Cattle- accounting - tax issue

[beowulf]

Background: We had cattle (8-12 head) from 1986 to 2015. Sold all in 2015 due to potential/approaching fire issue. From 2015 through 2022 we leased the pasture (80 acres) to another. In 2022 I terminated that lease in anticipation of restarting our own cattle business this year. And the lessee did not quite handle his end of the deal - he was to maintain all fences.

Our new Plans: We will restart our cattle 'business' this year. We bought ten heiffers this year and will breed them in 2024. 2023 will be the first calendar year for our modest operation. I am putting together a record system for general management and tax purposes. I understand we need to be profitable 3 of 5 years or will be considered a hobby. BTW - we are doing this now, not because we anticipate we will be particularly profitable (before there was usually a modest profit in some years), but because we want to mitigate fire risk by grazing. In 2022 and in this year, we fenced off six separate pasture areas so as to rotate grazing - beginning with areas close to the house and moving outward. We will sell off as needed to match the herd size to available grazing and hopefully avoid feed expenses.

My Question: We have cattle related 'stuff' here already which we will utilize in the cattle business - water/stock tanks, fencing, etc. And in anticipation of restarting our business in 2023 we bought a lot of things we would need (posts, squeeze chute, coral panels, gates, a dozen rolls of 330' field fence, rolls of barbed wire, other fencing material, etc.). Anyway, I know I can deduct cattle related expenses I incurred in 2023 (the first year of our re-start), but can I deduct (amortize actually) the things I bought in anticipation of starting up, and/or things on-hand that I will be putting to use in the cattle operation? It is not a really big deal as I estimate the total 2022 'anticipation' expenses are under $3,500 and would mostly be amortized anyway.

I am putting all of the records in order, accessing info on line and such so all accounting will be in order, but as I do this I began to wonder about those expenses I incurred in 2022 in preparation for starting up in 2023.

Any help is appreciated. I have ordered a cattle 'accounting' book, but am sitting here today organizing our records and began to wonder about this issue.

 

[Chewwy]

Sole proprietor?

 

[beowulf]

Sole proprietor?

Yes. Just my wife and me.

 

[ponytug]

Welcome back to the Ranching business!

I would say talk to your tax person.

If you can subdivide your pastures with electric to get portions that your heifers/cows can graze in a week, you will get better weed control, and soil build up. The cows will graze the good stuff first, then the not so tasty, and then the ones that they aren't fond of. Grasses recover well being grazed down, and then left alone. Weeds tend not to. In larger paddocks, the grazing pressure on the weeds isn't as optimal. Of course, it may be extra work, unless you can arrange watering that doesn't require much change as the cows move from paddock to paddock. Often, folks do something pie shaped, with wedge shaped pastures, but it all depends on your terrain. I have seen long rectangles, each with its own water.

All the best,

Peter

 

[Torvy]

We (and my ranching cousins) set up LLC for our ag related businesses. There are significant liability advantages. If you separate your LLC assets from your personal assets, you are much more protected if someone gets hurt on your property or one of your cows gets out and causes damage, etc. Effectively, your personal assets (home, car, etc.) are not at risk. Of course, talk to an attorney and/or tax accountant for details. Typically, taxes in this case are paid via schedule C with your regular 1040 form.

I don't know what programs my cousins use for their operation (1000+ head in multiple states). I know they track everything and it is quite scientific.

 

[ROUSTABOUT]

Background: We had cattle (8-12 head) from 1986 to 2015. Sold all in 2015 due to potential/approaching fire issue. From 2015 through 2022 we leased the pasture (80 acres) to another. In 2022 I terminated that lease in anticipation of restarting our own cattle business this year. And the lessee did not quite handle his end of the deal - he was to maintain all fences.

Our new Plans: We will restart our cattle 'business' this year. We bought ten heiffers this year and will breed them in 2024. 2023 will be the first calendar year for our modest operation. I am putting together a record system for general management and tax purposes. I understand we need to be profitable 3 of 5 years or will be considered a hobby. BTW - we are doing this now, not because we anticipate we will be particularly profitable (before there was usually a modest profit in some years), but because we want to mitigate fire risk by grazing. In 2022 and in this year, we fenced off six separate pasture areas so as to rotate grazing - beginning with areas close to the house and moving outward. We will sell off as needed to match the herd size to available grazing and hopefully avoid feed expenses.

