Cattle as a tax break. ?'s

[SuperDave]

Just have a couple quick questions concerning taxes.

I've got a little bit of land that I can run about 20 head on comfortably. My question is, if I get started this year with say 5-10 head, is it still possible to get a tax break?

Is there an over under on head count that must be met before I start claiming all my expenses on my returns?

I dont have a thousand acres so I'm not really into this to try and turn a profit. I've read enough on here to realize that that is not what is to be expected.

While I'm on that subject though, how many do most of you run before you begin to start to turn a profit? I figure my best benefit financially from running cattle would be the taxes based on the amount of land I have to play with.

 

[Mahoney Pursley Ranch]

In our county in Texas the county tax people decide how many head per acre you need to run to qualify for the tax benefit. Check with your county extension agent. You might also be able to Homestead a part of your spread and get another tax cut as we do here. Good luck.

 

[Jogeephus]

I'm pretty sure the IRS frowns upon those getting into the cattle business looking for a tax break. You will have to turn a profit at some point - I forget the rule. Otherwise they will deem your operation a hobby and disallow your deductions. As for county stuff, here you just have to sign a promise that you are not going to develope the land for 10 years and you can get a break.

 

[Brute 23]

If you make your "ranch" show a profit on the books then you will be ok to write stuff off with out any problems.

There is all kinds of stuff that can be done to give you a tax break but you have to watch how much you spend to get a tax break as compared to just paying the taxes. :lol: [/u]

 

[ArmyDoc]

As I understand it, if you never intend to have a profit, you can't call it a farm / business, and can't get any deductions. If you do intend to run it as a business, and have the records sepparate, the business plan etc to back this up, you don't have to have a profit during the first 3 years (mabe 5 - not sure). But you will eventually have to show a profit. There is no free lunch...

 

[backhoeboogie]

If you are making a profit, you pay taxes on that profit. If you are in a combined income of over 6 figures, much of your profit is consumed. It leaves you working for very little per hour in the cattle business.

The "tax break" I get is for ag-exemption on property taxes. It saves me thousands. My land in East Texas has property taxes that are practically nothing. Here they are outrageous. It all depends on location.

 

[Jogeephus]

Gee backhoe, seems like the land in East Texas should be taxed higher since it closer to God's country - you know Georgia. ;-) :lol: :lol: :lol:

 

[backhoeboogie]

Gee backhoe, seems like the land in East Texas should be taxed higher since it closer to God's country - you know Georgia. ;-) :lol: :lol: :lol:

The economy over there is terrible. Engineers are moving this way to double their salaries. If you put in a business that turns a profit, next year there will be 5 on your street. Seen it over and over.

It is only 28+ acres and the taxes are about $200 a year. Same acreage here would cost you around $6K without an ag exemption.

 

[Running Arrow Bill]

In Texas one should start with an "Agricultural Exemption" piece of property. This translates to the AG Exemp being in place for 5 of the past 7 years. If the property is not zoned "Agricultural", then it is probably zoned residential, commercial, industrial, or whatever.

My guess is that if one's zoning is not Agricultural, then until that status can be achieved, the tax guys would probably look at a "livestock" operation as a hobby, recreational, or whatever.

Check with your County Tax Office to see what forms need to be filled out for the AG Exemption, etc.

 

[dcara]

My guess is that if one's zoning is not Agricultural, then until that status can be achieved, the tax guys would probably look at a "livestock" operation as a hobby, recreational, or whatever.

Good point RAB. Though I've never had to deal with that issue since all my prop has almost always been AG'd. I say almost because I actually had to take some out of AG temporarily during a finance deal since the lender insisted it not be AG'd in order for one of the asset ratio's to work out right. After the deal was done I put it right back in AG though.

Anyway, as I said I think you have a good point but I also think that that technically the others got it right. That is, you just have to have a business plan AND show a profit after some amount of time. So if your farming land that is not in AG then the higher taxes would just be a larger expense in you business plan which may result in it taking longer to show a profit. Your plan may show that you cannot make a profit at the non-ag tax levels and hence it will be at least 5 years until the land goes back into AG before you can show a profit due to the lower tak rate. Just my 2 cents

 

[novatech]

Just have a couple quick questions concerning taxes.

I've got a little bit of land that I can run about 20 head on comfortably. My question is, if I get started this year with say 5-10 head, is it still possible to get a tax break?

Is there an over under on head count that must be met before I start claiming all my expenses on my returns?

I dont have a thousand acres so I'm not really into this to try and turn a profit. I've read enough on here to realize that that is not what is to be expected.

While I'm on that subject though, how many do most of you run before you begin to start to turn a profit? I figure my best benefit financially from running cattle would be the taxes based on the amount of land I have to play with.

