DO I DEDUCT OR NOT? Generally the ANSWER IS DEDUCT!

Now that tax season is basically over . . . except for those who have filed an extension . . . it seems appropriate to address a topic which shows up in my inbox throughout the year as well as during tax season . . . the question of deducting alpaca related expenses during the first few years of operation.

The email generally goes something like this "I have been doing alpacas for a year or two but have never claimed any of the alpaca related expenses as I was told I could not until I sold something . . . is this true?" The simple and most often the appropriate answer is "deduct".

The IRS addresses this issue in a variety of places . . . the link above goes to Publication 535, Page 5 . . .

Presumption of profit. An activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year.

That same publication discusses not-for-profit activities and some of the factors the IRS looks at when they determine whether a business has a profit motive or not.

You can still go back and amend your returns if you feel it appropriate for your particular tax situation. An in depth conversation with your tax preparer should be your next step or begin looking for a new preparer. Not all preparers or accountants are farm friendly . . . even those who are not should be able to assist you in making the decisions required to properly reflect the true picture of your farming activities. Bottom line . . . the tax return is your responsibility . . . it is their duty to advise you on the rules . . . but you are ultimately responsible for the content of your return.

Tucker Creek Crias Go to Shows

As many of you know Alpacas at Tucker Creek has chosen not to go to shows. Whether that is a good or a bad decision for your farm only you can decide--it is the path we have chosen for us. But don't let it be thought we don't see the value in the show process. And to that end is the subject of our latest blog.

We are happy to annouce the results of the first Alpacas at Tucker Creek offspring to go to show. Both Snowy River Alpacas, Colfax, CA and BrushWalker Alpacas of Geneseo, IL went to shows this weekend. The show results are from the Alpaca Western Extravaganza in Reno, NV and IAOBA Alpaca Riverfest in East Peoria, IL respectively. To say we are proud would be an understatement.

At AWE Snowy River Alpacas - Hailey & Ric Parker had the following results:

Tucker Creek's Ranger (out of Studmaster MSA Hemingway's Tequila) - Medium Fawn Class - 2 year old male - 2nd Place

They had a problem color checking this boy as his fiber was so dense they had difficulty getting the color chart down to his skin . . . what a great problem to have.

Tucker Creek's El Diablo (out of Studmaster Pacific Crest Accoyo Paul Revere) - Medium Fawn Class -
Yearling - 4th Place

Tucker Creek's Shadow (out of Studmaster MFI Peruvian Glacial Storm) - Dark Brown Class - Yearling - 2nd Place

This class was so tight for first and second places the judge spent considerable time comparing the two and after five minutes of side by side comparison decided the first place winner was slightly more dense than Shadow.

At IAOBA Alpaca Riverfest - BrushWalker Alpacas - George & Joanne Brush - had the following results:

Tucker Creek's Warlock (out of Studmaster MFI
Peruvian Glacial Storm) - Medium Brown Class - Yearling - 3rd Place

The judge said that the two above him had denser fleece but that Warlock's fineness was above the whole class.

We could not be happier with the results and effort put forth by these farms. Each of these males is a first generation Studmaster progeny--can you just imagine what will come out of breedings to these wonderful males.

Change in Tax Filing Deadline - April 17th

Wow . . . this one slipped right by me . . . but I wanted to share this once I realized it applied to all of us. Normally, only six states and the District of Columbia are impacted by a holiday known as Emancipation Day. This year that holiday lands on Monday, April 16th. Because of a federal statute enacted decades ago, holidays observed in the District of Columbia have an impact nationwide, not just in D.C. Under recently enacted city legislation, April 16 is a holiday in the District of Columbia. The IRS recently became aware of the intersection of the national filing day and the local observance of the new Emancipation Day holiday after most forms and publications for the current tax filing season went to print. So . . . long story short . . . tax filing day is Tuesday, April 17th. One more day to crunch numbers.

Last Minute Section 179 Clarification

After teaching an alpaca tax class I recently sent out a clarification on some Section 179 related issues . . . thought the blog would be a good place to share them as well. Let's face it . . . taxes are basically boring . . . but a necessary evil. So I am really summarizing the issues here . . . if you have any questions please feel free to contact me or your tax professional. The above link goes to IRS Publication 225 (a must for all of us to have on listed under our "favorites") the discussion on Depreciation and Section 179 begins on Page 35.

If you are unincorporated—filing your alpaca business on Schedule F of your Form 1040—you can carry your unused Section 179 deduction forward for an unlimited number of years. This may or may not be a good plan for you. If all of your income is earned—such as wages or self-employment income—you may lose the benefit of your exemptions and itemized deductions. Be sure you review your return prior to filing to be sure you and your tax professional have had a meeting of the minds on the proper treatment of this issue. If the number on the bottom of page one is zero or materially less than the combined amount of your itemized deductions and exemptions you may want to reconsider the treatment given to the assets purchased during the prior tax year to determine if you would have been better served by depreciating them as opposed to writing them off under Section 179.

