Client is a cash basis cattle farmer. He buys breeding stock and sells raised cattle. This year he sold $100,000 worth of cattle and bought $90,000 of cattle. The cattle he sold was raised and the cattle he bought was young but he does NOT intend them to be breeding stock. He intends to sell them next year. What do I do with the $90,000 on his tax return? Thanks for any help.
-
-
Breeding stock?
Breeding stock sounds like cattle that are used for purposes of breeding, i.e., animals that he intends to mate in order to produce more animals.Originally posted by Larmil View Post
Did you accidentally leave out the word not from your post? I'm not kidding, and I'm not trying to embarrass you. I've made that mistake myself. Did you mean to say that even though the cattle he bought are young, he does not intend them to be breeding stock?
I don't understand how they can be breeding stock if he intends to sell them next year.Burton M. Koss
koss@usakoss.net
____________________________________
The map is not the territory...
and the instruction book is not the process. -
You are right! I'm sorry.
The word NOT (which I left out) is my problem. He does not intend them for breeding. I see no way to put them on depreciation. He is cash basis with no inventory. Is the 90K in limbo until he sells them? Thank you.Originally posted by Koss View PostComment
-
Inventory vs. Breeding Stock
He's got an inventory now, whether he wants one or not. [LOL]Originally posted by Larmil View Post
I'm not sure I would say that the cattle are in limbo, but it appears that the cost of the cattle will not be accounted for until he sells them.
He's going to have to choose an inventory valuation method.
This could get really complicated really fast. Here's an excerpt from IRS Publication 225, Farmer's Tax Guide:
Livestock. Livestock held primarily for sale must be included in inventory. Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. See also Unit-livestock-price method, later. If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes.
Inventory. You can never depreciate inventory because it is not held for use in your business. Inventory is any property you hold primarily for sale to customers in the ordinary course of your business.
Livestock. Livestock purchased for draft, breeding, or dairy purposes can be depreciated only if they are not kept in an inventory account. Livestock you raise usually has no depreciable basis because the costs of raising them are deducted and not added to their basis. However, see Immature livestock under When Does Depreciation Begin and End, later for a special rule.
Immature livestock. Depreciation for livestock begins when the livestock reaches the age of maturity. If you acquire immature livestock for draft, dairy, or breeding purposes, your depreciation begins when the livestock reach the age when they can be worked, milked, or bred. When this occurs, your basis for depreciation is your initial cost for the immature livestock.
Inventory valuation methods. The following methods, described below, are those generally available for valuing inventory.
• Cost.
• Lower of cost or market.
• Farm-price method.
• Unit-livestock-price method.
_________________________________
Good luck. I've never actually done a farm return, so the reality is that I have no idea what I'm talking about... LMAOBurton M. Koss
koss@usakoss.net
____________________________________
The map is not the territory...
and the instruction book is not the process.Comment
-
Thank you. You confirmed the way I read the situation. I can take it from there.Originally posted by Koss View PostComment
-
Your client bought feeder cattle to sell when they are fed out. Look on Sch. F , lines 1 and 2. You show the revenue from sales of purchased livestock ( not breeding stock) on line 1 and their cost on line 2. The net goes on line 3. You hold purchased livestock in inventory , then show the original cost of the animals sold as a deduction when they are sold. One of the headaches of doing some farm returns is getting the clients to keep these purchases and sales properly segregated.Comment
-
The cattle he bought for resale are inventory, there is no deduction until he sales them. In this case, that would next year.
DanComment
-
Non-comittal
Larmil, no deduction for the present. These are held as inventory.
Suppose the $90,000 represents 180 calves at $500 apiece. He doesn't intend to keep them for breeding. In 2008, he sells 170 of these for $125,000, and then changes his mind and keeps 10 of them for breeding cattle. Additionally he sells $10,000 more calves that were raised on the farm.
Sch F, line 1 is dedicated to sales of animals he bought for resale, and $125,000 is entered. Line 2 is for the cost of these animals, 170 @ $500 apiece, or $85,000, reflecting a $40,000 gross profit for income purposes. Line 3 is for livestock and products raised on the place, or the remaining $10,000.
Absent anything else, there would be $50,000 reported in the "income" section of the Schedule F.
The remaining 10 heifers kept for breeding may be depreciated with an original basis of $5000.Comment
Comment