My guess is that you are talking about income tax.
If this is so then you must show a profit every 5(?) years. You are operateing a business regardless of number of head. If you do not show a profit in five years you must show the IRS were you are actually running this as a business and trying to make a profit. If you cannot do this they will not allow you to write this off as they will clasify it as a hobby, or recreation.
I am not a CPA, so given that if I were you I would check with one before investing and assumeing anything. ;-)

 

[C HOLLAND]

This is one my favorite type of questions.

Most people looking for a tax write off will normally spend more money that they saved by just paying the tax in the first place.

There are so many people out there who think you can just buy that 40,000 tractor and write it off, well you still spent the 40K and you won't ever get that kind of tax savings with 20 head or 100 for that matter.

Try putting the money in a 401K or IRA and lease out the land, it will make you more money that way.

JMO

 

[Frankie]

This is one my favorite type of questions.

Most people looking for a tax write off will normally spend more money that they saved by just paying the tax in the first place.

There are so many people out there who think you can just buy that 40,000 tractor and write it off, well you still spent the 40K and you won't ever get that kind of tax savings with 20 head or 100 for that matter.

Try putting the money in a 401K or IRA and lease out the land, it will make you more money that way.

JMO

Good post. But a 401K isn't nearly as much fun. Watching those babies learn to buck and run, a heifer grow into a cow is why most of us do it.

 

[C HOLLAND]

This is one my favorite type of questions.

Most people looking for a tax write off will normally spend more money that they saved by just paying the tax in the first place.

There are so many people out there who think you can just buy that 40,000 tractor and write it off, well you still spent the 40K and you won't ever get that kind of tax savings with 20 head or 100 for that matter.

Try putting the money in a 401K or IRA and lease out the land, it will make you more money that way.

JMO

Good post. But a 401K isn't nearly as much fun. Watching those babies learn to buck and run, a heifer grow into a cow is why most of us do it.

I agree Frankie, that is exactly why I do it.

I had a guy at work tell me this morning I HAD ALL THE MONEY because I own a few cows, he doesn't have a clue about what someone actually makes from this business.

 

[cmjust0]

Here's my understanding...

You're supposed to show a profit in three of the previous five years if you're audited.. If you haven't shown the necessary profits, then it's up to you to convince the IRS that you're actually trying to make a profit.. They may or may not believe you, depending on how "business-like" your farm is.. The more business-like it is, the better.

Now, even if they decide you're a hobby farmer, you can still claim deductions -- you just can't claim more deductions than you have income.. In other words, you can't continue to show losses..

So long as you're not using your farm primarily to shelter your off-farm income, only being able to show a break-even probably isn't the end of the world.

 

[jvicars]

Interesting post. I am a CPA and also have 20 cows. As said early spending money for a tax deduction is not good economics. However, if you are going to do it anyway why not make it a business. Loosing money for years can be a problem with the IRS. You need some sort of plan to show the IRS you intend to make money. Most cattle or related operations have problems with the IRS because of lack of good bookkeeping and profit motive. I have seen businesses loose money for years and get by fine with the IRS. 2 cents.

 

[cmjust0]

As said early spending money for a tax deduction is not good economics.

Very true.. I never understood the some peoples' compulsion to spend a dollar just to get a few pennies knocked off the tax bill.. I can't help but think people get it in their heads that when they deduct something, it magically becomes free..

I have seen businesses loose money for years and get by fine with the IRS.

Yeah, speaking of "cows" and losing money... PC-Maker Gateway (with the Holstein boxes ;-) ) hasn't turned a profit since 2000...

Somehow, I doubt they're considered a hobby company..

 

[SuperDave]

I understand the code of writing something off does not become free. I've got a finance degree and know a little bit of how money works.

When the only thing I have to write off against at the end of the year is mortgage interest, the expenses from a cattle operation will be a much greater benefit than the profit made (if any) on the herd.

The more you make the more you pay in taxes, I am simply looking for a way to keep more of what I make and not pay the government.

 

[DavisBeefmasters]

I read an article... Western Livestock Journal (I think)... that said IF you are going through an audit and they begin questioning why you haven't turned a profit -- remember to put in the "appreciation" value of your land as part of the business...

...something along those lines anyway.

 

[Capt Call]

Just have a couple quick questions concerning taxes.

I've got a little bit of land that I can run about 20 head on comfortably. My question is, if I get started this year with say 5-10 head, is it still possible to get a tax break?

Is there an over under on head count that must be met before I start claiming all my expenses on my returns?

I dont have a thousand acres so I'm not really into this to try and turn a profit. I've read enough on here to realize that that is not what is to be expected.

While I'm on that subject though, how many do most of you run before you begin to start to turn a profit? I figure my best benefit financially from running cattle would be the taxes based on the amount of land I have to play with.

Wrong reason to raise cattle. Just remember there is no parole in the Federal pen.