My Question: We have cattle related 'stuff' here already which we will utilize in the cattle business - water/stock tanks, fencing, etc. And in anticipation of restarting our business in 2023 we bought a lot of things we would need (posts, squeeze chute, coral panels, gates, a dozen rolls of 330' field fence, rolls of barbed wire, other fencing material, etc.). Anyway, I know I can deduct cattle related expenses I incurred in 2023 (the first year of our re-start), but can I deduct (amortize actually) the things I bought in anticipation of starting up, and/or things on-hand that I will be putting to use in the cattle operation? It is not a really big deal as I estimate the total 2022 'anticipation' expenses are under $3,500 and would mostly be amortized anyway.

I am putting all of the records in order, accessing info on line and such so all accounting will be in order, but as I do this I began to wonder about those expenses I incurred in 2022 in preparation for starting up in 2023.

Any help is appreciated. I have ordered a cattle 'accounting' book, but am sitting here today organizing our records and began to wonder about this issue.

I don't think the 3 out of 5 years applies to cattle. You can't make any money unless you operate at a loss. Any agriculture does not switch to hobby status. Notice welfare is in the farm bill.

 

[beowulf]

I don't think the 3 out of 5 years applies to cattle. You can't make any money unless you operate at a loss. Any agriculture does not switch to hobby status. Notice welfare is in the farm bill.

Roustabout, not sure about that. My brief research online found that it did apply to cattle operations, although there could be ways to avoid the rule's application in some circumstances. A list of the circumstances that could mitigate against the 'hobby' rule's application were listed.

 

[beowulf]

We (and my ranching cousins) set up LLC for our ag related businesses. There are significant liability advantages. If you separate your LLC assets from your personal assets, you are much more protected if someone gets hurt on your property or one of your cows gets out and causes damage, etc. Effectively, your personal assets (home, car, etc.) are not at risk. Of course, talk to an attorney and/or tax accountant for details. Typically, taxes in this case are paid via schedule C with your regular 1040 form.

I don't know what programs my cousins use for their operation (1000+ head in multiple states). I know they track everything and it is quite scientific.

Torvy, thanks for your advice re the LLC. I have not thought about that. We will be quite small - likely never exceeding about 15 head or so at any one time, but there is still the risk of loss and liability. I will look into that.

 

[beowulf]

Welcome back to the Ranching business!

I would say talk to your tax person.

If you can subdivide your pastures with electric to get portions that your heifers/cows can graze in a week, you will get better weed control, and soil build up. The cows will graze the good stuff first, then the not so tasty, and then the ones that they aren't fond of. Grasses recover well being grazed down, and then left alone. Weeds tend not to. In larger paddocks, the grazing pressure on the weeds isn't as optimal. Of course, it may be extra work, unless you can arrange watering that doesn't require much change as the cows move from paddock to paddock. Often, folks do something pie shaped, with wedge shaped pastures, but it all depends on your terrain. I have seen long rectangles, each with its own water.

All the best,

Peter

Peter, yeah, back in the cattle business. I don't necessarily need all the extra work but we can manage the grazing much better if we are running it than if we just lease the pastures. The lessee - understandably - had to manage his operation to make it work for him and so that meant not having cattle here at all at times. Also, he neglected his fence maintenance duties. So I designed and registered a brand, ordered the branding iron, am putting in the squeeze and so on. At 79 doing this - and managing all the fencing issues in hilly country - was not something I was excited about, but it keeps you young, and the daughter and SIL will take it all over at some point, and I guess that I kind of enjoy having cows around.

I don't have a tax person, but have done a bit of research and hopefully will know enough when the time comes to file first tax returns.

I don't think I can subdivide pastures into portions as small as would be required to gain the advantages you mention. We divided our ten head into two groups of five and put them into different pastures. The pastures are of varying sizes as dictated by terrain and opportunites for fencing and ability to provide water to the areas. One group cleaned up one pasture in about a month and then we moved some goats in. The other group were in a larger pasture and we are getting ready to put both groups together in a larger pasture. - all the time moving them from pastures that were near the house to pastures farther away. And we use goats almost exclusively in areas adjacent to the house.

Ron

 

[riptides]

LLC is the way. Whatever you purchase for the business is tax deductible. You can also tie equipment to the LLC and deduct them based on cost and or condition.

Be careful with insurance though. Have clear separations between what is personal and what is business.