Taxes???

[dbc]

I'm not really sure how cows help with taxes. I am still a student so it doesn't really affect me, but i was just curious. For example i saw where someone put buying hay was 100% tax deductable. What else is deductable and how does it work? Any answers would be appreciated.

 

[mitchwi]

Quick answer - (not a hobby) Any income derived from the activity is offset with expenses that are related to generating that income.

This is a very generic answer to an issue that is very complicated.

 

[sidney411]

One of the biggest tax breaks is on your property taxes. Also you can depreciate big expenses like tractors, trailers, equipment,and barns, ect. All livestock related expenses such as feed, vet, meds, pasture improvement, hay, fencing, ect. I actually started our taxes last night, it takes me a couple nights to get all the receipts sorted out and categorized.

 

[backhoeboogie]

You are exactly right on property taxes. With the ag exemption, you don't have to make an awful lot of nickels on cattle to come out way ahead on property tax. Especially when they want to appraise your property at $12K an acre. If not for ag exemptions, we'd go broke/sellout.

 

[Alan]

One of the biggest tax breaks is on your property taxes. Also you can depreciate big expenses like tractors, trailers, equipment,and barns, ect. All livestock related expenses such as feed, vet, meds, pasture improvement, hay, fencing, ect. I actually started our taxes last night, it takes me a couple nights to get all the receipts sorted out and categorized.

That's why I love Quicken its a great program and makes tax prep easy as printing out a report. I also keep all the paper end of it just filed in a monthly file so if I need the hard copy I only have to search one months worth of reciepts.

Sorry for he sales pitch but its a great program.
Alan

 

[Alan]

I'm not really sure how cows help with taxes. I am still a student so it doesn't really affect me, but i was just curious. For example i saw where someone put buying hay was 100% tax deductable. What else is deductable and how does it work? Any answers would be appreciated.

It's just as Mitchwi said, money in (income) minus money out(expenses) gives you your profit (taxable income). If you have a negitive profit figure (lost money) then of course you pay no taxes. Everything you spend on your farm/ranch is expenses and tax deductible. But income comes in other ways than just selling a product. Say your'e buying land, barn, truck, equipment, or other large item that you pay for over a period of years. While you get to depricate those items (except land), meaning the tax man realizes their value goes down through the years, so you get a tax credit for the amount of money the item dropped in value that year. (this is a tax credit, or expense). But as you pay off these items over the years the principle you paid of during the tax year is considered income and taxable. Just because I'm on a roll here's one other item, say that you completly pay your truck off over a 5 year period. During that five years you have paid taxes on the principle during each year and took the tax deduction on the deprecation over each year. Now you want a new truck so you tade in or sell your old truck, the money you sold the truck for is considered income and is taxable even through it is paid off and fully depricated, it's called recooped deprication (sp).

This is not tax advice and may not be 100% accurate, but it is pretty close if not.

Alan

 

[got_cows?]

Around here if our land wasn't considered agricultural we'd be taxed on a "recreational" land basis and have higher taxes then we already do. With so much land development the value of acreage has gone through the roof. Consequently property taxes are based on what you are doing with your land. "Use value" is different from value.
Farming is a business. Income - expenses = net profit. Just like in any other business your business expenses are tax deductable because your income is taxable. Expenses off set your income.

 

[dcara]

Are cattle depreciable? If so, at what rate, and how do you assign an inital value?

 

[dun]

Are cattle depreciable? If so, at what rate, and how do you assign an inital value?

Yes they're depreciable, I think it's over 5 years (I leave that stuff to the CPA). The assign initial value is what you paid for it. When we buy pairs I assign 1/3 of the value to the calf and 2/3 to the cow.

dun

 

[sidney411]

Cattle are depreciated as 5 year depreciation unless you need it all in 1 year, you can take the whole amont in the year they were purchased. You can't depreciate animals you raise for your self such as heifers. Only animals purchased. I belive this is right, if not someone please correct me.

 

[dcara]

I bought some pairs in 05 from which I plan to sell the calves. So it seems I would want to depreciate the momas and expense the calves to offset the income I wil have to claim from them next year. Does that sound right?

 

[mhoback]

I'm not really sure how cows help with taxes. I am still a student so it doesn't really affect me, but i was just curious. For example i saw where someone put buying hay was 100% tax deductable. What else is deductable and how does it work? Any answers would be appreciated.

It's just as Mitchwi said, money in (income) minus money out(expenses) gives you your profit (taxable income). If you have a negitive profit figure (lost money) then of course you pay no taxes. Everything you spend on your farm/ranch is expenses and tax deductible. But income comes in other ways than just selling a product. Say your'e buying land, barn, truck, equipment, or other large item that you pay for over a period of years. While you get to depricate those items (except land), meaning the tax man realizes their value goes down through the years, so you get a tax credit for the amount of money the item dropped in value that year. (this is a tax credit, or expense). But as you pay off these items over the years the principle you paid of during the tax year is considered income and taxable. Just because I'm on a roll here's one other item, say that you completly pay your truck off over a 5 year period. During that five years you have paid taxes on the principle during each year and took the tax deduction on the deprecation over each year. Now you want a new truck so you tade in or sell your old truck, the money you sold the truck for is considered income and is taxable even through it is paid off and fully depricated, it's called recooped deprication (sp).

