Farmers have been prepared to invest in their crops (or livestock) by arranging a Line of Credit (LOC) loan each year. The interest rate paid on these LOC’s may range from 5-10% which means that after paying the land and input costs there is an additional payment to cover the LOC interest. After all payments and LOC are distributed, the farmer will be able to allocate the remaining dollars to their operation.
The New Way to View Your Operation
What if there was another way for the farmer to fund their own operation without the LOC? What if their own operation was the source of funds for this year’s crop? What if the LOC came from the farm operation and they could pocket significant margin by borrowing from themselves?
Farmers work with their CPAs each year to calculate how ordinary income and/or capital gains taxes will affect their operation. Ask your CPA what would happen if you could defer your ordinary income and/or capital gains taxes for up to 30 years. What if you could take the dollars that were going to taxes and invest those dollars into the farm? What if instead of paying 5-10% LOC interest, you paid under 2% on a loan from those deferred dollars?
Plan, then Execute
There are those who view deferring taxes as ‘kicking the can down the road.’ Yes, taxes will be due in the future, at the tax rates in the end year of the deferred timeframe. The tax dollars paid will also be less as compared to today, because of inflation (present value).
Farmers pay 5-10% LOC interest each year and are happy to do so. Farmers First Trust is providing an opportunity for farmers to invest in themselves and reap the rewards of your work and planning. Each year you risk your future leveraging your operation with the 5-10% LOC burden on your crop. Take this opportunity to remove the burden, invest in yourself and grow your operation in a new way.