As an alternative, you might want to consider depreciating your assets in order to create a net operating loss which can be carried back to generate a refund of taxes paid in prior years. Section 179 cannot be carried back—it can only go forward. But a net operating loss generated currently can go back to release previously paid taxes.

If you are anticipating current year alpaca purchases which could provide Section 179 deductions or have Section 179 deductions rolling over from prior years you can use that information to reduce your withholding or estimated tax payments

If you, like many new breeders, filed returns in the past but did not show any alpaca activity even though you were active because you did not have any income to offset your deductions you can amend those returns and take those deductions, elect the Section 179 deduction on the assets purchased in that year and generate a refund.

The above alternatives could provide you with funds to make your monthly alpaca payments or help to pay for your initial herd all due to reduced taxes currently or refunds generated from prior years.

You don’t want to create a partnership, corporation or LLC until you have discussed the various alternatives with your accountant or tax professional. Staying self-employed until you anticipate having some cash inflow generated from your alpaca business will generally allow you the most flexibility in the use of your Section 179 deductions.

Please be assured you don’t need to become tax specialists—you just need the tools to understand your alternatives. Don't forget April 15th lands on a weekend this year so your taxes will be due Monday, April 16th.

Herd Health Seminar and Directions to OSU Veterinary Hospital

Oregon State University Veterinary Teaching Hospital has added another seminar on Sunday, March 18th, which will concentrate on herd health. Topics will include nutrition, parasite control, vaccinations, herd monitoring, “red flags” signs of disease.

Cost for the Herd Health Seminar:

$100 per person for people already signed up for the Neonatal Seminar

If only attending the Herd Health Seminar:

$225 Standard (includes conference, book and boxed lunch)

$195 Discounted cost for members of WVLF, SWAA, CABA, WABA, EVAA, SOJAA ─ in recognition of those organizations’ past support of the CVM (includes conference, book and boxed lunch)

$145 Additional companion at same address (includes conference and boxed lunch)

Directions:

From I-5 take exit 228 and go west on Route 34 and go 10 miles to Corvallis.

Turn left at 30th street and follow signs to OSU Vet Med.

Or From Route 34, go left at signs for "Eugene and Ocean Beaches."

Get off at first exit for "Philomath and Ocean Beaches."

Take right at 15th street, a left on Western and a right at 30th.

We would like to thank OSU for providing us with such quality education and being there for all of us when we need it the most.

Alpaca Business and Tax Planning Course

Mark your calendars for Friday, February 23rd, for the next Alpaca Business and Tax Planning Course being offered by Northwest Alpacas and Alpacas at Tucker Creek. The course is being presented at NWA's conference center at their beautiful headquarters in Hillsboro, OR. Peggy will be presenting the tax section while Fred Kraft from NWA will be presenting the business planning portion of the course . . . just click on the title above to view the schedule. The above cartoon is just a sample of the many you will see throughout the day . . . don't know where Fred finds them all.

Just a couple of quick reminders for tax planning purposes:

Standard Business Mileage Rate for 2006 - 44.5¢ per mile

Standard Business Mileage Rate for 2007 - 48.5¢ per mile

Section 179 Deduction for 2006 - $108,000 with phaseout beginning at $430,000

Section 179 Deduction for 2007 - $112,000 with phaseout beginning at $450,000

April 15th lands on a Sunday this year . . . so you have until Monday, April 16th to file your taxes.

Hope to see you on the 23rd.

MSA Peruvian Cannonero standing stud at Alpaca Woods Ranch in Georgia

MSA Peruvian Cannonero will be standing stud for the first time in the southeastern US at Alpaca Woods Ranch in Snellville, GA (outside of Atlanta). Ronnie Nagimesi, owner of Alpaca Woods Ranch, knows first hand the value of Cannonero offspring as he has two from the 2006 birthing season--Stella Asta and Taylor Skye--each of them demonstrating wonderful crimp and bundling with excellent conformation and vigor.

Breedings are $2,500 (multiple breeding discounts are available) and the breedings can be at Alpaca Woods Ranch or your farm (if you are within 500 miles of AWR).

Unfortunately, there are currently no Cannonero offspring at Alpacas at Tucker Creek--as soon as a Cannonero bred female gets near delivery she sells. For the 2007 birthing season we have two crias due:

• with Jasmine (we can't sell her, David's mother fell in love with her when she was born--so I guess we will have at least one Cannonero offspring this year) and

• Sorpressa . . . a beautiful female out of Glacial Storm . . . I always have to keep reminding myself this is a business and she is for sale . . . an incredible cria should result from this mating.
  
  

In case you are not familiar with Cannonero . . . follow this link to view his ARI registration certificate:

http://www.alpacanation.com/images/uploads_aricertificates/11285_12150_CannonerosRegistrationCertificate.jpg

and this link for further details:

http://www.alpacanation.com/herdsires/03_viewherdsire.asp?name=12150

. . . a wonderful combination of Peruvian Hemingway, Pperuvian Camilio and Pperuvian Navidad . . . incredible.

We can't wait to see the results this Spring and wish you all a safe, healthy and productive 2007 birthing season.