The cash generated from selling off cattle may be counted as taxable income unless farmers take advantage of tax laws allowing up to a $500,000 deduction for qualifying equipment such as livestock handling equipment, hay trailers, fencing and corral materials. Currently, the $500,000 is scheduled to drop to $125,000 in 2012, thus it is important to act in 2011.
“Farmers can minimize their taxes while maximizing economic gains through properly timed and structured expenditures,” says Ken Williams, CPA and Managing Director of Williams, Jarrett, Smith & Co.
To the extent that farmers have taxable income, they can make capital expenditures as long as they are qualified longer-term investments that can be expensed out up to $500,000 to offset taxable income, as provided by Section 179 of the IRS tax code, according to Williams.
Although easing the tax burden is a legitimate goal, so too is finding capital expenditures that will deliver the most return.
A good example is a feeder that conserves the use of existing hay. Hay feeders are often purchased in the fall for the winter feeding months and, depending on the type of feeder, can reduce hay loss by 30 percent.
The problem with a traditional round hay ring is that cattle stand outside the feeder, tear the hay out, and let the excess fall from their mouths. The waste falls to the ground, gets damaged and will not be eaten. However, a new type of hay conserving bale feeder, however, is changing that.
“A hay conserving bale feeder must be designed with a shape and size that requires cattle to extend their necks to reach the hay inside. That way anything that drops out of their mouths stays in the feeder, which they eat later,” explains Bob Studebaker, owner of GoBob Pipe & Steel, a livestock equipment supplier.
Time, Labor and Fuel
Labor-efficient hay trailers can be another tax-deductible expenditure. Farmers that want to stay in their tractor or pick up while handling up to six large round hay bales at a time should consider self loading/unloading hay trailers which are designed to keep a single side of the bale in contact with the ground, which minimizes the number of bad hay spots caused by ground-absorbed moisture.
Fencing, Corrals and other Cattle Working Equipment
Fall is the ideal time to repair the cattle working facilities. Because working facilities such as fencing, corrals, pens, gates, chutes and alleys are often constructed of pipe, it’s important to get the best performance and value from it so it doesn’t wear out and have to be prematurely replaced, or even cause injuries to cattle.
According to Studebaker, farmers should act now because with the heat and drought, needed repairs and expansion of corrals and fences have been on hold which, has stabilized steel prices.
“Right now, prices are excellent on everything made of steel from hay feeders, hay trailers and flatbed trailers to livestock equipment, fencing and corral materials,” says Studebaker.