Tax deductions question for breeding stock

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NonTypicalCPA":3lgbnl7j said:
A little late to the game here. I'm a CPA with my own practice. Have a lot of farmers as clients. Breeding stock is depreciated. Old rules over 3 years unless you elect to take it all in year one using Section 179 deduction as mentioned above. Under the new laws for 2018 most assets will be deducted in year one.
As a side note, the handful of cattle producers I have as clients almost never show a profit (why do I have cattle?).
Click to expand...

How many years can one go without showing a profit?
 
A few years ago I was told by my tax guy that I had the option of depreciating purchased breeding stock over 5 yrs or all the first year. I don't know which forms or schedules used, but I take them off the first year, and report the sale same as the other cattle sold.
 
Bright Raven":oyei8qc8 said:
NonTypicalCPA":oyei8qc8 said:
A little late to the game here. I'm a CPA with my own practice. Have a lot of farmers as clients. Breeding stock is depreciated. Old rules over 3 years unless you elect to take it all in year one using Section 179 deduction as mentioned above. Under the new laws for 2018 most assets will be deducted in year one.
As a side note, the handful of cattle producers I have as clients almost never show a profit (why do I have cattle?).
Click to expand...

How many years can one go without showing a profit?
Click to expand...
After a while they may want you to prove you are in it as a farm to make money and not as a hobby, that is where capital gains come in to play, but there still needs to be some years that you show a profit.
 
NonTypicalCPA":3iz70bcj said:
A little late to the game here. I'm a CPA with my own practice. Have a lot of farmers as clients. Breeding stock is depreciated. Old rules over 3 years unless you elect to take it all in year one using Section 179 deduction as mentioned above. Under the new laws for 2018 most assets will be deducted in year one.
As a side note, the handful of cattle producers I have as clients almost never show a profit (why do I have cattle?).
Click to expand...
Are you limited to taking the section 179 deduction on one item per year, or is it possible to stack items up to the dollar threshold?
 
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.
 
Bright Raven":3k9e863m said:
Katpau":3k9e863m said:
Bright Raven, I am not sure what you are asking in your last post. I treat the purchase of all breeding stock, bull or cow, in the same way. They go on my depreciation schedule and depreciation is carried from a form 4562 to schedule F on line 14. How I chose to depreciate them depends on the year. When income is higher I might chose to write them off under section 179. In other years I might want to stretch out the expense, and depreciate. When sold any gain or loss is calculated on Form 4797. I use a tax program, so most of the work is done by my computer.
Click to expand...

First. I have not bought an animal for about 4 years. I don't depreciate them like other capital property. If I sell one, I report it on Form 4797. I figure entry by adjusting for the basis. For example, if I paid 2500 in 2012 and sold for 2500 in 2014, the net to report as income on 4797 is Zero.

Edited to add: I don't use a program. I do everything by pencil and paper. I file only on paper. I cannot keep up with technology like I once could.
Click to expand...

Bright Raven,
By your own admission, perhaps you should not try giving tax advice. Some users may take your advice and get in trouble with the IRS. I can assure you that your returns are incorrect, and if you ever get pulled for an audit you will never be able to pass with a sharp agent. Even if your final number were to come out to the same answer, they can still want the correct forms filed. This is not an easy task to go back and reconstruct back years.
Animals purchased for breeding stock should always be depreciated. If these are sold at a later date these numbers go into the calculation of cost basis. Animals raised(born on the farm) by you have zero basis when selling.
In this day and age, NO ONE IMHO, should be filing depreciation by pencil and paper. For that matter, if you have a farm you should either use a good tax program or have a Professional prepare your taxes. A layman's interpretation of tax law or using "I heard that at the feed store" method can cost you big time down the road. By Professional, I don't mean having a sign outside saying "We File Taxes" or "Income Taxes Prepared". Check credentials, ask around for references and choose wisely. I would suggest an EA or Enrolled Agent that specializes in farm accounts. The hundreds you spend on advice may save you thousands at a later date. I would prefer an EA over a CPA simply because an EA is a tax specialist and has been tested and earned the right to apply those initials behind their name. There are many good CPA's, but many are accountants and do not stay current on tax law.
I have operated a Tax business for over 30 years, and I can tell you the taxing agencies are getting tight on collecting back years debt. I had a client that had her State refund this year applied to a Balance due from 1999. That is not a typo! Agencies are going back and inputting hand written returns from years past into the computer systems and assessing the debt with P&I. Most taxpayers do not keep their backup records that long to disprove it. Results, she will owe the State for several years to pay this off and then they have the right to jump to the year 2000 and start over again.

