Cattle- accounting - tax issue

[riptides]

had one named T bone . The Ones I'm taking his fall doesn't have names

Next.

 

[japody]

Myself and everyone I know in cattle always take a loss. Expenses are too great to ever make a profit.

I'm on my 8th year and show zero profit. I know people that have been in the business for more than 30 yrs and never have shown a profit.

The Money I make goes right back into the farm, in fertilizer, hay equipment , tractors, fuel, feed, weed control, fencing, maintenance, etc,etc,.

With that said, I don't think you'll be able to deduct materials you purchased prior to actually starting the business. everything I buy for the farm comes out of my farm account..

We have a farmers CO-OP here and I purchase most of my products from them. they send me an invoice I pay out of my farm account. I also have a CC for my farm account I use for other items

It is said around here, that you have to have a good paying full time regular job to be able to financially support your cattle business ! LOL

Another saying for those around me asking about starting in cattle is.
''You know how to make a small fortune in the cattle business ?''
''You start with a large fortune, and pretty soon, you'll have a small fortune'' ..LOL

I tend to believe both of those sayings are true !

...A

Myself and everyone I know in cattle always take a loss. Expenses are too great to ever make a profit.

I'm on my 8th year and show zero profit. I know people that have been in the business for more than 30 yrs and never have shown a profit.

The Money I make goes right back into the farm, in fertilizer, hay equipment , tractors, fuel, feed, weed control, fencing, maintenance, etc,etc,.

With that said, I don't think you'll be able to deduct materials you purchased prior to actually starting the business. everything I buy for the farm comes out of my farm account..

We have a farmers CO-OP here and I purchase most of my products from them. they send me an invoice I pay out of my farm account. I also have a CC for my farm account I use for other items

It is said around here, that you have to have a good paying full time regular job to be able to financially support your cattle business ! LOL

Another saying for those around me asking about starting in cattle is.
''You know how to make a small fortune in the cattle business ?''
''You start with a large fortune, and pretty soon, you'll have a small fortune'' ..LOL

I tend to believe both of those sayings are true !

....and I thought I was the only one with a loss every year.

 

[japody]

I highly recommend an accountant specializing in agriculture. We looked into an LLC for our business and the pros vs cons just did not justify switching from sole proprietor. As for the supplies you purchased the year before you should have wrote them off on that year knowing you were going to be doing this. That is where an accountant would have been handy. All those costs are probably lost now.

We had a similar situation with a startup here last year. Made many purchases and it didn't pan out but still wrote it all off obviously at a loss, but because we are still attempting to get it up and running this year.

Don't need an accountant. IRS Schedue F is very easy. Also, if you purchased the supplies within the last 3 years, you could claim them on an amended return, Schedule X.
There is no need to over complicate this. Just my 2 cents.

 

[beowulf]

Don't need an accountant. IRS Schedue F is very easy. Also, if you purchased the supplies within the last 3 years, you could claim them on an amended return, Schedule X.
There is no need to over complicate this. Just my 2 cents.

Japody, thanks for commenting. Yeah, for many years ('86-2014) I did the Schedule F. I am not certain my accounting of everything was perfect but it was doable. Then when I started leasing the pasture instead, I just claimed the rental income less any expenses I had.

As I recall, we would make money in some years - if we kept the herd size matched to the available pasture - and those were the years we sold off cattle to reduce the herd size. Other years were losses - especially if we had to buy hay - though because we were relatively small it was not a big deal - and overall we enjoyed the adventure. I recall hay being available for about $4 a bale in '86 and going up constantly ever since. Now around here it is about $24-$26 a bale. Don't want to be buying much of that.

 

[Torvy]

Really bad advice many times over. Get protected, it is cheap and easy.

 

[LHF2019]

Don't need an accountant. IRS Schedue F is very easy. Also, if you purchased the supplies within the last 3 years, you could claim them on an amended return, Schedule X.
There is no need to over complicate this. Just my 2 cents.

