Friday, December 18, 2015
Big break: Small businesses looking for annual tax deduction
By Joyce M. Rosenberg
Small businesses are close to getting a permanent half-million-dollar tax break when they buy equipment like cars, computers and machinery. But tax pros say owners should crunch some numbers before claiming the big deduction.
An agreement that was reached in Congress this week and is expected to become law would give small companies a $500,000 annual deduction for equipment purchases. The so-called Section 179 deduction has been in limbo the past few years, with Congress often not agreeing until December to raise it from the $25,000 called for in the federal tax code.
The permanent $500,000 deduction is part of a tax package that also includes a higher deduction through 2019 for all companies that depreciate equipment purchases and a permanent break on research and development costs.
Here’s what you need to know:
WHAT IS THE SECTION 179 DEDUCTION?
The Section 179 deduction allows a small business to deduct upfront rather than depreciate over a number of years the cost of equipment like computers, vehicles, manufacturing and farm machinery and office furniture. It can’t be used for equipment like heating and air conditioning units that become part of a building.
Equipment has to be purchased and put into service by Dec. 31. So if you have a manufacturing machine delivered but it isn’t assembled, up and running by the end of the year, you can’t deduct it. You don’t have to pay for the equipment by year-end; It’s OK to buy it on credit and still take the full deduction.
If your company has lost money, you can carry over a portion of the deduction into the next year.
You can learn more about the deduction and how to claim it on your tax return from IRS Publication 946, How to Depreciate Property, which is available on the IRS website, www.irs.gov .
It’s also a good idea to discuss your plans with an accountant or tax attorney.
HOW YOU SHOULD I PROCEED?
Perhaps the greatest benefit of a permanent Section 179 deduction is that it allows businesses to do long-term financial planning. When accountants hold planning meetings with their business clients, they’re often looking at revenue and income projections for three or four years, and they may even be looking back at the previous year.
So while it may be tempting to take the entire deduction in a given year, an accountant is likely to consider whether it makes more sense to depreciate a big purchase over a period of five to seven years so a company could save more money in the future, especially if it’s likely to have a big revenue surge.
An owner whose income is down in the current year and isn’t expecting a big tax bill might also want to think about delaying the purchase until the following year, says Jeffrey Berdahl, a certified public accountant with RLB Accountants in Allentown, Pennsylvania.
“You might be in a higher tax bracket next year,” Berdahl says.
The tax bill also reinstates through 2019 what’s called bonus depreciation, which allows companies of all sizes to depreciate half the cost of an equipment purchase. Bonus depreciation had expired at the end of 2014. Small companies can use both the Section 179 deduction and bonus depreciation, up to a maximum of $2 million.
DO YOU REALLY NEED IT?
An expression accountants often use when they’re talking about equipment purchases is: Don’t let the tax tail wag the dog. In other words, don’t buy equipment your company doesn’t really need.
You need to be sure the equipment you buy will bring in enough revenue to justify the investment. This is especially important if equipment was bought on credit — a company can still be paying down debt long after they got the tax break, says Martin Abo, an accountant and financial planner in Mount Laurel, New Jersey.
“You need to be able to say, this thing is going to produce for me,” Abo says.
McClatchy News Service
Lawmakers use omnibus bill to block funding as well as provide it
By Michael Doyle
WASHINGTON – The omnibus spending bill set for approval Friday freezes out some politically frail California projects.
Forget about plotting an irrigation drain for San Joaquin Valley farms. The omnibus, like many funding bills before it, prohibits spending even a penny on planning a drain’s destination.
Ditto proposals for siphoning water stored beneath the Southern California desert. The bill once again blocks the Interior Department from considering a private company’s plan for tapping groundwater or using federal land near the Mojave National Preserve.
It turns out that the 2,009-page omnibus package is important for more than the trillion reasons most people count. Beyond the $1.1 trillion it provides to keep the government running through next September, the sprawling measure prohibits federal spending on an array of programs.
“There are tendencies and efforts each year to impact public policy through the purse strings,” Rep. Jim Costa, D-Calif., said Thursday, while adding that he considers it inappropriate to use funding bills to restrict policies.