This is not tax advice and may not be 100% accurate, but it is pretty close if not.

Alan

Not even close. When you buy a piece of equipment, you capitalize the purchase price of the asset. You then depreciate the cost of the asset over the life of it (usually 7 for equipment, 5 for cattle, and 5 for pickups.) If you have financed the asset, when you make a payment on it, the only tax implication is you can deduct the interest. The princiapal you paid is NOT taxable income. If you sell an asset, you offset the sale proceeds with any remaining basis (undepreciated cost) of the asset. Trades are screwy. If you trade the asset in on a new piece of equipment, you actually keep depreciating the traded asset over its remaining life until it is fully depreciated. The cost of the new asset is the "boot", or cash paid for it. It is depreciated over its useful life, be it 5 or 7 years.

You cannot deduct losses on raised cattle that died because you have already deducted all of the costs of the animal (feed, vet, etc.) If a cow that you bought dies, you can deduct any remaining basis in the year it dies.

If you buy pairs in 05 and sell the calves in 06, any cost you assigned to the calves is carried over to 06 and deducted in the year of the sale to offset the income from them.

 

[Alan]

I'm not really sure how cows help with taxes. I am still a student so it doesn't really affect me, but i was just curious. For example i saw where someone put buying hay was 100% tax deductable. What else is deductable and how does it work? Any answers would be appreciated.

It's just as Mitchwi said, money in (income) minus money out(expenses) gives you your profit (taxable income). If you have a negitive profit figure (lost money) then of course you pay no taxes. Everything you spend on your farm/ranch is expenses and tax deductible. But income comes in other ways than just selling a product. Say your'e buying land, barn, truck, equipment, or other large item that you pay for over a period of years. While you get to depricate those items (except land), meaning the tax man realizes their value goes down through the years, so you get a tax credit for the amount of money the item dropped in value that year. (this is a tax credit, or expense). But as you pay off these items over the years the principle you paid of during the tax year is considered income and taxable. Just because I'm on a roll here's one other item, say that you completly pay your truck off over a 5 year period. During that five years you have paid taxes on the principle during each year and took the tax deduction on the deprecation over each year. Now you want a new truck so you tade in or sell your old truck, the money you sold the truck for is considered income and is taxable even through it is paid off and fully depricated, it's called recooped deprication (sp).

This is not tax advice and may not be 100% accurate, but it is pretty close if not.

Alan

Not even close. When you buy a piece of equipment, you capitalize the purchase price of the asset. You then depreciate the cost of the asset over the life of it (usually 7 for equipment, 5 for cattle, and 5 for pickups.) If you have financed the asset, when you make a payment on it, the only tax implication is you can deduct the interest. The princiapal you paid is NOT taxable income. If you sell an asset, you offset the sale proceeds with any remaining basis (undepreciated cost) of the asset. Trades are screwy. If you trade the asset in on a new piece of equipment, you actually keep depreciating the traded asset over its remaining life until it is fully depreciated. The cost of the new asset is the "boot", or cash paid for it. It is depreciated over its useful life, be it 5 or 7 years.

You cannot deduct losses on raised cattle that died because you have already deducted all of the costs of the animal (feed, vet, etc.) If a cow that you bought dies, you can deduct any remaining basis in the year it dies.

If you buy pairs in 05 and sell the calves in 06, any cost you assigned to the calves is carried over to 06 and deducted in the year of the sale to offset the income from them.

I believe you are wrong about priniciple paid as not being a taxable income, of course it is offset by depreciation. and when sold or traded it has to have a reasonable value set on it for recooped depriciation, JMO. I talking big $ items not a lawnmower or cow.

I would not depricated and cow. If I bought a cow or two I would just call it a supply and if I sold it, it would become gross sales. Rather than worry about a five year minimal deduction why not take the deduction all in one year. Now if you bought 100 head in a year I would have to think about it.

It's all the same the tax man gets his share.

Alan

 

[Scout]

Are cattle depreciable? If so, at what rate, and how do you assign an inital value?

Yes they're depreciable, I think it's over 5 years (I leave that stuff to the CPA). The assign initial value is what you paid for it. When we buy pairs I assign 1/3 of the value to the calf and 2/3 to the cow.

dun

you can depreciate the donkey that runs with the cows, too.

Thank goodness for CPA's, though.

 

[mitchwi]

I'm not really sure how cows help with taxes. I am still a student so it doesn't really affect me, but i was just curious. For example i saw where someone put buying hay was 100% tax deductable. What else is deductable and how does it work? Any answers would be appreciated.

