Alan":1grshcco said:
dbc":1grshcco said:
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.