By closing as well as opening the purse, lawmakers have long flexed the power granted them under the Constitution, and the omnibus is stuffed with what some dub “negative earmarks.” These are provisions in which Congress effectively says no funds may be used for a particular purpose.
No federal funds, for instance, can be used to promote the sale or export of tobacco or tobacco products. No funds can be used to close a Farm Service Agency county office, such as the 33 open in California. Federal employees can forget about flying first class.
The Internal Revenue Service cannot spend money making videos, unless it gets an editorial board’s go-ahead. The Treasury Department cannot spend money redesigning the $1 bill.
And definitely, the omnibus declares on page 344, no Defense Department funds shall be used to pay “for entertainment that includes topless or nude entertainers or participants.”
Often, the prohibitions carry over with little public controversy from year to year. The omnibus’s ban on spending Interior Department funds on the Southern California desert aquifer project, for one, continues a policy first put in place in December 2007.
Democratic Sen. Dianne Feinstein, a senior member of the Senate Appropriations Committee, and other opponents of the Cadiz Co.’s long-simmering groundwater proposal say they’re worried about the depletion of an invaluable natural resource.
The restrictive language bans spending federal funds “in relation to any proposal to store water underground for the purpose of export, for approval of any right-of-way or similar authorization on the Mojave National Preserve” or nearby public lands.
“It’s not the only way to affect policy, but certainly from an appropriator’s standpoint, it’s certainly one of the most effective,” Rep. Tom Cole, R-Okla., a senior member of the House Appropriations Committee, said of funding cutoffs in general Thursday, adding that “if you can’t spend the money, you can’t do the activity.”
Another long-standing prohibition involving California water – banning use of funds to “determine the final point of discharge for the interceptor drain” serving the San Joaquin Valley’s west side farms – dates back even longer. The ban, summoning memories of the irrigation-tainted Kesterson Reservoir in the mid-1980s, protects the Sacramento-San Joaquin Delta.
“It’s never been raised as an issue that I should be concerned about or tracking,” Rep. Jared Huffman, D-Calif., said of the annual prohibition language Thursday, adding that “it’s one of these legacies that get carried forward.”
Current events, though, can sometimes cause turbulence for even long-standing prohibitions.
In 1996, for instance, an Arkansas Republican inserted language effectively blocking the Centers for Disease Control and Prevention from conducting research into gun violence. Though the former congressman, Jay Dickey, has since called for resuming CDC research, the omnibus continues the ban.
“No one can offer one good reason to keep this ban in place,” said Rep. Mike Thompson, D-Calif., chair of the House Gun Violence Prevention Task Force. “This rider has prohibited experts at the CDC from reaching the causes and best ways to prevent gun violence for nearly 20 years.”
Michael Doyle: 202-383-0006, @MichaelDoyle10, firstname.lastname@example.org
San Francisco Chronicle
Without water, work or homes: Farm laborers displaced by drought
By Marissa Lang
MENDOTA, Fresno County — In bare feet, stepping carefully over jagged rocks and broken glass, Martín Hernandez Mena set out for the irrigation canal on the other side of the dirt road.
It was late on a summer day, the temperature above 100 in rural Fresno County, and swimming was the only way to escape the heat and the flies.
Water had been Mena’s escape since he was a boy growing up near the Pacific cliffs of Acapulco, where he learned to dive into the waves below. As a young man there, he fished to provide for his family.
In his 30s, he found a better way: He followed whispered promises north to California, where, people said, plates were never empty and wells never ran dry.
Now, at age 50, Mena knew better.
For nearly two years, he had lived across the road from the canal. Despite the drought, it still flowed, carrying what remained of an ever-dwindling, much-disputed water supply. Mena’s plywood shack, just yards away, sat on the bed of another irrigation ditch, this one long dry.
His was one of dozens of shanties that grew where little else does after four years of California’s crippling drought. It had no toilet, no shower, no sink. But it was all he had left after the fieldwork he’d done for decades disappeared.
Mena’s is a story about what water gives and takes away — how California’s farmworkers are an ecological crisis away from losing their jobs and their homes, with no safety net.
