Document Type

Thesis - Open Access

Award Date

1990

Degree Name

Master of Science (MS)

Department

Economics

First Advisor

Ardelle Lundeen

Abstract

The overall objective of this study is to determine, compare, and analyze the effects and impacts of the Tax Reform Act of 1986 based on three machinery replacement strategies and four debt to asset ratios on a selected southeastern South Dakota dryland crop farm. This overall objective will be accomplished through the following three specific objectives. (1) Identify and explain the income tax code changes made by the Tax Reform Act of 1986 that most directly affect agricultural producers, especially in the area of machinery investment. (2 ) Simulate the impacts of the 1986 Tax Reform Act over an eight year period on the taxable income, income tax liability, survivability, and overall ending financial status of a hypothetical southeastern South Dakota farm sole proprietorship using three machinery replacement options, four debt to asset ratios, and two federal income tax provisions through the use of the Firm Level Income and Policy Simulation Model (FLIPSIM V). (3) Interpret the results of the model scenarios on the financial status of the farm operation and compare the impacts of the machinery replacement strategies and four debt to asset ratios between the 1985 income tax laws and the 1986 Tax Reform Act on the survivability, change in income tax liability, and overall ending financial status of the farm. This research examines-the effects of the Tax Reform Act of 1986 on a selected South Dakota farm by comparing the simulated outcomes of the 1985 income tax laws and the 1986 Tax Reform Act on a number of chosen variables of the selected farm. It is hypothesized that the depreciation deductions after the 1986 Tax Reform Act should be lower than under the 1985 income tax law because of the reduction of depreciable rates and extension of class lives for most depreciable farm machinery. The investment tax credit was eliminated by the 1986 TRA and will thus be $0. As the debt to asset ratios are increased, there should be lower income tax liability and fewer machinery purchases. One would also hypothesize that machinery investments would slightly decrease after the 1986 Tax Reform Act and the income tax liability would increase due to fewer depreciation allowances and no investment tax credit deductions.

Library of Congress Subject Headings

United States. Tax Reform Act of 1986
Farms -- Taxation -- Law and legislation -- South Dakota
Agricultural machinery -- Taxation -- South Dakota
Farm income -- Taxation -- United States
Income tax

Format

application/pdf

Number of Pages

111

Publisher

South Dakota State University

Included in

Economics Commons

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