SE IL | jd8850 - 12/25/2024 21:04 Im puzzled why you want your insurance values different than your balance sheet? You want to insure for more than they're worth and pay extra premium? There are at least 3 different balance sheet scenarios I can think of. 1. Leaving land values the same to see if you're "making actual money not due to inflation" But that's not a true net worth. 2. Changing land values and machinery values, which is more of an actual net worth. 3. This one is the killer. NOT having income tax implications in there if: You sold out. Got sold out. Died leaving estate with heirs. In the first 2 scenarios you cd easily owe 40% tax if everything is sold because: The machinery is depreciated out. Land was bought cheap. So you're really not worth what you think you are or what the balance sheet shows.
The easiest example i can use is a grain bin. If you tried to sell it you would probably be lucky to get 25% of its replacement cost. Are you going to insure it for that? No you’re going to insure it for something closer to what it would cost to replace it. But its value is probably different if it’s included in the sale of the real estate it sits on assuming it’s relatively new and of a desirable size.
If you sell out for whatever reason there will probably be taxes due. So either have values reflecting that or make a single line item for deferred tax liability.
If you are trying to see where you are for estate tax purposes you will need to have values reflecting fair market values not net of any capital gains as your estate will get a stepped up basis.
So it just depends on the point of doing the balance sheet. Personally the one I give the bank is the one if I sell out since that’s what they are interested in knowing. If i gave them the estate planning one they are going to adjust it so may as well save them the hassle. |
Balance Sheet-What's the point?
