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What Is Federal Tax Rate on Lump Sum Payment - Excel

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What Is Federal Tax Rate on Lump Sum Payment - Excel Powered By Docstoc
					28-Oct-04
NPV Calculation for Lump-Sum Buyout of Tobacco Quota
As an Option for Quota Owners with Tax Considerations.
Given:      Dusty Furrow owns 50,000 lbs of tobacco and rents an additional 30,000 pounds.
            Dusty will receive $7/lb for the quota he owns and $3/lb for each pound grown (80,000 lbs)

            Pounds owned                50,000                          Basis                  $100,000
            Pounds rented               30,000

            Total Pounds Grown          80,000

            Buyout of quota                  $7 per pound
            Production payment               $3 per pound

            Total Quota Buyout in Dollars                   $350,000
            Total Production payment                        $240,000

            Projected Tobacco Buyout                        $590,000

            Selected Discount Rate                                         9.000%
             Discount rate considers risk and uncertainty of a future income stream

                                      Quota          Production                            Total
              Year                   payment          Payment                             Income
                2005                  $35,000              $24,000                             $59,000
                2006                  $35,000              $24,000                             $59,000
                2007                  $35,000              $24,000                             $59,000
                2008                  $35,000              $24,000                             $59,000
                2009                  $35,000              $24,000                             $59,000
                2010                  $35,000              $24,000                             $59,000
                2011                  $35,000              $24,000                             $59,000
                2012                  $35,000              $24,000                             $59,000
                2013                  $35,000              $24,000                             $59,000
                2014                  $35,000              $24,000                             $59,000

            Total Net Present Value                                                        $378,641.80
             NPV is the amount invested today at the discount rate to equal the sum of a future income stream.


Tax Consequences of Buyout:
Quota Buyout Payments ($7/lb money)
Federal Capital Gains (CG) Rate: applicable to quota: 5 or 15%                                                   15.00%
  Income tax rate of 10% or 15% CG rate is 5%, Income tax rate >15% CG rate is 15%
State Income Tax Rate: where applicable                                                                          7.00%

Estimated Annual CG Tax if taken as a stream of income                                        $5,500.00

Estimated Current CG Tax if taken as a lump sum                                              $36,365.12

Production Payments ($3/lb money)
Federal Income Tax Rate (10, 15, 25, 28, 30, 35)                                                                 25.00%
Self-Employment (SE) Tax Rate, Schedule F: if < $87,900 15.3%, or if >$87,900 2.9%                               15.30%
State Income Tax Rate: where applicable                                                                           7.00%


Annual Income and SE Tax if taken as an income stream                                        $11,352.00

Current Income and SE Tax if taken as a lump-sum payment                                     $72,853.25


Estimated Total Federal and State Tax if taken as an income stream                           $16,852.00

Estimated Total Federal and State Tax if taken as a lump-sum payment                        $109,218.37

            Cash Available after taxes are paid: Income-stream Option                        $42,148.00

            Cash Available after taxes are paid: Lump-sum Option                            $269,423.44

Prepared by Guido van der Hoeven, Extension Specialist/Lecturer
Department of Agricultural and Resource Economics, NSCU
email: guido_vdh@ncsu.edu        Phone: 919.515.9071

				
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