Cotton Management Economic Notes, Volume 1, No. 10

Abstract

Marketing decisions need to be scrutinized carefully at the end of the tax year when utilizing a cash accounting system, due to the progressive tax structure of state and federal income tax schedules. Even though cash prices may be disturbingly low — it may be wise to take advantage of near zero marginal tax rates this year. For example, if cotton is sold for $.50/lb this December with a zero marginal tax rate the after-tax price received is $.50/lb. If this cotton were sold in 1993 with a 15% or 28% marginal tax rate, $.59/lb. and $.69/lb. would be the minimum required prices needed to equal $50/lb. for 1992, respectively. Other costs such as interest, storage, and insurance would increase the amount necessary to obtain an equivalent after-tax price.