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OT tax question

J

jordan watson

Member
My dad and I bought out a friends cow/calf operation and we are going to file farm this year. We have gone from 10 cows to 50. Can we claim these cows on our taxes? I was told by one tax person that we can and by another we can't. I don't want to go with the wrong tax person and either lose money or get audited and get in trouble. Thanks Jordan
 
Best thing to do would be contact the IRS directly. They should be able to answer your questions and provide the correct forms. Good luck.
 
For years I had an urban CPA hot dog do my farm taxes. No telling how many thousands he cost me.

Moved to the country and talked to country folks, seems there was a local farm tax preparer that knew what you legally could and what you couldn't.

So much for the high society ..............

Problem with contacting IRS directly is that they shovel you the mainline line. You need to get with a person that understands what is legal and what you are legally entitled to. You will have a hard time deciphering that from the main line IRS gobble de goop.....remember, they are after YOUR money.....The FOX is in charge of the hen house!!!!!

Mark
 
You can't expense them up front. The cows would be an asset that is depreciated over a number of years. Calves would either be depreciated or treated as a cost of sales when they are sold.
 
You can depreciate Brood cows, breeding bulls and replacement heifers. It does change what you can then deduct later on. My tax guys says that it complicates your standard deductions. So I just keep track of them on a cash basis just like purchased feeder cattle. I don't use them for a deduction now but just declare a profit or loss whenever they leave the herd.

Example: Brood cow Purchase price:$1500 own her ten years and then sell her as a slaughter cow. Get $800 for her. I then claim a $700 loss. If she had died I would have claimed the whole $1500 as a loss.
 
No advice here is valuable other than mine (just kidding) the situation is for a local CPA with farm expertise to assist you with. Never the IRS, they would give you 7 different answers from 3 different advisers, all of which would conflict with your best interest. A return on your farm operation is the key, do it with a person that can provide real savings and deductions depreciation values. Jim
 
I had a local CPA do my taxes for quite a few years. Seemed like I always owed a bunch.

I finally started doing my own taxes and came out 'way farther ahead. Then a couple of years ago, I got a letter from the IRS saying they'd reviewed my 2004 and 2005 returns (still done by the CPA) and found I'd overpaid several thousand dollars. They didn't give me a cash refund, but they applied it to future taxes.

Maybe I've been lucky, but all the personal dealings I've had with IRS personnel have been cordial. When I quit farming 20 years ago, my taxes were in a mess. I worked with a particular agent to sort it out, and at times he seemed more on my side than on theirs. He'd coach me on how to buy time to work on this or that, etc.

It's all in the attitude. IRS people are human, too. If you go into dealings with a chip on your shoulder, they'll most likely respond in kind. If you enter dealings with a cordial, cooperative attitude, they'll respond likewise.
 
Yes,that's a farm expense, along with any trucking,the expense to buy the cows or any insedentals are farm bussiness deductions.
 
You already had a 10 cow operation, and did not file farm....1040 F? Now go to 5 times as many and a tax guy says you can"t file a farm return? You need to find a real tax accountant. Even an LPA should know more than that. You do need good records of income and expenses for throughout the year. There are carryover issues as well with any continuing operation. Both expenses and depreciation, as well as purchases that qualify for section 179. If he can"t explain that....keep looking.
 
You can depreciate the breeding herd, raised calves are income when sold and only cost of raisng is deducted, get a copy of the schedule ''F'' and rules for the schedule and go down the list, it is pretty much self explanatory.
 
This, as many are saying.... Breeding stock is considered different than year to year cattle.

In farming, you have yearly costs, mid-term depreciation, long term depreciation , and assets that don't depreciate, all are treated slightly differently, their costs can often be used in taxes, but differently from each other.

--->Paul
 
Cattle purchased for breeding depreciate as 5-year property (usually). After the 5 years are up, they're just operating costs and aren't depreciated at all. Same goes for heifers you keep, they never get depreciated. If you sell any of those animals before the 5 years is up (likely), it gets a little more complicated because you have to adjust the depreciation schedule.

I think there are also ways to depreciate as 7-year property and take bonus depreciation on young cattle.

Best to talk to an accountant especially for your first year. If not much changes from year to year, you can probably figure it out yourself after that just be looking at what the accountant did the previous year.
 
The wrong tax person is the guy who said you can't claim the cows. Get somebody who knows farm tax returns- Its a specialized area, and you either know it or you don't. In his defense, he may have meant you can't "claim" them by simply deducting the whole cost on one year's return- as others have said, you have to depreciate the breeding stock, and take profit or loss on the young stock when yoy sell them.

Reminds me of the time about 30 years ago when my sister was saying what a great deal they got going to H & R Block. I was dubious, but she said they had a money-back guarantee if they got it wrong. Sure enough, they had never even heard of the Investment Tax Credit, which (at that time) let you get a 7% tax credit (in addition to depreciation) on equipment purchases. And, they got the depreciation wrong.

Sis had to practically arm wrestle them to get the refund, but she's particularly good at that, and she prevailed. BTW, H&R advanced the interesting defense that they couldn't be held responsible for "obscure" tax provisions that they didn't know about. She responded that if her dopey little brother knew about it, they should have, too.
 
Thats what I said, you can depreciate the breeding herd, any calves you raise to sell are reported as income and the cost of raising them is deductible, including any feed and hay their mothers ate or other costs associated with raising those calves, on the other hand, calves you buy to re-sell you deduct the purchase price plus the inputs made to get them to sale weight. I have been filling out my own taxes including the schedule ''F'' and depreciation schedules for many, many years with out problems, I don't know what you were questioning in my original post.
 
How could depreciating a cow on line 14 schedule ''F'' possibly complicate your standard deduction? Schedule ''F'' profit or loss is reported before adjusted gross income.
 
I have had few dealings with them but they always have been favorable as were SS and Medicare folks when I signed up for them upon retiring......seamless processes and on SS and my DD Form 214 that I attempted to go to the Nat. Archives to get a certified copy and failed, the SS agent already had it on her computer.

I think the people that have problems with them are the people that just don't realize that the IRS agent has a job to do and is a human being, and that there are more than one way to skin a cat as the saying goes.

Mark
 
The BEST money a farmer/cattleman can spend is to pay a competent CPA and also..........get (and use) a decent bookkeeping system, rather than throwing receipts, bills, etc into a shoebox. In the 80s, I used a free DOS based farm accounting system developed by Mississippi State University; they didn't update it to Windows, so I eventually switched over to Quicken, which works great for a farmer/small businessman.
 
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