So let’s look at how these advantages might help you in your situation.  Let’s make certain assumptions including you invest $100,000 to acquire your foundation herd and you are in the 45% tax bracket.

Isn’t it nice how Uncle Sam helps fund the purchase of your alpacas??  If you do not have sufficient income to use the deduction in the year of purchase (earned income and self employment income), you can carry it forward to subsequent years.

The other alternative is to simply depreciate the cost of your foundation herd.  This permits you to create a net operating loss which can be carried back two years (meaning you may actually get a refund of taxes previously paid, we did!).

Income & Expense Shelter

As with most business enterprise, all income must be reported from all sources, and all expenses attributable to raising alpacas can be written off against your income.  This includes not only all the necessary feed and supplies, veterinary care, etc., but the depreciation of capital items as well, such as foundation herd, barns, fencing, irrigation, etc.  All of these expenses can shelter current cash flow from taxes.  So let’s take a look at some of the items that qualify.

First, the following items must be included in your gross income calculations:

·         Income from alpaca sales (i.e., seed stock to other breeders, fiber animals, pet geldings, etc.)

·         Breeding fees (owned or leased herdsire stud services)

·         Income from raw fiber sales

·         Income from “vertical integration”, i.e., taking the raw fiber and converting it into products that can be sold in your farm store

·         Income from other sources, such as services you provide to other ranches including agistment, shearing, cria watch, etc.

Then the following expenses may be deducted from this income:

·         Vehicle mileage at the current rate for all farm business miles

·         Fees for the preparation of your income tax return farm schedule

·         Livestock feed and supplies (grain, hay, supplements)

·         Labor hired to run and maintain your farm

·         Repairs and maintenance

·         Interest

·         Breeding fees

·         Fertilizer

·         Taxes and insurance

·         Rent and lease costs

·         Depreciation on animals used for breeding, real property improvements, barns and equipment

·         Farm-related travel and entertainment expenses

·         Educational expenses, which improve your farming expertise

·         Advertising

·         Attorney fees

·         Farm fuel and oil

·         Farm publications

·         AOBA dues and registry fees

·         Miscellaneous chemicals i.e. weed killer

·         Vet care

·         Small tools having a useful life of less then one year

If any items are part personal and part business, only the business portion may be deducted.

Remote Ownership

Many people ask whether they must actually have a farm and take care of the alpacas on a daily basis.  It is possible to own alpacas, and agist them with someone who takes over their daily care.  An agistment fee is typically paid, which again, is a deductible expense.

Deferred Wealth Building

This is one of the areas we like the most.  Female alpacas are bred yearly, and the typical gestation period is around 11 months.  The female is then bred back, and if all goes well, you get a new cria each year. 

You have a 50/50 chance of female or male cria.  If you have made good breeding decisions, breeding good foundation females to the best male herdsires you can afford, the new alpaca should be an improvement to your herd, and potentially increases the value of your herd over time.  Herd growth in the U.S. is slow due to the fact that each female only has one cria per year (twins are rare).  The demand for the fiber is high, thus assuring the breeder for continued opportunities for profits.

We began with three bred females, and gradually added new foundation females with highly sought after genetics.  We have also added superior genetics in our herdsire acquisitions.  Thus, the new alpacas born on our ranch are as valuable, arguably more valuable, than the alpacas we began with.

Miscellaneous

·         Charitable Deductions - Alpaca farmers are permitted to claim a charitable deduction for the value of an asset that is contributed to a charity.

·         Exchanges - Alpacas qualify for “like kind exchanges” (Section 1031) and permits the owner to avoid taxes of a sale.  For example, say that you purchase a herdsire, have used him for several years, and now his progeny are on the ground on your farm.  You probably want to breed his progeny to someone new.  Thus, you would be permitted to exchange your herdsire for another and avoid a taxable event.

·         Installment Sales – Most breeders today finance the purchase of alpacas they sell over several years.  Taxes are only due in the year that the income is received.

·         Insurable – Alpacas are insurable and if one dies, a taxpayer is permitted to use the involuntary conversion rules in the code which permits tax-free replacement of the alpaca.

Summary

So are alpacas a good investment?  You bet they are!  Will they fit into your portfolio?  Only you can answer that question after talking to knowledgeable breeders and your tax professional.

We here at Sandollar Alpacas are ready to discuss the benefits in more detail!  Give us a call to schedule an appointment; you will be glad you did!

Sandollar Alpacas
Sandollar Annex
2001 S. Washington St.
Kennewick, WA  99337

1-877-ALPACA4U
Collins or Nikki Griffith