No single circumstance pushed Mena or the dozens of others who lived in the shantytown into destitution. But little by little, issues that have persisted in rural California for more than a century have worsened.
Smaller farms that promised regular work have lost ground and resources. Bigger farms have turned to machines to replace human labor. Then the water vanished.
Those who took refuge in the ditch shake their heads at the course of events that brought them here, a path familiar to any farmworker: If they lose their jobs, they can’t make the rent. If they lose their homes, there’s nowhere to go. If they leave an area they know, they worry they won’t find work.
So they stay, and they wait, hoping the water, and the work, will return.
People were puzzled when the first farmworker moved into the ditch at the edge of town. But as time passed, most forgot he was there.
Then, in 2014, others began to join him.
By that spring, when Mena arrived and laid the foundation of his plywood shack in the packed earth, there were about half a dozen men and a few women in residence. Six months later, the population had doubled.
Many were farm laborers. When there was work, they harvested vegetables, cotton, fruit and nuts. When there wasn’t, they lingered among the shanties.
“They’re good people,” said Carina Rivas, who works at Mendota’s Catholic church, Our Lady of Guadalupe, where some went to pray. “They just can’t find work. They’re stuck.”
Rivas and others watched as the shanties multiplied through winter and into this year. Before long, there were roughly 30 structures and 40 residents living in the ditch. Bordering a city without a single homeless shelter, the shantytown became the biggest homeless camp Mendota had ever seen.
A third of Mendota’s 11,500 residents work in agriculture. The federal government estimates that more than 40 percent of single adults in Mendota live in poverty, but that number overlooks the roughly 70 percent of farm laborers in the U.S. who, like Mena, are undocumented.
Average monthly rent in Mendota hovers around $800 — the amount a California farmworker generally makes in about 2½ weeks of steady work. But jobs have become increasingly hard to find, even for those willing to drive several hours for a day’s work.
Central Valley farms rely on water from two systems engineered to bring mountain runoff from Northern California to the drier southern half of the state: the State Water Project and the federal Central Valley Project.
This year, the state allocated just 20 percent of the water requested by California water districts. For the second straight year, the federal government cut off most valley water districts entirely — including the Westlands Water District, which supplies the farms around Mendota.
Westlands, the largest irrigation district in the San Joaquin Valley, relies exclusively on the federal government for water allocation.
Because its contract with Washington is among the weakest in the state, the nearly 700 farms that rely on its services are among the last in line to get water.
All told, Westlands farmers fallowed a record of more than 212,000 acres this year.
The water crisis here and elsewhere has led the state’s $50 billion agricultural industry to turn to controversial measures, such as pumping groundwater, which has caused aquifers to collapse and the floor of the Central Valley to sink.
But such tactics haven’t changed one simple economic and ecological truth: Less water means fewer crops. And fewer crops means fewer jobs.
“When I got here, I worked all the time, all year,” Mena said. “Not anymore. Now a person is out of work nearly half the year.”
He lost a reliable farm job four years ago. Even then, before extreme drought put California in a choke hold, farmworkers said, it was not unusual for older workers to lose opportunities to younger, fitter ones.
After he lost that job, Mena turned to labor contractors — Spanish-speaking go-betweens who recruit for farms and make sure workers get paid. He traveled around the San Joaquin Valley, picking fruit, harvesting vegetables, pruning nut trees.
But as the drought worsened, his prospects withered. Some mornings he would report to the fields only to be turned away.
It was wintertime when he lost his apartment. He hadn’t been able to land a field job in weeks.
He offered to help his landlord paint the complex and do other maintenance work if he could stay, but the property owner, Mena said, refused.
A month later, Mena slung a trash bag full of clothes over his shoulder. He was headed toward the canal.
In the early morning when the sky is dark, headlights illuminate the streets of Mendota, signaling fieldwork to be had.
When they needed more labor than can be found in the town, the contractors would roll through the shantytown.
One September morning, Mena emerged from his shanty, securing the front door with a padlock as the young men in trucks honked and hollered into the dark.
For a while, Mena had joined those piling on board. But last year, he suffered a hernia. Working the fields became too painful, so he stopped.