Sure if it is a hobby and you don't care. But if running a business to the max the last thing I would want to do is keep up with ever changing tax rules. Do you depreciate this or that? Maybe you depreciate all this but not that? Do you want to show loss or gain? I don't have time for that and if you enjoy that stuff that's great. Then heaven forbid you have an audit. Better be able to back up everything by yourself.

I can tell you with different accountants they all have their thoughts on what you can write off and what you can't. It is all how they want to interpret the rules. At least it is on them should something happen. When I took over the farm after dad passed the accountant that came with that had her way of doing things that I thought was wrong. When we filled bunk I would buy food for the day. I was not able to write that even thought it was a direct business expense. Her way of doing it. 20 years later and more accountants than I want to count. I now write off cat food, food, clothing, and even had a discussion with accountant on guns and ammo. Guns no. Ammo gray area and I'm not doing it. Personal utilities are directly tied to the business so they get broken down to a certain percentage. Right down to the real estate taxes.

Schedule F is cut and dry yes. Getting the values to plug in to it, that is the fun part.

 

[LHF2019]

I don't know if you mentioned what you were doing with your expenses but purchased cattle are depreciated and all the bulk fencing purchases should or can be as well.

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.

 

[Tinhack]

It sounds to me that you've already amortized part of your earlier costs. You can't do it again for the same assets. Even if you stopped a business before completing the amortizations, your filings should have continued for those assets, or you could be liable for tax on all of its value. I think you better get an accountant before you dig yourself a tax hole that could cost you dearly. Especially now that there's an army of IRS agents hungry to hang folks. It's not as simple as a single form that some mention. That form is a summation. You need to have the detail to support the from. And you better have it when they call you in for an audit. I remember mine being about a hundred pages or so for my shop. If you don't have accounting software for your computer, find an accountant that does.

 

[beowulf]

It sounds to me that you've already amortized part of your earlier costs. You can't do it again for the same assets. Even if you stopped a business before completing the amortizations, your filings should have continued for those assets, or you could be liable for tax on all of its value. I think you better get an accountant before you dig yourself a tax hole that could cost you dearly. Especially now that there's an army of IRS agents hungry to hang folks. It's not as simple as a single form that some mention. That form is a summation. You need to have the detail to support the from. And you better have it when they call you in for an audit. I remember mine being about a hundred pages or so for my shop. If you don't have accounting software for your computer, find an accountant that does.

Tinhack, Thanks for the input. But I was only referring to things I bought recently - in 2022 - to get ready for starting up again in 2023. We last had cattle in 2015 and then leased the pasture. I terminated the pasture lease effective 12-31-22, and then bought a lot of fencing material, wire, T-posts, gates, tank troughs, and similar. Then in 2023 I bought more for the start-up, the cattle, a chute squeeze, more fencing, coral panels, brand registration and branding iron and more. I know I can depreciate what I bought in 2023 but was wondering if I could also depreciate what I bought in 2022 when getting ready for our 2023 start up. I keep a journal and records and receipts for all things related to this - e.g., the trailer rental to haul the cattle squeeze home (a 320 mile round trip), and am confident about supporting expenses - current and amortized - for tax purposes. I did it before from 1986 to 2015. I am really not sure what an accountant could do beyond what I meticulously document. Maybe, but it is a fairly simple operation, and I also have downloaded very detailed record keeping programs for cattle business. While I suppose there might be something here I would utilize in the cattle business in some way, I will take care to make sure I did not already account for it previously. Right now I can't think of anything that would be in that category.

 

[LHF2019]

But I was only referring to things I bought recently - in 2022 - to get ready for starting up again in 2023. Then in 2023 I bought more for the start-up, the cattle, a chute squeeze, more fencing, coral panels, brand registration and branding iron and more. I know I can depreciate what I bought in 2023 but was wondering if I could also depreciate what I bought in 2022 when getting ready for our 2023 start up. I keep a journal and records and receipts for all things related to this - e.g., the trailer rental to haul the cattle squeeze home (a 320 mile round trip), and am confident about supporting expenses - current and amortized - for tax purposes. I did it before from 1986 to 2015. I am really not sure what an accountant could do

He can answer the questions you keep asking.