Nuff said!
Think hard before picking up that pencil.
 
bbirder":2lsk2c0r said:
Bright Raven":2lsk2c0r said:
Katpau":2lsk2c0r said:
Bright Raven, I am not sure what you are asking in your last post. I treat the purchase of all breeding stock, bull or cow, in the same way. They go on my depreciation schedule and depreciation is carried from a form 4562 to schedule F on line 14. How I chose to depreciate them depends on the year. When income is higher I might chose to write them off under section 179. In other years I might want to stretch out the expense, and depreciate. When sold any gain or loss is calculated on Form 4797. I use a tax program, so most of the work is done by my computer.
Click to expand...

First. I have not bought an animal for about 4 years. I don't depreciate them like other capital property. If I sell one, I report it on Form 4797. I figure entry by adjusting for the basis. For example, if I paid 2500 in 2012 and sold for 2500 in 2014, the net to report as income on 4797 is Zero.

Edited to add: I don't use a program. I do everything by pencil and paper. I file only on paper. I cannot keep up with technology like I once could.
Click to expand...

Bright Raven,
By your own admission, perhaps you should not try giving tax advice. Some users may take your advice and get in trouble with the IRS. I can assure you that your returns are incorrect, and if you ever get pulled for an audit you will never be able to pass with a sharp agent. Even if your final number were to come out to the same answer, they can still want the correct forms filed. This is not an easy task to go back and reconstruct back years.
Animals purchased for breeding stock should always be depreciated. If these are sold at a later date these numbers go into the calculation of cost basis. Animals raised(born on the farm) by you have zero basis when selling.
In this day and age, NO ONE IMHO, should be filing depreciation by pencil and paper. For that matter, if you have a farm you should either use a good tax program or have a Professional prepare your taxes. A layman's interpretation of tax law or using "I heard that at the feed store" method can cost you big time down the road. By Professional, I don't mean having a sign outside saying "We File Taxes" or "Income Taxes Prepared". Check credentials, ask around for references and choose wisely. I would suggest an EA or Enrolled Agent that specializes in farm accounts. The hundreds you spend on advice may save you thousands at a later date. I would prefer an EA over a CPA simply because an EA is a tax specialist and has been tested and earned the right to apply those initials behind their name. There are many good CPA's, but many are accountants and do not stay current on tax law.
I have operated a Tax business for over 30 years, and I can tell you the taxing agencies are getting tight on collecting back years debt. I had a client that had her State refund this year applied to a Balance due from 1999. That is not a typo! Agencies are going back and inputting hand written returns from years past into the computer systems and assessing the debt with P&I. Most taxpayers do not keep their backup records that long to disprove it. Results, she will owe the State for several years to pay this off and then they have the right to jump to the year 2000 and start over again.

Nuff said!
Think hard before picking up that pencil.
Click to expand...

Thanks for taking the time to post that. I appreciate the information.
 
Bright Raven":3rkahj1z said:
NonTypicalCPA":3rkahj1z said:
A little late to the game here. I'm a CPA with my own practice. Have a lot of farmers as clients. Breeding stock is depreciated. Old rules over 3 years unless you elect to take it all in year one using Section 179 deduction as mentioned above. Under the new laws for 2018 most assets will be deducted in year one.
As a side note, the handful of cattle producers I have as clients almost never show a profit (why do I have cattle?).
Click to expand...

How many years can one go without showing a profit?
Click to expand...


7 years for a farm......but I've never seen it enforced.
 
sstterry":13q357m2 said:
Are you limited to taking the section 179 deduction on one item per year, or is it possible to stack items up to the dollar threshold?
Click to expand...
In short, the 179 exemption has a dollar amount limit and an income limit....it depends on your own circumstance. Oh, and yes, 2018 begins a new game. I'm not up to date on that at the moment.
 
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!
 
NonTypicalCPA":10b3keg1 said:
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!
Click to expand...

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.
 
:lol: IRS doesn't care if you claim to be a hobby farmer, just don't expense more than you make.... :shock:
 
1982vett":1tf3uliv said:
:lol: IRS doesn't care if you claim to be a hobby farmer, just don't expense more than you make.... :shock:
Click to expand...

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!
 
Bright Raven":21g9a1zu said:
1982vett":21g9a1zu said:
:lol: IRS doesn't care if you claim to be a hobby farmer, just don't expense more than you make.... :shock:
Click to expand...

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!
Click to expand...
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.
 
True Grit Farms":3jp6ewiw said:
Bright Raven":3jp6ewiw said:
1982vett":3jp6ewiw said:
:lol: IRS doesn't care if you claim to be a hobby farmer, just don't expense more than you make.... :shock:
Click to expand...

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!
Click to expand...
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.
Click to expand...

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.
 
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.
 
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.
 
Bright Raven":3egkwthy said:
NonTypicalCPA":3egkwthy said:
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!
Click to expand...

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.
Click to expand...
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".
 
1982vett":2syub9av said:
Bright Raven":2syub9av said:
NonTypicalCPA":2syub9av said:
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!
Click to expand...

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.
Click to expand...
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".
Click to expand...

Thanks. If I am ever audited, I think that makes a good point.
 

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