Alpaca Farmer's Tax Guide | Alpacas of Montana

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Alpaca Farmer's Tax Guide

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FARMERS TAX GUIDE

One of the most frustrating factors for any alpaca farmer when dealing with the IRS rules is getting a definitive answer. The code is often more gray than black or white; consider the following statement which is found in IRS Publication 225, "Farmers Tax Guide ":

"This publication covers some subjects on which a court may have made a decision more favorable to taxpayers than the interpretation of the Service. Until these differing interpretations are resolved by higher court decisions or in some other way, this publication will continue to present the interpretation of the Service."

I recommend everyone who farms alpacas obtain a copy of this handy guide at your local IRS office or at the IRS website" at www.irs.gov. It is very informative.

Once you've established that you are farming alpacas with the intent to make a profit, you can deduct all qualifying expenses from your gross income. The discussion from here forward presumes you are a cash basis taxpayer and you keep good records. Accrual basis taxpayers would also be allowed the same tax treatment, but their timing might be different.

 

First, the following items must be included in your gross income calculations:

1.   Income from the sale of alpaca livestock

2.   Income from sale of crops, i.e., alpaca fiber

3.   Rents

4.   Agriculture program payments

5.   Income from cooperatives

6.   Cancellation of debts

7.   Income from other sources, such as services

8.   Alpaca breeding fees

 

Then the following expenses may be deducted from this income:

1.    Vehicle mileage at .41 cents a mile for all alpaca farm business miles

2.    Fees for the preparation of your income tax return farm schedule

3.    Alpaca livestock feed

4.    Labor hired to run and maintain your alpaca farm (remember, you must not deduct the expense of maintaining your personal residence)

5.    Repairs and maintenance

6.    Interest

7.    Breeding fees

8.    Fertilizer

9.    Taxes and insurance

10.   Rent and lease costs

11.    Depreciation on animals used for breeding, real property improvements, barns, and equipment

Breding alpacas - the tax facts & regulations

12.    Alpaca farm-related travel expenses

13.    Educational expenses, which improve your farming expertise

14.    Advertising

15.    Attorney fees

16.    Farm fuel and oil

17.    Farm publications

18.    AOBA dues and registry fees

19.    Miscellaneous chemicals i.e. weed killer

20.    Alpaca vet care

21.    Small tools having a useful life of less than one year

Please note: Personal and business expenses must be allocated between farm use and personal use, for instance, with such expenses as utilities, property taxes, accounting, etc. Only the farm use portion can be expensed.

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