Tax deductions question for breeding stock

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Re: Tax deductions question for breeding stock

Postby Katpau » Fri Jul 13, 2018 7:18 pm

Bright Raven,
That is interesting. I have never heard of anyone not using depreciation on an asset that goes down in value with time. I would worry that showing a cow as sold on form 4797 with a date of purchase several years prior but no accumulated depreciation, might trigger an audit.
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Re: Tax deductions question for breeding stock

Postby TennesseeTuxedo » Fri Jul 13, 2018 7:45 pm

New stock purchased off the farm is to be depreciated over 5 years according to our accountant.
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Re: Tax deductions question for breeding stock

Postby Bright Raven » Fri Jul 13, 2018 7:52 pm

TennesseeTuxedo wrote:New stock purchased off the farm is to be depreciated over 5 years according to our accountant.


I am building my herd using my replacement heifers. There is no breeding bull in my program. In the past, I apparently missed out on some depreciation opportunities.
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Re: Tax deductions question for breeding stock

Postby TennesseeTuxedo » Fri Jul 13, 2018 8:13 pm

Bright Raven wrote:
TennesseeTuxedo wrote:New stock purchased off the farm is to be depreciated over 5 years according to our accountant.


I am building my herd using my replacement heifers. There is no breeding bull in my program. In the past, I apparently missed out on some depreciation opportunities.


I've often thought that buying bred heifers or second calf cows and keeping good records and depreciating them was a smart way to go. Buy a certain number as replacements each year and sell their predecessors as breds or even 3 in 1s as the gain some age.
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Re: Tax deductions question for breeding stock

Postby NonTypicalCPA » Fri Jul 13, 2018 8:57 pm

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?).
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Re: Tax deductions question for breeding stock

Postby Bright Raven » Fri Jul 13, 2018 8:59 pm

NonTypicalCPA wrote: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?).


How many years can one go without showing a profit?
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Re: Tax deductions question for breeding stock

Postby talltimber » Sat Jul 14, 2018 5:14 am

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.
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Re: Tax deductions question for breeding stock

Postby BRYANT » Sat Jul 14, 2018 5:57 am

Bright Raven wrote:
NonTypicalCPA wrote: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?).


How many years can one go without showing a profit?

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.
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Re: Tax deductions question for breeding stock

Postby sstterry » Sat Jul 14, 2018 6:28 am

NonTypicalCPA wrote: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?).

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?
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Re: Tax deductions question for breeding stock

Postby Jeanne - Simme Valley » Sat Jul 14, 2018 7:40 am

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.
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Re: Tax deductions question for breeding stock

Postby bbirder » Sat Jul 14, 2018 8:38 am

Bright Raven wrote:
Katpau wrote: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.


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.


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!
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Re: Tax deductions question for breeding stock

Postby Bright Raven » Sat Jul 14, 2018 8:42 am

bbirder wrote:
Bright Raven wrote:
Katpau wrote: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.


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.


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.


Thanks for taking the time to post that. I appreciate the information.
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Re: Tax deductions question for breeding stock

Postby NonTypicalCPA » Sat Jul 14, 2018 8:49 am

Bright Raven wrote:
NonTypicalCPA wrote: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?).


How many years can one go without showing a profit?



7 years for a farm......but I’ve never seen it enforced.
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Re: Tax deductions question for breeding stock

Postby 1982vett » Sat Jul 14, 2018 8:50 am

sstterry wrote: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?

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.
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Re: Tax deductions question for breeding stock

Postby NonTypicalCPA » Sat Jul 14, 2018 8:54 am

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!
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