There are numerous tax benefits available to alpaca breeders, with the increased Section 179 benefits available through 2010.

As a retired CPA who owned her own successful practice, and after extensive research and consultation with other professionals, Peggy has acquired a wealth of knowledge regarding the benefits of starting an Alpaca Business.

Peggy has prepared information below and if you have questions about how the government can pay for a large part your alpaca acquisition please e-mail her at Peggy@AlpacaDigest.com

Frequently Asked  Tax Questions:
Additional Information On Section 179
Even More Information on Section 179
Finding an Alpaca Friendly Accountant
Tax Related Links For You and Your CPA
How Do I Buy a herd with money that could have gone to taxes?

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We are quite interested in the tax benefits from raising alpacas. Could you give us more information?
The tax code for 2010 will allow a deduction of up to $250,000 for eligible personal property used in your trade or business (alpaca breeding for example). The deduction is taken on Form 4562 and is taken in lieu of deprecation.  This amount may be used to offset any other earned income you may have (will not offset interest, dividends, rental income, etc.). There are limitations if you have a Subchapter S Corporation, LLC or Partnership as the entity must have income to offset the Section 179 deduction for it to pass through to your personal return. 

As a simple example, if you have $75,000 in alpaca purchases (or tractors, etc) and have $100,000 of earned income you will have reduced your income to $25,000 before consideration of your other activities and deductions. The Section 179 deduction will be reduced to $25,000 in 2011 and beyond.  There are always rumors that Congress will change the tax law to reflect the higher deduction limits on a permanent basis.  We will let you know when (and if) that ever happens.

If you have a CPA or other tax professional you should discuss these issues with them before you finalize your plans.


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How Do I Find an Alpaca Friendly CPA or Accountant?
The first step in looking for a new accountant would be to check with your friends, members of your local breeders’ association or the local Farm Bureau. The most important factor in finding an accountant is not necessarily his or her experience in the farming or breeding business, but their rapport with you and their ability to communicate.  Any decent accountant can do the research to come up to speed on your business issues. 

Ideally, your accountant should be more than an historian responsible for putting on paper what you have done for the past year.  They should be consulted regularly and be a part of your overall business plan.  As with anything else, some accountants do tend to specialize.  If you are lucky enough to connect with someone who is already working with other local farms and ranches you may be ahead of the game in your search.  If not, you can always send them to a seminar to get comfortable with the industry.  Here is a link for a seminar Peggy presents regularly with another local breeder, Northwest Alpacas . . . participants come from across the country (and sometimes beyond).  
Alpaca Business and Tax Planning: Create Your Own Personal Business and Tax Plan

It would be great to see you there.

Here is a link to locate a CPA.
Finding a CPA

Here is a link to a data base we are developing of “farm friendly” CPA’s, attorneys and enrolled agents.  If you know of one, please let us know so we can include them on our site.

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Are There Any Links To Review Regarding Potential Tax Savings and Tax Planning?
Publication 225 IRS Farmers Tax Guide

Publication 946 How to Depreciation Property

Highlights of 2009 Tax Changes

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Even More Section 179 Information
Recently we received several emails asking for clarification on the rules for Section 179. The rules can be quite confusing and you may not always want to take the Section 179 deduction on all eligible assets. It may be in your best interest to take the standard depreciation deduction instead.

• If you are a sole proprietor the Section 179 deduction may be applied against the net income of all Schedule C and Schedule F activities combined with your W-2 wages.
• If you have a Subchapter S Corporation, LLC or Partnership the limitation is applied first at the entity level then at the individual level. Examples:
  
   i. You have a Subchapter S Corporation that generates $40,000 in net income without consideration of your Section 179 deduction. If you have Section 179 purchases greater than $40,000 they are eligible to be rolled over to future years or you may consider using regular depreciation methods on them. Both the $40,000 in net income and $40,000 in Section 179 deduction rolls into your individual return.
  ii. If you have an entity which currently has no net income to offset against Section 179 you may make the election and roll the deduction forward into the next year when you may have income. An alternative would be to purchase the alpacas personally and include the Section 179 in your personal return. You can always contribute the alpacas to the entity at a later date where it will step into your shoes in terms of the basis of the assets.
   
• If you have a large amount of itemized deductions and exemptions you may want to plan your Section 179 deductions around those. For example, if you have Adjusted Gross Income of $100,000 essentially from wages, total itemized deductions and exemptions of $20,000 and a Section 179 deduction of $100,000 you would lose the benefit of $20,000 of the Section 179 deduction as it is offset against your wages before consideration of your exemptions and itemized deductions. This may be another time to consider using regular depreciation.

There are further examples and clarifications on our Blog—check out the following blog entries 
http://alpacasattuckercreek.blogspot.com/search/label/Taxes

Please feel free to contact us if you need clarification on this or any other alpaca related questions.