Equipment depreciation guidelines.

[heehaw]

i have seen folks have to fight to prove what they were doing was a business, and not a hobby, but they were raising and showing minature donkeys. i doubt anyone would have to fight to prove cattle as NOT a hobby; surely no one would have a hobby that is so contankourous. I only keep 6-8 cows, but i keep up with all the expense and do a IRS form F for the farm. if i hadn't lost 2 calfs last year, i would have made money..not much, but some. what i can't figure out is why folks don't use the one year deduction? maybe if your income was going to be higher every year, the deduction would buy you more by putting it off via depreciation??
heehaw

 

[unaka]

Heehaw

That also happened to me. I think I remember posting the fact that I lost 3 calves and a proven cow last year. I raise an Angus-Hereford mix and I decided to try a Charolais bull because I had read that the offspring would have good hybrid vigor. The ones that made it are proving to be excellent weight gainers, but in the end, it was too much of a price to pay. The trauma and the heartache of watching an animal suffer like that, and burying calf after calf almost broke me and my wife from the cattle business.

Cowboy Doc, I appreciate your comments. While I keep records and notes on my cattle as diligently as I can, I've never really put a true business plan on paper. I started a rough draft of one last night, simply putting down my logic as to how I plan to make money. It was a good exercise. I've always had a rough plan in my mind, but it's not until you put something down on paper that you see different angles and ideas that you hadn't seen before.

Unaka

 

[cowboydoc]

Unaka,
If you have a fax # email it to me and I will fax you an excellent outline for a business plan for a ranch or farm operation.

 

[TerryinMD]

CBD,

Hey, can I jump in on this. I think I need to develop one also. Mentioned it to the CFO last night and she thinks that it's time to do things right. Been doing that tax wise for a few years, but now the parameters have changed and we have to protect our hinies....

Terry

 

[cowboydoc]

Sure just send me a fax # Terry. I'd post it here but have to be careful about posting copyrighted stuff. I'll bring it in tomorrow and anyone that wants it just email me your fax # at mesasage@machlink.com

 

[TerryinMD]

Excellent!!

You da man!! /w3tcompact/icons/smile.gif

Terry

 

[woodmills1]

the accelerated depreciation over the first year is called 179 expense. it allows, i believe up to 20,000 of equipment purchase to be written off in the first year of purchase. i believe if you get form 4562 and instructions you will see this and other depreciation schedules. the 179 benifits are huge as you can shelter income in the year of the purchase. if you buy 20,000 dollars worth of equipment and are in the 28 per cent bracket you save 5,600 dollars of tax payments in the first year. it is a very good rule for those starting or upgrading a business. by the way since it reduces income it also reduces social security payments whic for self employed persons is i think 14.5 percent. and yes you are supposed to show a profit in 3 of the last five years, but using 179 to create a loss shouldnt trigger a problem due to the level of investment. one draw back to 179 occurs if you sell the equipment before its regular depreciation period, you are supposed to recapture the unearned depreciation. in effect paying back the credit you didn't earn.

 

[unaka]

Woodmills,

You said, "one draw back to 179 occurs if you sell the equipment before its regular depreciation period, you are supposed to recapture the unearned depreciation. in effect paying back the credit you didn't earn."

I've been wondering how I would treat this for my 2002 taxes. I didn't really sell the tractor, but traded up. I remember reading something about a like kind purchase. You sound like you know tax stuff pretty well. Do you know if I'll be penalized next year for upgrading?

Unaka

 

[TerryinMD]

I was wondering the same thing. How does this effect trading in on newer equipment? Or selling off equipment to upgrade to newer equipment to increase productivity?

Terry

 

[cowboydoc]

There is a place for you to report it on subsequent returns. If you bought it in the business then you have to report it if you sell.

 

[TerryinMD]

In short, in the subsequent reporting years, the cost of trading in or selling off would be an offset any newer equipment depreciation.

Terry

 

[unaka]

Cowboy doc,

Did you get the email I sent you yesterday?

Also, I'm curious if you know anyone (or anything about) direct marketing with cattle, as opposed to simply being on the bottom of the stocker market chain. Last night, as my wife and I were brainstorming a business plan, it occured to us that we'll never really make any real profit selling our calves at the auction, or to the local "big guys", as we are really at their mercy. But if we could direct market a grass finished product (leaner beef, different taste), as opposed to a grain-finished product (what we're all used to) directly to the consumer, then the idea of profit inches closer to reality. I'm sure this would involve some red-tape, inspections, etc., but I'm curious if anyone has tried this successfully on a small scale.

unaka

 

[TerryinMD]

Unaka,

My neighbor raises brood cows and here is an article about his ranch. He is a very colorful character. <A target="_blank" HREF=http://www.farmerfirst.com/articles/0200softcell.shtml>M&M Ranch</A>

This may or may not answer your questions but may give you some insight with his approach. I believe that Bill sells his cattle both through auction and direct sales.

Terry

 

[unaka]

Terry,

Thanks for the article, I printed it off and will show it to the wife this evening. I'm in the process of dividing my pastures to try some intensive grazing techniques, myself. I feed very little as it is, just supplement every evening as our climate here in the south allows the grass to grow almost year round. If I can get a handle on how large to make each pasture, and when to rotate, I think I can further reduce my feed costs.

Unaka

 

[DFB]

unaka,

This place is doing just that. smallfarmtoday web page.

DFB

 

[unaka]

DFB,

Thanks. That's good info. It's good to know that some people are having success with the direct marketing angle.

Unaka

 

[DFB]

I buy my beef direct. Since '96. I buy from a local farmer that raises a small herd of beef cattle. All he really does is rounds up a list of buyers first, usually by word of mouth. When he delivers the finished cuts he collects his money.

DFB

 

[TerryinMD]

Unaka,

I believe he tries to section off 10 acre blocks. He then moves the cattle around to allow the feeding block to recover. The only maintenance I see them do is to lime the fields yearly.

Terry

 

[unaka]

DFB,

Is the price for his meat a little higher or lower than grocery prices? and do you have to buy a minimum amount, such as a whole side of beef?

Also, one more question. Do you know if his cattle are finished out on grain or grass?

Thanks again for your informative responses

Unaka

 

[DFB]

Unaka,

By the side is the way he sells it. First time around I took a whole half, but it was a bit too much for us.
What I've been doing lately is going in halfs with with my wife's folks and we split one. Averages out less than market retail.

They're finished off on grain. Don't really know how much though. Him along with two others also cut down and take the sweetcorn my wife's stepdad grows for feed earlier on in the fall too. Last winter TBN members' cowboydoc and ERNIEB (where's he been?) provided me with good info on cattle raising in the old thread titled
<A target="_blank" HREF=http://www.tractorbynet.com/cgi-bin/compact/showthreaded.pl?Cat=&Board=off&Number=26658&page=&view=&sb=&o=&vc=1#Post26658> This ICE is driving me crazy</A> of all places. Its a long and twisty thread the info is towards the end.

You have a Charolais bull? Big animal. Seen some in the oxen pulls at the fair. Have you heard of Piedmontese. Read an article in Small Farm Today that rates them as one of the top producer for cutability and dress yield. The local guy's are Herefords. Around here you also see some belteds and Scottish Highlands too.

DFB