Manuel Nuñez, a young man who’d joined the shantytown, pulled a baseball cap over his dark hair as he strode toward the glowing lights.
“You’re coming with us today, right?” Nuñez, 29, teased Mena in Spanish.
Mena shrugged him off. He had other work to do.
He walked briskly past rows of silent shanties until he reached one topped with a blue tarp. “Oye, Mario,” he called to the man inside.
Mario Rodriguez climbed through a door partly blocked by piles of scrap wood and worn tools. Rodriguez, who had lived in the shantytown for about a year, used to work in construction in Ogden, Utah. He was a foreman then, working on railroad tracks and trains. Now he asks Mena for help restoring old furniture to sell.
Mena turned his attention to a wooden chair that was missing its seat. With a sharp metal file, he began carving new grooves into the wood.
After his hernia, odd jobs like fixing furniture, mowing lawns and even building shanties became his main source of income. He’d built as many as four shacks in the dried-up canal bed and helped with several others.
When he didn’t have a job to do, he made work for himself: picking up bottles and cans, fashioning jewelry out of discarded wire or metal scraps, carving tiny animal figurines out of wood, or weaving hammocks and nets out of thin white rope. Anything he could sell to people in town. His meager earnings bought him food, clothes, coffee, cigarettes and new tools to help in his projects.
As Mena whittled, Rodriguez sawed 2-by-4s on a workbench covered in sawdust and half-empty bottles of beer.
When his wife divorced him, Rodriguez said, she took the house and the kids. He turned to alcohol to quiet his guilt. Then he lost his job.
He moved to Mendota about a year ago because he had friends nearby. They told him he would be happier in California, that he could start over.
Now he takes requests from people in town and crafts furniture by hand. At $60 per chair, he said, he barely covers the cost of materials, but it’s hard to negotiate when people know you live in a ditch.
“This is not California,” Rodriguez said. “This is like another country.”
Behind Rodriguez’s shack, a red-and-white sign posted by Westlands Water District warned trespassers to keep out. The wording that threatened litigation was hard to make out — someone had leaned a plastic tree up against it.
Nowhere to go
As the shantytown grew, word of it spread.
Some already on the fringes of society — substance abusers and the chronically homeless among them — moved into shanties of their own.
Community leaders decried the crime they blamed on the encampment. There were reports of prostitution, drugs and theft. Local media did spots on the conditions inside. Some of its residents were hungry and sick; small wounds became ugly and infected.
Several had built their own latrines — a toilet seat perched over a box built over a hole — but few had access to any kind of bathroom. There was no potable water, no sanitation. Garbage accumulated along the side of the road. Food scraps brought rats and other pests.
In October 2014, the Fresno County Department of Public Works ordered Westlands Water District to evict the squatters, saying the camp violated building code and health regulations. In May, the water district nailed eviction notices to the shacks.
No one moved.
In June, the district ripped up unoccupied portions of the canal bed, leaving behind uneven soil in a bid to halt further shanty construction. New eviction signs were posted.
Still, no one budged.
“If they tell me to leave, I’ll leave,” Mena said. “But where would I go?”
The closest homeless shelter to Mendota is in Fresno — nearly an hour’s drive away. Mena, who got around town by borrowed bicycle or on foot, scowled at the prospect of moving to Fresno. He didn’t know anyone there, he said. How would he find work?
Mena is one of thousands of farmworkers who have come into the U.S. illegally, and are not eligible for any federally funded programs. That rules out unemployment benefits or food stamps. And though the shantytown residents all qualified for some form of Medi-Cal coverage, few knew how to apply.
Maricela Montejano, 49, worked for the Internal Revenue Service before losing herself to addiction. She was thrown out of her last apartment because she drank too much. She hasn’t held down a steady job in years. She would get help, she said, if there were any in town. A lifelong Mendota resident, Montejano didn’t want to leave the only place she’s ever called home.
Edgar Torres Castro, 40, spent his days planting trees along the dried ditch and painting flowers on walls of nearby shanties. His shack held a collection of books he said were helping him learn English. His favorite was the dictionary. He wasn’t always sure what was happening or why the police and the water district wanted him to leave — God had told him to go live in the canal bed, he said. This was where he was supposed to be.
