IRS standards

[aj]

I was looking through the latest shorhorn dispersal......30 head of purebred shorthorns......5 of which have the herds prefix on pedigrees. This is of course handling 2 other breeds. I got to wondered why these herds exist and etc etc. How.....for instance does the IRS handle the purchase of embryos? If you buy a embryo......can you write it off? Can you depreciate a embryo out without hatching it? Can you change ownership of a embryos owner? Can you gift an embryo? Is a 5,000$ donation to a junior assc deductable? On and on? Is there somewhere this is explained in the tax code? The most I have ever spent on a bull was 5,500 bucks and if memory serves he was depreciated out over 3 years. What constitutes a hobby farm? Can you deduct a 20,000$ livestock trailer if you own 2 steers? Thanks in advance.

 

[GoWyo]

AJ - you better visit with your accountant if you have that kind of money to burn.  <beer>

 

[cowboy_nyk]

Actually this is an interesting question that I'd like to hear an answer to.  In Canada, in order to write off farm expenses against off-farm income, the gross farm income must exceed the off-farm income.  If the majority of your income does not come from farming, you are a hobby farmer and may write off only $8,750 of farm expenses against off farm-income.  As a "hobby farmer" by the CRA's definition it is in my best interest to try and expand as quickly as possible to increase my gross farm income so that it can exceed what I make at my other full time job.

 

[aj]

I know we got audited back in the 7 year drought we had. We had horrible luck. Showed a loss 5 straight years. Wife worked and I was working off the farm part time. He said most business that don't make money in 5 years are no longer in business. Very interesting experience. The IRS was wanting to see dead slips for dead baby calves etc etc.

 

[GoWyo]

I will let the accountants answer the tax stuff, but if you have a livestock enterprise that is more than a few head, then you should consider a limited liability company or corporation with subchapter S tax status to create a separate entity that holds the assets such as equipment and cattle and runs the business.  My recollection from reading articles on this over the years is that you have to show an intent to make a profit.  This includes drafting and having a business plan showing how you intend to turn a profit and then following it.  The business plan has to show that you consulted with various people with expertise in pasture management, cattle management and health, etc. or that you consulted various literature to assist you in devising the plan.  Oftentimes the depreciation exceeds any profits and the company has perpetual losses, but it is important to show that the overall assets are increasing and that without the depreciation the company would have shown a profit.  There are quite a few articles out there that address these questions specific to agriculture, that are written by tax advisors and tax attorneys who have taken these cases through extensive litigation.

 

[ferkj]

I was looking through the latest shorhorn dispersal......30 head of purebred shorthorns......5 of which have the herds prefix on pedigrees. This is of course handling 2 other breeds. I got to wondered why these herds exist and etc etc. How.....for instance does the IRS handle the purchase of embryos? If you buy a embryo......can you write it off? Can you depreciate a embryo out without hatching it? Can you change ownership of a embryos owner? Can you gift an embryo? Is a 5,000$ donation to a junior assc deductable? On and on? Is there somewhere this is explained in the tax code? The most I have ever spent on a bull was 5,500 bucks and if memory serves he was depreciated out over 3 years. What constitutes a hobby farm? Can you deduct a 20,000$ livestock trailer if you own 2 steers?[/color] Thanks in advance.

If you sell those 2 steers for 15k a piece, yep you can. 

 

[oakview]

The "latest" Shorthorn dispersal?  When the was last one?  Sho-Me a year and a half ago?  Maybe I've forgotten some.  Considering the short life expectancy of the average purebred cattle herd, such a low number of cattle with the herd's prefix isn't totally uncommon, especially in this day of purchasing a few cows and doing mostly ET work.  It takes time to build a personal cow herd.  I see production sales with less than half the animals raised by the herd selling them and many of the rest of the cattle with only a generation of home raised cattle.  On the other end of the spectrum, Waukaru's production sale is nearly full of home produced cattle for many generations.  When we had our mature cow sale in 2003, only 2 or 3 out of almost 50 were not our breeding for many, many generations.  Gene McDonald wrote in his column in Shorthorn Country that it was the best sale he'd been to and a highlight of the entire sale season.  I would imagine the dispersal AJ is referring to will be a great sale.  It only goes to show there's more than one way to skin a cat.  Hat's off to those who spend a lifetime building a uniform, consistent cow herd with their personal goals in mind.  Hat's off to those who devote their efforts to raising a few great ones. 

 

[Medium Rare]

I've always wondered about all these featured lot bulls that sell at public auction for, lets just say $30K, without the registration papers ever getting transferred to the new owners. The sale figures are always publicized and I would assume the registration papers are a form of a "title" as far as the IRS is concerned.

I guess most of these farms come and go so fast no one pays much attention.

 

[shortybreeder]

As far as embryos go, I was just discussing those with my professor of ag accounting a couple weeks ago. Technically they don't meet the requirements to be depreciated, so the best answer we could come up with is using them as a breeding expense

 

[aj]

If one was to own a breeding share in abull I spose that would be a breeding expense. Would cloning be like a breeding expense or would it be like buying a bull elgible for depreciation......over three years?

 

[GoWyo]

If you bought a share of a bull that would be a capital item like buying the whole bull.  Expenses of ownership would be a regular expense.  So you would depreciate him with age and if you sold your interest or he was salvaged by the pound and he was fully depreciated, the sale proceeds would be ordinary income unless the depreciation recapture applies to used bulls and that now appears to be a different rate.

 

[shortybreeder]

Considering the cost of creating a clone, I would say just call the IRS and ask. Enough clones have been made that I'm sure they will have an answer for ya.