alpaca

 

 

Friendly Farm Alpacas
Chico, California
530-342-4745

 
alpaca

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alpaca

tax benefits of alpacasAlpacas are widely known as "The world's finest livestock investment" for the excellent lifestyle that raising them offers, but especially for the possibility of excellent profits in the sales of offspring from your herd as well as great tax advantages.

An alpaca rancher with a small herd on a small acreage can expect to harvest his animals' fleeces and sell their offspring profitably. The current alpaca industry is based on the sales of quality breeding stock, which commands premium prices. The value of alpaca fleece and finished products made from that fleece is the economic underpinning of the future market for alpacas.

Alpaca sales values have been excellent and remained steady since they were first imported to the US in significant numbers in the 1980's. Since then, the US registry (ARI) has been closed to new imports, effectively protecting the US market from growing too quickly or getting flooded with overseas imports. Alpacas continue to be in high demand as these animals are scarce, unique, and the textiles produced from their fleeces are known in the fashion centers of Tokyo, New York, Paris, and Milan.

Factors that influence individual alpaca prices include color, conformation, fleece quality and quantity, age, and gender. Females sell for more money on average than males, but herd sire quality males have historically commanded the highest individual prices.

Many breeders start with several breeding age females and perhaps one male. Other new breeders may elect to start with several young animals or a breeding pair. There is an approach suitable for your level of interest and financial position. Alpacas reproduce almost every year, and about one-half of their babies are females.

Alpacas are also fully insurable against theft and mortality. Insurance can be purchased for your stock regardless of age. Average insurance rates are 3.25% of the value of the animal, or $325 for every $10,000 of insurance.

TAX ADVANTAGES

Alpaca ownership offers excellent tax advantages through depreciation, capital gains, and for active hands-on owners, the benefit of off-setting ordinary income from other sources with expenses from a ranching business. Recent changes in tax law provide increased benefits to alpaca farms, including special 50-percent depreciation allowance for 2008 purchases and an increase in the small business expensing limitation for tax years beginning in 2008 (learn more). Those considering entering the alpaca industry should engage a reputable accountant for advice in setting up their books and determining the proper use of the concepts discussed here. The goal of this discussion of IRS rules is to provide guidelines for discussion with your accountants and financial advisors so that you can be more conversant in the issues of taxation as they relate to raising alpacas. A list of links to some relevant IRS publications and forms are provided below.

Writing Off Expenses

Raising alpacas at your own ranch, in the hands-on fashion, can offer the rancher some immediate tax advantages. If alpacas are actively raised for profit, all the expenses attributable to the endeavor can be written off against your income. Expenses include feed, fertilizer, veterinarian care, and the like. In addition, certain eligible property may be written off in the tax year of purchase, rather than depreciated over the asset's useful life. Such property includes:

Increased Expensing Limit

Under the new rules of IRS Section 179, expensing now is at the base level of $250,000, up from the previous limit of $25,000. In addition, the investment limitation also has been increased to more than $800,000. more information

• Machinery and equipment
• Furniture and fixtures
• Most storage facilities
• Single-purpose agricultural or horticultural structures

These expenses can shelter current cash flow from tax, which can be especially
helpful to beginning alpaca farmers as
they are building their business.

Capital Improvements

Capital improvements to the active or hands-on alpaca breeder's ranch can also be written off against income. Barns, fences, pond construction, driveways, and parking lots can be expensed over their useful life. Equipment such as tractors, pickups, trailer, and scales each have an appropriate schedule for write-off. The depreciation schedule for each asset class varies from three years to 40 years.

50% Special Depreciation Allowance!

Under new tax law, a taxpayer
is entitled to depreciate 50 percent of the adjusted basis of certain qualified property during the year that the property is placed in service.

There is also the newly enhanced
direct write-off (expense) method known
as Section 179 (learn more) that allows a substantial deduction each tax year for newly acquired items that are normally
long-term depreciable assets. While this
is subject to some limitations, it is widely utilized by small ranches to accelerate expense, if appropriate for the particular
tax situation. Owners currently in high tax brackets often use it when changing their lifestyle to a lower income level over
several years.

Tax-deferred Wealth Building

Alpaca breeding allows for tax-deferred wealth building. An owner can purchase several alpacas and then allow the herd to grow over time without paying income tax on its increased size and value until he or she decides to sell an animal or sell the entire herd.

In summary, the major tax advantages of alpaca ownership include the employment of depreciation, capital gains treatment, and if you are an active hands-on owner, the benefit of off-setting your ordinary income from other sources with the expenses from your ranching business. Wealth building by deferring taxes on the increased value of your herd is also a big plus. It pays to keep your eye on the tax law changes instituted by Congress. And remember that tax laws are complex. Reputable tax professionals should be consulted to best ensure compliance and to take best advantage of the tax laws.

tax advantages of alpacasLinks to Useful Tax Information:

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