Tax deductions question for breeding stock

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Bright Raven
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Re: Tax deductions question for breeding stock

Postby Bright Raven » Sat Jul 14, 2018 9:06 am

NonTypicalCPA wrote:Depreciation rules are complex. Lots of factors to take into consideration.

Just never mention the word “hobby” to the IRS if they come calling regarding your farm operations!


I started with a farm that required a lot of infrastructure. My herd initially was purchased breeding stock. The last 5 years, it has grown by retaining heifers. I am 100 % AI now, so no bull. Here is my circumstances: my "profit" is largely in the increase of property value and the standing herd. Because of the infrastructure, I have a large sum to depreciate - fences, buildings, handling facilities, tractor, truck, trailer, etc etc. The result is that the income does not offset the expenses. Thus, I show an annual loss. I believe my records are impeccable. At the end of the operation, I will be sitting on some large capital gains.
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Re: Tax deductions question for breeding stock

Postby 1982vett » Sat Jul 14, 2018 9:15 am

:lol: IRS doesn’t care if you claim to be a hobby farmer, just don’t expense more than you make.... :shock:
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Re: Tax deductions question for breeding stock

Postby Bright Raven » Sat Jul 14, 2018 9:18 am

1982vett wrote::lol: IRS doesn’t care if you claim to be a hobby farmer, just don’t expense more than you make.... :shock:


The problem with that is these are real out of pocket expenses and at the end, they are going to want to tax the capital gains in cattle and property value!
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Re: Tax deductions question for breeding stock

Postby True Grit Farms » Sat Jul 14, 2018 9:44 am

Bright Raven wrote:
1982vett wrote::lol: IRS doesn’t care if you claim to be a hobby farmer, just don’t expense more than you make.... :shock:


The problem with that is these are real out of pocket expenses and at the end, they are going to want to tax the capital gains in cattle and property value!

I would expect you'd have to pay taxes on grant and cost share money somewhere down the line. Having a good tax attorney - accountant is like found money.
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Re: Tax deductions question for breeding stock

Postby Bright Raven » Sat Jul 14, 2018 9:53 am

True Grit Farms wrote:
Bright Raven wrote:
1982vett wrote::lol: IRS doesn’t care if you claim to be a hobby farmer, just don’t expense more than you make.... :shock:


The problem with that is these are real out of pocket expenses and at the end, they are going to want to tax the capital gains in cattle and property value!

I would expect you'd have to pay taxes on grant and cost share money somewhere down the line. Having a good tax attorney - accountant is like found money.


Vince - those cost share monies are treated as income during the year they are awarded. They send you a 1099. I don't have my tax return in front of me but there is a specific line on Form 4797 for that type of income.

Edited to add: I need to get a tax agent. As I get older, it gets more difficult.
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Re: Tax deductions question for breeding stock

Postby Chocolate Cow2 » Sat Jul 14, 2018 10:10 am

Question: For years,I've used Quicken to organize my taxes. Then, everything goes to my accountant. My computer messed up and had to be wiped clean and reloaded. I lost everything including Quicken. Is there a better tax program? Turbo Tax? for example or do I go back with what I know? Quicken has it's good but was frustrating at times. Advice is appreciated.
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Re: Tax deductions question for breeding stock

Postby Jeanne - Simme Valley » Sat Jul 14, 2018 10:58 am

I lost my Quicken. I replaced with Moneydance. Similar type program. Easy to switch over to.
If you can find your files, they can be transferred to Moneydance.
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Re: Tax deductions question for breeding stock

Postby Chocolate Cow2 » Sat Jul 14, 2018 11:24 am

Jeanne-I believe everything was eliminated. I had a bug in Windows. Turn on my computer, and a timer would show. It would re-start 15 minutes after first start. This was every day. Computer guy tried many things but finally wiped it clean. Every program was gone. He was going to load Windows 10 but Microsoft wanted $300 for the program. We went back with Windows 7 professional. Support ends or has ended for it but what the L. In hindsight, the daily re-starting maybe wasn't such a big deal compared to losing all my info & passwords, etc.
Anyway, I am deciding what program to install for my taxes.
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Re: Tax deductions question for breeding stock

Postby 1982vett » Sat Jul 14, 2018 12:33 pm

Bright Raven wrote:
NonTypicalCPA wrote:Depreciation rules are complex. Lots of factors to take into consideration.

Just never mention the word “hobby” to the IRS if they come calling regarding your farm operations!


I started with a farm that required a lot of infrastructure. My herd initially was purchased breeding stock. The last 5 years, it has grown by retaining heifers. I am 100 % AI now, so no bull. Here is my circumstances: my "profit" is largely in the increase of property value and the standing herd. Because of the infrastructure, I have a large sum to depreciate - fences, buildings, handling facilities, tractor, truck, trailer, etc etc. The result is that the income does not offset the expenses. Thus, I show an annual loss. I believe my records are impeccable. At the end of the operation, I will be sitting on some large capital gains.

