Farmers butchering calves for his own use

[Jiggers]

Farmer raises cattle.

Two or three times a year he takes a calf to the processing plant for his personal use.

Do you book some dollar amount as sales for these calves? If so, how much?

I usually don't worry about it, but when a farmer writes a check to pay for this, then you have a paper trail.

Depending on the auditor, and the number of calves, you could have a problem.

One calf at $500 could be $100 in SE/Income taxes, maybe more if state taxes were involved.

[JohnH]

Inventory withdrawn for personal use

If the calves are purchased, then it seems to me this is no different than a cosmetics sales person withdrawing cosmetics form inventory for personal use. Reduce purchases by the amount withdrawn before calcualting COGS.

If the calves are born on the farm, there would not need to be any reduction in COGS.

In either case, the cost for butchering the calves would be a personal, non-deductible expense.

But he might be able to deduct his PETA dues.

[Jiggers]

Raised Calves

The question is do you add FMV of the calves to the Farm income for this?

[ChEAr$]

self dealing

Farmer raises cattle.

Two or three times a year he takes a calf to the processing plant for his personal use.

Do you book some dollar amount as sales for these calves? If so, how much?

I usually don't worry about it, but when a farmer writes a check to pay for this, then you have a paper trail.

Depending on the auditor, and the number of calves, you could have a problem.

One calf at $500 could be $100 in SE/Income taxes, maybe more if state taxes were involved.

is not something reported on a tax return. IOW, FMV of a cow doesn't come into play.

The fee paid for butchering for personal use it goes without saying is not tax deductible.

And if raised on the farm, which I suspect, some allocated cost of the feed used and
any other direct expenses must be subtracted from yearly expenses.

[JohnH]

I don't pay tax

on the FMV of my personal return prepared using my tax software, so I don't think the farmer would be required to pay tax on the FMV of a calf born on his farm. Just specualting here, but if that were so, wouldn't he also need to include in income the FMV of tomatoes, corn, & cucumbers he raises and eats?

[jimmcg]

I think this is what the Code refers to as "De Minimus Fringe Benefits."

[Luis Mopeo]

I think this is what the Code refers to as "De Minimus Fringe Benefits."

I disagree. Like John H said, it's no different than having a cosmetics business and reducing inventory by the cost of items withdrawn for personal use.

Unless this is a corporation or partnership or something, it seems that this is being made too complicated. So what if there's a paper trail? As long as there's not unreported income and the cost of the personal use items aren't being deducted, the paper trail is clean as a cow tail.

[JAinNC]

Another twist to the butchering question

I agreed with John also.

Since this was about farm animals and non business use, I thought I would throw this one in. I sometimes have a farmer or two who comes in with a receipt from a church for half a steer or 5 pigs that were donated for a pig pickin' at church.
The receipt from the church will have a large value because that's what it would cost if they had to purchase the meat. The church pays for the butchering.

Explaining to the tax payer why he cannot deduct this as a charitable contribution is a task for which I now charge a fee. "If you deducted all the expenses to birth it, feed it, house it, and medicate it on Sch F then the gifting of it is not deductible (not matter if the receipt is written in blood)" The question always follws, "THEN HOW DO I GET MY TAX BREAK?" I tell him, "By not claim the income that you did not receive because you didn't sell it" This also happens with other business owners - when they gift to a charity the old depreciated out piece of equipment that has no cost basis.

I just needed to vent. Thanks for listening.
Jeannie

[JohnH]

I had to laugh

Jeannie: Your post brought back a fond memory. Back in the 1970's I had a pastor client in a rural Methodist church who told me about a member of his congregation who would ask him for a receipt each year for the vegetables he gave the pastor from his garden so he could "get a tax deduction".

[JAinNC]

Glad I gave somebody a laugh today

Laugher is good ... We should do it more often.

Back in the '70s was not really that long ago was it? It's all relative.

[Corduroy Frog]

263A Production Costs

I remember a year where IRS required farmers to absorb production costs into their herd.

If the farmer spent $4000 in feed, hay, veterinary, etc. for costs directly attributable to birthing and raising calves, and had 20 cattle, then $200 per head would be added onto and become "basis" of the calves. Thus a calf born on the farm would have a "cost" of $200. When I raised the issue with farmers, it went over about like a rubber crutch.

Non-compliance was almost universal. IRS mercifully ended this posture after one year.

Although public perception about these production costs was horrible, actually it was very sound accounting practice. Matches everything you've ever been taught about inventory.

[JAinNC]

.... and then after 1989 farmers would ask why they had to take a slower rate of depreciation. Uniform capitalization rules. Isn't it a bad sign when one can remember 20 years ago and can't remember what happened last week?

[JG EA]

It's only a bad sign when you can't remember to feel bad about not remembering last week.