Transfer (GST).

“The GST Tax is an additional tax imposed by Congress if a gift is either directly or indirectly given to a generation below natural heirs,” said Powers.

Inheritance left to grandchildren that exceed the exemption amount, can be taxed up to 45 percent.

Alternative options

Long-term options include gifting stocks, tax-free bonds, defining an operation as a whole company versus an individual family or gifting to charity. The specialists noted that it is important to understand the financial terms of the distinct operation. 

Trusts limit the options for beneficiaries in contrast to individuals, LLCs are treated differently than corporations, and some accounts, such as annuities, can be very confusing.

“Families really have to look at their specific facts and circumstances to plan properly,” Reimann stated.

Natasha Wheeler is assistant editor at the Wyoming Livestock Roundup and can be reached at natasha@wylr.net