Potential Financial Benefits of Owning Alpacas In addition to the opportunity to earn income through the sale of fiber, alpaca products and alpacas; raising alpacas can offer some very attractive tax advantages, even if you board (agist) them at someone else’s farm or ranch. Alpaca breeding allows for tax-deferred wealth building. An owner just starting out can purchase a few alpacas and then allow the herd to grow over time without paying income tax on its increased size and value. Additionally, there is a direct write-off (expense) method known as Section 179 that allows a substantial deduction each tax year for newly acquired items that are normally long-term depreciable assets. The “Jobs and Growth Reconciliation Act” effective May 28, 2003 allows for the hyper-depreciation of up to $100,000 for the year 2003 and 2004. In addition, accelerated depreciation of up to 50% is available in the year of purchase. While this is subject to several limitations, it is widely utilized by alpaca owners and farms. Owners currently in high tax brackets that are changing their lifestyle in the next several years to a lower income level often use this method of depreciation. The most tax benefits are available to those who have property and take a “hands-on” approach. If alpacas are actively raised for profit, all the expenses attributable to the endeavor can be written off against ordinary income from other sources. Expenses would include obvious items such as feed, fertilizer, veterinarian care, etc., but also the depreciation of such tangible property as breeding stock, barns and fences. A more detailed discussion of this subject is available on the Alpaca Owners and Breeders Association (AOBA) website www.alpacainfo.com A very helpful IRS publication, #225, entitled The Farmer’s Tax Guide, can be obtained from your local IRS office. We do not have the expertise to address all of rules that could impact your particular tax situation. Our purpose here is only to make you aware of issues of taxation as they relate to raising alpacas. Tax preference items, alternate minimum taxes, employment taxes and other important concepts have to be considered. It is our strong recommendation that you work with a CPA very early in the process.
|
