August is here; soon school will be back in session and before we know it the holidays will be upon us. This is just a reminder that during 2009 many new tax provisions were introduced. Follow this link to the IRS published summary of the provisions of the American Recovery and Reinvestment Act of 2009.
The ones which tend to have the greatest impact on us relate to net operating losses and depreciation related deductions. The new law allows any small business the opportunity to carry a net operating loss back for five years as opposed to the prior law of two years. Farming operations were already allowed a five year carryback--this is just a reminder to not forget this provision when you are considering your alternatives.
The tax planning opportunity here is that depending on your particicular situation any of the following could be to your benefit:
to take bonus depreciation in order to create a net operating loss which could be carried back;
to take a current year Section 179 and bonus depreciation deductions which could be carried forward to a year when you anticipate sufficient income;
any combination of the above which maximizes your tax benefits.
When you consider the limitations on this year's deductions you can easily see the impact they could have on your potential tax liability. The bonus depreciation is only available on NEW assets with a life of 20 years or less. It can be used this year to offset current year revenue; can be carried back five years to offset prior income or can be carried forward to future years. There is no limit on the amount of property which can qualify for this deduction. Section 179 is available on new or used property, is limited to $250,000; is reduced dollar for dollar if your eligible purchases exceed $800,000; can be used currently or can be carried forward--but is NOT eligible for carry back.
So start now to plan for your 2009 taxes. Consider the impact of buying new or used equipment or alpacas while the deductions are still available. Section 179 is scheduled to continue but next year it will be reduced to an amount probably in the range of $135,000 to $140,000 as it will be based on $125,000 adjusted for inflation from 2007. It is scheduled to be reduced to $25,000 in 2011. Currently there is no provision for the bonus depreciation deduction to continue beyond 2009. So you can see where these provisions alone make 2009 a great tax planning year.
Tuesday, August 4, 2009
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2 comments:
I have become a caretaker for a farm in New Windsor NY. I have been given the ok by owners to start an small alpaca farm. But financially dont know how to start. Barelly making ends meet now. How can I get started?
Hi John, First you would decide why you want alpacas--for fiber, for breeding or just because you like the animal. You did not share whether you were planning for your alpaca farm to be a business or a hobby--that would also make a difference. Right now is a good time to start an alpaca farm as it is a buyer's market due to the impact the economy has on all of us. You can start small by purchasing just three or four animals (you need to have several as they are a herd animal and don't like being alone). If you were looking for males or nonbreeding females you could find them for several hundred dollars; if you were looking for breeding stock you would most likely be investing $5,000 to $12,000 for each female (there are prices higher and lower than that range--but that range is about average in the current market). You could also consider a rescue if you just wanted a few animals on your farm.
Feel free to contact me at Peggy@alpacadigest.com if you have more questions. Wish you the best--they are wonderful animals.
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