Tax Advantages
We all love spending time raising our alpacas, but did you know there are some very attractive tax advantages as well? If you are raising alpacas for profit, the expenses associated with this activity are deductions from your income for tax purposes.
What can I deduct?
- Farm expenses and improvements are either direct deductions or amortized (depreciable) deductions. Some of these expenses include
- Feed, fertilizer, chemicals and vet care
- Farm repairs and maintenance, fuel and oil
- Interest, taxes and insurance
- Breeding fees
- Educational expenses to improve your farming expertise
- Advertising and farm publications
- AOBA and other association dues
- Vehicle mileage for all farm business. This can include enjoyable trips to breeder conferences and alpaca ranches.
What can I depreciate?
- Purchased breeding stock may be depreciated over 7 years. (For example, you purchase two pregnant females for $30,000. You could deduct $30,000/7 years = $4,286 from your income in each of the next seven years. If you borrowed money to buy the breeding stock, the interest is fully deductible from your income as well).
- Capital improvements such as barns, fences, pond construction, driveways, and parking lots can be expensed over their useful life. Equipment such as tractors, pickups, trailers and scales each have an appropriate schedule for depreciation.
- Over $19,000 of depreciable expenses may be directly expensed in one year under the IRS "Section 179" allowance. This amount increases each year.
What other financial advantages are there to alpaca ranching?
- Raising alpacas may qualify your land for agricultural property tax deferral.
- Improvements to facilities not only are deductible expenses, but increase the real value of your property.
- The purchase price of a breeding female may be recovered in one to two years from the sales of her offspring.
- Annual fiber sales help offset feed and maintenance expenses.
- Sales of outside breedings to a herdsire are another source of revenue
- A small farmer can purchase several alpacas and allow the herd to grow over time without paying income tax on its increased size and value. In contrast, for an investment in a CD, interest earned during the year would be taxable. In addition, the CD could not be depreciated.
