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There are many benefits to becoming an Alpaca owner. Of course there are the personal benefits, but if you want to raise Alpacas for profit there are many tax advantages to help you out.
To be eligible for tax write-offs you must:
- Operate your ranch in a business-like manner, where the time spent on ranching indicates you intend to make it profitable.
- Depend on the income from ranching for your livelihood
- Have a business plan and are able to justify your business decisions
- You or your spouse must be actively involved in the industry
- Follow appropriate bookkeeping practices
Many of the expenses you incur to run your ranch can be deducted from your taxes each year. Your ranch expenses and improvements can either be direct deductions or amortized deductions. Some qualified deductions are:
- Livestock Feed
- Vet Costs
- Chemicals
- Fertilizer
- Ranch Repairs & Maintenance
- Fuel & Oil
- Breeding Fees
- Educational Expenses to improve your ranching expertise
- Advertising and Marketing
- Association Dues
- Vehicle Mileage for ranch business
- Labor hired to run and maintain your ranch
- Rent & Leasing Costs
In addition to tax deductions, there are also ranch improvements that can be depreciated each year.
- Purchased breeding stock may be depreciated over 7 years
- Capital improvements - barns, fences, ponds, driveways and parking lots can be expensed over their useful life.
- Ranching Equipment - Tractors, pickups, trailers and scales all have their own depreciation schedule, but usually varies from 3 to 40 years.
- The maximum section 179 expense deduction you can elect for qualified section 179 property you placed in service in tax years that begin in 2009 remains at $250,000 (this was the same in 2008).
For those of you that are looking to build up your ranch the IRS will actually help you with the purchase of your animals! Let's look at an example:
- Purchase alpacas for $250,000
- $75,000 down payment
- Finance balance over 4 years
You would receive a tax refund of $121,408 and you would only pay $8,711 out of pocket in the first year (if you are in the 45% tax bracket). The total after-tax cost of your $250,000 investment is only $180,850 over the 6-year asset life the IRS allows.
I encourage everyone looking into starting an alpaca ranch, or those that have already, to talk to their accountant about the many tax benefits so you can stay ahead of the game. To read more about Code 179 from the IRS' website go here http://www.irs.gov/publications/p946/ch02.html. You will also want to read through the IRS' Farmer's Tax Guide that can be downloaded here: http://www.irs.gov/pub/irs-pdf/p225.pdf
Sources:
http://alpacas.com/Resources/TaxPlanner.aspx
http://www.irs.gov
http://www.championalpacas.com/benefits.htm
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