*** Important Update for the
2011 Tax Year ***
Jan 5, 2011 - Section
179 limits were increased by the 'Jobs
Act of 2010' - allowing businesses to
write-off up to $500,000 of qualified
capital expenditures subject to a
dollar-for-dollar phase-out once these
expenditures exceed $2 million.
Bonus Depreciation was also increased to
100% by the 'Tax Relief Act of 2010' -
allowing businesses that exceed the $2
million cap to write-off 100% of
qualified assets using first year Bonus
Depreciation. Also, small businesses
that are not profitable in 2011 can use
100% Bonus Depreciation (on new
equipment only) and carry-forward the
loss to future profitable years.
This should mean a substantial boost to
your bottom line this year. But to get
the deduction for tax year 2011, you
have to act this year, as once the clock
strikes midnight on 12/31/2011, Section
179 can't increase your 2011 profits
anymore.
(Information taken from
http://www.section179.org )
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The Tax Benefits
How would you like to trim your tax
liability 5-15% or more? Alpacas, as well as other types
of livestock, are the answer. Alpacas are by far, the
easiest to manage ..... ask any large animal Vet who has
worked with alpacas!!
You can choose to enhance your real
estate, purchase animals, and deduct expenses directly
against earned income. If you prefer to agist or board
the animals, you can capture the expenses and cost of
the animals against passive income now and 15 years into
the future. Tax deferred wealth building is another
benefit. Taxes are postponed on the increased value
until you are ready to start selling the offspring.
Many alpaca breeders throughout the
United States have recognized financial and personal
gains. The rewards are many. Their initial investment
has grown to a level that permits early independence.
Individuals have recognized that their current careers
can be incorporated into alpaca breeding with positive
results. Take for example the physician who has done
extensive research into the Accoyo line of alpacas. He
has been winning in the show rings and his progeny line
is sought after before they are even born! As an added
bonus, many of these same individuals will share their
stories of how they begun and grew into today’s levels.
The alpaca industry is full of many individuals willing
to help you get started!
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Raising alpacas on your own property:
First you must establish that you are actively involved in the business and desire to make a profit. Alpaca ownership suggests you:
A. |
Operate the farm in a business like manner |
B. |
Depend to some degree on income from your farm |
C. |
Calculate that losses are circumstantial and beyond your control or are normal in the start up phase |
D. |
Change your operations to increase profits |
E. |
Conduct operation as a business, not a hobby |
Even if you are a passive investor you will still be allowed the following tax benefits.
The only question remains as to whether you can take the deductions on a current basis.
Deductible Expenses:
- Vehicle mileage for all ranch business
- Fees for income tax return
- Livestock feed
- Labor hired to run the ranch
- Breeding Fees
- Taxes and insurance
- Depreciation on animals
- Depreciation of real property such as barns and equipment
- Farm travel expenses
- Educational expenses
- Advertising
- Veterinarian care
- Boarding fees
- Farm fuel and oil
- Attorney fees
Also refer to Section 179 from the IRS that allows a substantial deduction each tax year for expenses.
Please note that once you have determined either a net income or loss, that amount is included on the tax return. It is either an addition to or a deduction from ordinary income. Losses can be carried back for 3 years and forward for 15 years. To deduct any loss, you must be at risk for an amount equal to or exceeding the losses claimed. The “Risk Factor” is:
- The amount of money you contribute
- The amount of money you borrowed
The passive owner’s losses that are in excess of current income can be carried forward and taken against future income. Timing is the issue.
Tax deferment:
Alpacas in which you have cost basis can be written off over 5, 7 or 10 years if
there are being held as breeding stock. Straight line or accelerated schedules allow for a percentage of the asset to be written off. Example: An alpaca is purchased for $20,000, depreciated for 2.5 years or 50% of its value and then resold for $20,000. There would be a gain for tax purposes of $10,000. Result = The adjusted cost basis is deducted from your sale price to determine gain or loss.
Capital Gain Treatment:
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Capital Gain Treatment: The sale of
breeding stock qualifies for capital gains treatment.
Please note that alpaca offspring do not qualify for
capital gain but rather income taxes. |
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Please refer to IRS Publication 225, “Farmer’s Tax Guide” for more information. It can be attained at the IRS website http://www.irs.gov
Your accountant can advise you of your tax structure and we recommend that you follow that advice.
These are just a few of the exciting
tax advantages of alpaca ownership
Compounding
Well, we know you have heard of compounding. This basic principal exists with alpaca ownership. They multiply! Imagine getting a return of $10,000 - $15,000 +/- on your $30,000 investment in one year? This does and can happen to you. The only glitch … you do have to sell the alpacas. Too many farms are reluctant to sell the animals and their return on investment is minimized. Don’t make that mistake.
Play with the following compounding table and exercise all the possibilities that would be right for you!
Published with permission from the Alpacas Owners & Breeders Association
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