You don't have to be a cowboy to get cattle tax breaks.
The key to maximizing the tax breaks available to you for raising cattle lies in the difference between a hobby farm and a business. If your cattle enterprise amounts to more than a hobby and is something you're working on as a legitimate business venture, there are significant deductions available to you. Talk to a tax professional for advice about the tax breaks involved in a cattle business.
Hobby or Business
If you're running a ranch as a hobby, you can forget about additional tax breaks. A hobby is not a business and is not entitled to the tax breaks a business is. To prove that your cattle operation is a business, there are several factors involved, including the manner in which you run the ranch, your expertise as a cattle business operator, your profit and loss history, your financial status, whether you rely on the operation for income and the extent to which you use the operation for personal pleasure or recreation.
Deductible Items
If your cattle farm qualifies as a business, there are a wide range of additional deductions you can make. Common deductible expenses include utilities used for the cattle operation, prepaid farm supplies such as cattle feed and wages paid to hired labor or contract labor. You can also deduct expenses for making repairs to the property, maintaining work vehicles, insurance, interest payments and taxes.
Nondeductible Items
While having a cattle business brings a lot of additional deductions, it doesn't allow you to deduct everything. The IRS reports that you cannot deduct labor expenses for household workers, construction projects or for home maintenance. Also, if you incur expenses for repair or maintenance of depreciable property, this counts as a capital expenditure, as it adds value to the property and is not deductible.
Considerations
Starting your own cattle business and benefiting from the new deductions isn't always easy. If you're unable to convince the IRS that you have a legitimate business instead of a hobby, you could be in for a much larger tax bill. To avoid problems, it's best to keep accurate and thorough records of not only the expenses you incur, but the amount of time you devote to the business, the kinds of experts you consult for advice and other similar factors. Get advice from a tax professional before you try to claim your cattle operation as a business so that you know what to do to ensure there are no problems.
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