There are no public services in Mendota for people suffering from addiction or mental illness.
Mendota Mayor Robert Silva declined to discuss the encampment or the city’s lack of services.
Mendota, scholars say, embodies a paradox that emerges in rural communities when the economy turns: Areas with an impoverished population have little to spend on social services that help the poor.
“It’s so sad that they’re not getting any help,” said Rivas, who helped lead an addiction support group through the Catholic church before it was put on indefinite hold last year. “They’re not hurting anyone.”
Down in the valley
Home to both the most prosperous agricultural industry in the nation and some of its poorest workers, rural California is rich in contradiction.
Farmworkers, largely Latino and mostly undocumented, work the land throughout Kern, Tulare and Fresno counties — three of the top farming counties in California — then go home to the poorest cities in the state.
Fred Krissman, an anthropology research associate at Humboldt State University who spent decades studying the conditions of Mexican migrant workers, said these communities are concentrated examples of the problems faced by rural cities all across America.
California has relied on the labor of immigrants since before the Dust Bowl of the 1930s. They came legally through guest worker programs and illegally through a porous border. They lived in labor camps, sometimes on farmers’ land, and in the off-season returned to Mexico, where their earnings carried more value.
Increasingly aggressive immigration laws that solidified the border and dissolved migrant worker programs forced laborers to choose: live in Mexico or work in the U.S.
Today, Mexican-born men and women make up three-quarters of California’s 177,000 farmworkers. By conservative estimates, roughly 70 percent of them are undocumented.
They work in cycles, traveling around the state to farm different crops, depending on the season. By law, all farmworkers are required to earn the state minimum wage, which in 2016 will increase from $9 to $10 an hour.
But as jobs grow scarce, farmworkers become vulnerable to abuse. Some have reported labor contractors who short them on their wages by as much as $4 an hour.
Michelle Anderson, a Stanford law professor who has studied the legal and political landscape of high-poverty areas, said rural areas offer little access to legal aid, and people without documentation tend to be wary of government agencies meant to regulate wages and fair treatment. So they accept conditions, like those of the shantytown, that Anderson said “should be morally intolerable in a wealthy state like ours.”
“It’s just a completely invisible, under-protected population,” she said. “When you add in the fact that a lot of farmworkers are immigrants, there’s just a deep discriminatory factor where we think: This must be better than what they left behind, so it must be good enough.”
There are few reliable data to pinpoint exactly how many farmworkers are unemployed or living in poverty. Last year, more than 4,000 farmworker families struggling to retain their homes because of lost wages were granted a one-time Drought Housing Rental Subsidy. But those who are in the country illegally do not qualify for the federally funded program.
By 2014, experts estimated that more than 17,000 farm jobs in California had been lost due to drought. Manuel Cunha, president of the Fresno-based Nisei Farmers League, said he has seen more fieldworkers out of work this year than ever before.
As farmers fallowed fields of vegetables and row crops, they told labor contractors to cut shifts from six or seven days a week in peak season to four or five. Then, Cunha said, they went down to two or three.
Work became so unreliable that some gave up and returned to Mexico. More than a million Mexicans and their families have left the U.S. since 2009, according to a study published last month by the Pew Research Center.
“Knowing these problems exist, the workers don’t come back,” Cunha said. “There’s no jobs on the east side (of the Central Valley), there’s no jobs on the west side.”
And so shantytowns like Mendota’s spring up, as they have previously during tough times. An encampment of hundreds of migrant workers grew in the San Diego hills during the early 1990s.
Experts say any future drought or freeze has the potential to start the cycle again.
“The drought has all of California’s attention,” said Maria Echeveste, a law professor at UC Berkeley who specializes in issues faced by Mexican Americans and Mexican migrants in the United States. “But everyone putting food on their table for the holidays should know there’s a farmworker somewhere who picked it and probably doesn’t have a lot to eat or adequate housing and is going to have a very wet, cold winter.”