It's just as Mitchwi said, money in (income) minus money out(expenses) gives you your profit (taxable income). If you have a negitive profit figure (lost money) then of course you pay no taxes. Everything you spend on your farm/ranch is expenses and tax deductible. But income comes in other ways than just selling a product. Say your'e buying land, barn, truck, equipment, or other large item that you pay for over a period of years. While you get to depricate those items (except land), meaning the tax man realizes their value goes down through the years, so you get a tax credit for the amount of money the item dropped in value that year. (this is a tax credit, or expense). But as you pay off these items over the years the principle you paid of during the tax year is considered income and taxable. Just because I'm on a roll here's one other item, say that you completly pay your truck off over a 5 year period. During that five years you have paid taxes on the principle during each year and took the tax deduction on the deprecation over each year. Now you want a new truck so you tade in or sell your old truck, the money you sold the truck for is considered income and is taxable even through it is paid off and fully depricated, it's called recooped deprication (sp).

This is not tax advice and may not be 100% accurate, but it is pretty close if not.

Alan

Not even close. When you buy a piece of equipment, you capitalize the purchase price of the asset. You then depreciate the cost of the asset over the life of it (usually 7 for equipment, 5 for cattle, and 5 for pickups.) If you have financed the asset, when you make a payment on it, the only tax implication is you can deduct the interest. The princiapal you paid is NOT taxable income. If you sell an asset, you offset the sale proceeds with any remaining basis (undepreciated cost) of the asset. Trades are screwy. If you trade the asset in on a new piece of equipment, you actually keep depreciating the traded asset over its remaining life until it is fully depreciated. The cost of the new asset is the "boot", or cash paid for it. It is depreciated over its useful life, be it 5 or 7 years.

You cannot deduct losses on raised cattle that died because you have already deducted all of the costs of the animal (feed, vet, etc.) If a cow that you bought dies, you can deduct any remaining basis in the year it dies.

If you buy pairs in 05 and sell the calves in 06, any cost you assigned to the calves is carried over to 06 and deducted in the year of the sale to offset the income from them.

I believe you are wrong about priniciple paid as not being a taxable income

Alan

Alan - I interpreted what you said, as this. You said $ In = income and $ out = expense. A liability or debt owed to someone is $ out, but that is not an expense to lower your income so you consider that taxable income.

 

[Arnold Ziffle]

Seems to be a bit of a semantics problem here. Alan, technically speaking there is no way that principle payments constitute income to the payer! I think what you and a few others are really trying to say here is something along the following lines (for non-hobby situations):

Purchased cattle can be written off for income tax purposes over 5 years under the general depreciation rules. If certain conditions are met, and the taxpayer so chooses, the entire cost of the cattle can be written off in the year purchased, pursuant to IRC Section 179. Taxpayer's in many cases can fine tune the depreciation taken by means of various elections, methods of depreciating, etc. --- the particulars of which most non-tax professionals probably will be unfamiliar with.

If one pays interest expense on a loan used to purchase cattle, the interest expense is deductible. Principle payments on the loan will of course have to be paid from time to time. The taxpayer has to get cash to pay such principle payments one way or another: from accumulated savings, gifts from parents or other benefactors, cash generated from wages or other investments, or cash generated from the sale of other cattle, hay, etc. Cash generated from the sale of livestock, hay, etc. is of course taxable income --- so unless you have accumulated savings, receive gifts, etc. you will have to generate taxable income (say from cattle, hay, etc. sales) in order to have cash to pay your principle payments. So I guess in that sense one could surmise that making principle payments equates to having income --- Alan, is that the idea you were really trying to convey?

Also, many individuals wrongly feel they should be entitled to a tax deduction because of the death of a raised animal, even though they have deducted every single dollar spent on that animal for feed, vets, medicine, pasture rent, etc. They feel that way because they sure know they have incurred an economic loss on the death -- but it just doesn't rise to the level of a loss for tax purposes. I'd say that virtually 99.5% of taxpayers cannot take a tax deduction for the value of raised animals that died, nor can they take a deduction for the cost of purchased animals that die if they have previously written off the cost via depreciation deductions. Death of an animal can only result in a tax loss to the extent of the "tax basis" of the animal, and "tax basis" is calculated by taking original cost (virtually always the purchase price) less the accumulated dereciation claimed. ( A very, very few taxpayers do not deduct the costs of raising calves for income tax purposes, but rather "capitalize" them; and having done so they then have "tax basis" in those calves).

By the way, Alan, if you want to write off the entire cost of the animal in the year of purchase you must not merely do so by taking a deduction directly on Schedule F --- rather, you must make an election to depreciate the animal 100% in that year pursuant to Section 179, using Form 4562 to do so. The depreciation claimed on Form 4562 then carries over to a line on Schedule F.

 

[mitchwi]

Very well put AZ

 

[Alan]

Arnoold thanks for the clearifaction and the education... well said.

Alan

 

[dph]

One thing we use to do for bulls was to not deduct their purchase price, but instead carry them on inventory. You deducted their full purchase price when they died, or the difference between it and the selling price when you hauled them to the barn. We had done this for a very long time, but this year our accountant said the IRS was starting to frown on it, so she talked us into deducting the purchase price of the two new and other remaining bulls. It did give us a nice deduction this year.

 

[jt]

does anyone know if you can choose to depreciate some cows and not others, or does it have to be an across the board decision where you do the same for all?

thanks

jt