Cattle Farmer

[Trnr395]

I have a question about beef cattle farmers. The cattle is raised until large enough to slaughter and sell the beef. If the client paid 15,000 for the herd of cattle would this be considered inventory or an asset for depreciation. I think dairy farmers would depreciate the cattle because they are held for long periods of time and are income producing (milk, etc.) I can't find much info regarding this specifically. Would the entire cost be expensed in the year that the cattle was paid for??

[kcjenkins]

If they are buying calves to raise to slaughter weight then sell, then yes, that cost is treated as inventory cost, and shown on line 2 of the F when they are sold. Since that is usually in the same year, it may not be a timing issue. If they buy in the fall and sell in the spring, for example, it will only be a significant factor in the first and last years, since after the first year, they will be writing off one years worth of purchases every year.

[RitaB]

I believe you will enter selling price on line 1 of Sch F, and then the purchase price of animals you sold during the year on line 2. Don't deduct an animal you don't sell on line 2. If an animal was not purchased (it was born on the farm), the sale price will on on line 4, and your costs are going to be deducted in feed, fertilize, etc. I would only depreciate brood stock. Sounds like your farmer has purchases for re-sell. If you do depreciate an animal as brood stock, and it is sold later, just report it on 4797, and it will work out fine, too.

[Trnr395]

Okay, great guys!! Thanks for your help. I think they were thinking they could expense the total cost for the cattle but I didn't think that sounded correct. I think they only sold about a quarter of their cattle since last year was their first year with the farm.

Thanks Again!

[RitaB]

I think they were thinking they could expense the total cost for the cattle but I didn't think that sounded correct...

They got that idea from Joe Mechanic. He talks to my farmers, too.

Maybe this will make them feel better: "Think about what would happen if you deduct everything THIS year. When you sell everything NEXT year, and you have no deductions, you would really be hurtin, Buddy. Good thing you have me to keep you outta trouble."

[Kea]

This is good information. Does anyone have any worksheets or cheatsheets or guidelines for the new farmer / rancher? Something designed for the client rather than the preparer.

Thanks

[kcjenkins]

Sure, the IRS Pub.

[DANRVAN]

Okay, great guys!! Thanks for your help. I think they were thinking they could expense the total cost for the cattle but I didn't think that sounded correct. I think they only sold about a quarter of their cattle since last year was their first year with the farm.

Thanks Again!

It depends on the situation. If they bought breeding stock they could use sectiion 179. If they bought cows with calves they would have to allocate the purchase price.