Notice to vacate
For six months, Westlands Water District fought a legal case against the people living in the shanties. Most of the shanty residents, though, said they knew nothing about it — despite the notices issued in English and Spanish.
The district adhered strictly to eviction procedure, careful to close any loophole. A lawyer argued the district’s case before a judge in Fresno County Superior Court. No one from the encampment attended the hearings.
In early November, a final warning was nailed to shanty doors: If you don’t leave, it said, the Fresno County Sheriff’s Office will forcibly remove you.
Then a fence went up — a chain-link perimeter surrounding the ditch.
After that, some residents left for the homes of nearby friends or family. Half a dozen returned to Mexico. Most didn’t know where to go. So they stayed.
The night before law enforcement was scheduled to come, Mena swept the plywood floors of his home. He folded his shirts, packed a bag just in case.
“I’m always hopeful that something will happen, that things will get better — you have to have hope,” Mena said. “But right now, I don’t know. Right now I don’t know what’s going to happen.”
Volunteers from Mendota’s Catholic and Presbyterian churches crowded the canal bed, asking how they could help.
“Can you get me a job?” asked a graying man named Elias Perez Diaz.
The church people looked at each other, then back at him. They shook their heads.
Diaz threw up his hands, walked back into his shack and closed the door. Mexican ballads leaked into the night through the cracks in his walls.
The next day, when Mena emerged from his shack, he saw television cameras and church congregants mingling in the road.
Two miles away, sheriff’s deputies gathered in a small briefing room at the Mendota police station to discuss the eviction plan. Ambulances were on standby. Animal control was on its way. Deputies had been assigned to make sure the only exit from the camp was through a single gate in the fence.
“We don’t know what we’re going to run into out there,” Deputy Doug Richardson told the roomful of officers. “We don’t know what we’re going to be faced with.”
The plan was simple: Clear each structure, then escort the inhabitants one at a time through the gate. Social service providers with the Fresno-Madera Continuum of Care would be waiting to offer rides to Fresno, where shelters promised beds, meals and counseling.
Back at the camp, the only service provider the shantytown had ever really known was climbing out of her black SUV.
María Hernandez, a small, silver-haired woman who knew each resident by name, popped open her trunk. Inside were sandwiches, cans of soda and Mexican sweet bread.
Hernandez, a member of the Catholic church, had visited the camp daily. She brought food and clothes, conversation and care. She had quit her job so she would have more time to cook and collect donations. She sold handmade rosaries to pay for what she bought them.
She fought back tears as she handed out plates. “They’re like family,” she said later. “They’ve all become like my family.”
Mena took his sandwich back to his shack, eating a last meal inside the four walls he built.
The evictions began just after 1 p.m. One by one, deputies escorted residents out of the ditch. Some carried as many bags as they could hold, others pushed bikes. All had the same wide-eyed expression as they walked out into a crowd of emergency workers, cameras and volunteers. Only one accepted a ride to a shelter in Fresno.
“What happened today is the best of a bunch of really bad options,” Westlands spokesman Johnny Amaral told a group of reporters. “This is not easy for us; this is not easy for anybody. But today had to happen.”
As the residents filed out, tightly clutching whatever they could carry, those watching them depart looked for someone to blame.
Westlands officials said it was the government’s fault: If Washington had “held up their end of the deal” and allocated water to the region, Amaral said, the jobs wouldn’t have dried up; these people could still be working. If only there were water, he said, they wouldn’t have to live like this.
“These types of things will happen if you starve an area of water,” Amaral said. “That’s what’s happened out here.”
Social workers blamed the local infrastructure: If rural communities were better equipped to handle homelessness, these people wouldn’t have wound up in a ditch — they could have slept in a shelter. They could have gotten fed. They could have gotten help.
Church-goers pointed at Westlands and the county: They could have just let the settlement be.
Blame didn’t much interest Mena. Neither did Fresno.
He left the shantytown the same way he came, with a bag of his belongings, walking once more into the unknown.
Marissa Lang is a San Francisco Chronicle staff writer. E-mail: email@example.com Twitter: @marissa_jae
Throughout 2015, The Chronicle will report on water growing scarce in California. Find more coverage at www.sfchronicle.com/drought.