Key....
I went 12 years showing a loss after inheriting from Mom and Dad...but I had and could show capital growth. Doubt the volume could have been considered "hobby".
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Re: Tax deductions question for breeding stock

Postby Bright Raven » Sat Jul 14, 2018 12:35 pm

1982vett wrote:
Bright Raven wrote:
NonTypicalCPA wrote:Depreciation rules are complex. Lots of factors to take into consideration.

Just never mention the word “hobby” to the IRS if they come calling regarding your farm operations!


I started with a farm that required a lot of infrastructure. My herd initially was purchased breeding stock. The last 5 years, it has grown by retaining heifers. I am 100 % AI now, so no bull. Here is my circumstances: my "profit" is largely in the increase of property value and the standing herd. Because of the infrastructure, I have a large sum to depreciate - fences, buildings, handling facilities, tractor, truck, trailer, etc etc. The result is that the income does not offset the expenses. Thus, I show an annual loss. I believe my records are impeccable. At the end of the operation, I will be sitting on some large capital gains.

Key....
I went 12 years showing a loss after inheriting from Mom and Dad...but I had and could show capital growth. Doubt the volume could have been considered "hobby".


Thanks. If I am ever audited, I think that makes a good point.
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Re: Tax deductions question for breeding stock

Postby NonTypicalCPA » Sat Jul 14, 2018 12:54 pm

Yes capital growth, both in the herd and in your improved real estate would definitely be an argument to make against the 7 years of losses.
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Re: Tax deductions question for breeding stock

Postby NonTypicalCPA » Sat Jul 14, 2018 12:57 pm

A timber farm is similar, usually only significant income in 1 out of 10-15 years. But the live tree growth adds value to your property each year, thus offsetting annual losses in non harvesting years.
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Re: Tax deductions question for breeding stock

Postby Katpau » Sat Jul 14, 2018 2:44 pm

Jeanne - Simme Valley wrote:Katpau - I do my own taxes by hand (just like you explained). Does the TAX CUT program really work well for all our forms (farmers). Can you electronic file using that program?
I use the Federal electronic system, because you can use any and all forms necessary & fill them in as you go, but NY does not have a program that a farmer can use. So, for state, I have to file thru the mail.
Jeanne,
I use TaxCut to calculate and print out my tax return, but it is not really designed to cover all of the complexities of a farm return. I also have a rather complicated program that I designed using Excel that I use for my own situation. I keep that up on almost a daily basis, so my return is ready to be completed as soon as 1099's arrive and I verify all numbers are the same. We also have some rentals and hunting leases. I use the numbers from my Excel calculations and manually enter them into schedules F and E. All of the forms are available on TaxCut, but I manually access them to enter information, rather than depending on the program to guide me there. I appreciate the calculations that TaxCut does with my numbers. Especially the depreciation calculations. I don't like that I need to verify every number for each capital item every year, but that does make me refresh my mind about what assets may have been retired or sold. I feel TaxCut saves me a lot of time and helps avoid simple math errors, but it may not be suitable for someone who doesn't already know which forms are required. It does ask questions that should lead you in the right direction for most returns.
I don't believe you can file a return as complicated as most farm returns electronically, but I may be wrong. I file my relatives returns electronically, but I send in my return by mail. There is almost always a balance due, so I am mailing a check anyway. I have never tried the Federal electronic system, but I will have to look into that. I don't think it was available when I first started using TaxCut years ago. The nice thing about staying with the same program is that all of your information from prior years is stored and you don't need to reenter that information. For example I have pages of depreciation sheets on all of our various assets and TaxCut stores them from year to year and remembers what method of depreciation I chose for each and my current basis. It does not carry that information to 4797 when something is sold, so I must remove it from inventory and manually enter that information. I think there may be more expensive programs that would do that for me, but I kind of prefer it this way.
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Re: Tax deductions question for breeding stock

Postby Jeanne - Simme Valley » Sat Jul 14, 2018 4:22 pm

Katpau
I use Excel for my depreciation, so everything is all lined up. I just have to enter info for the new year.
The Federal E-File is GREAT. You start with your 1040, when you get to a line that needs a form, you open that form & fill it out (it does the calculations and fills in the final figure into the 1040).
I already know what forms are needed, but I think someone that has a good handle on the forms needed should be able to do it. You would have no problem. You will LOVE IT.
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Re: Tax deductions question for breeding stock

Postby 1982vett » Sat Jul 14, 2018 5:45 pm

I’ve been a Quicken user since DOS 6.0 around 1993. Scares me every time I have to upgrade to a new version. Their are plenty of horror stories every year about the new versions and for a period of time one updated yearly in hopes they would fix what the screwed with in the previous version. Around the end of October or early November I get a copy of TurboTax that I use to tax plan and estimate taxes for the year. In March I print a cash flow report and an itemized transaction report and take these along with all other necessary information to my tax preparer. When I go back to review the return I have a good idea what it should look like. Biggest difference in numbers is my errors in getting the depreciation reports to match. TurboTax does track depreciation and carry forward to form 4797 when you sell or dispose of the property.
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