Depreciation of Raised Cattle

I have a client who said that his previous accountant was depreciating his raised cattle. He is convinced that this is allowable. However, he is still writing off the expenses of raising the cattle as they are incurred. I believe he is essentially double-dipping, and was hoping to hear if anyone has thoughts on this.

Thanks

I have heard of clients who have a hard time understanding they benefiting from the expenses already. What did he say when you explained that to him? Generally when a client tells me the prior accountant said or did something, I replace it in my mind with that's what you thought he said or did.

Most of my ranchers have a mix of raised & purchased cattle (think bulls and purebred cows for breeding). So some are depreciated, and others are not. You might need to dig deeper.

It is actually a tad more complex, he has been told before that he could not depreciate them but was never given any kind of explanation in the past. He has read plenty of things on the internet and doesn't want to believe what I am saying.

And what's the basis used for depreciation on a raised cow/bull?

He is wanting to use market value as the basis

Your client does have some basis for his question.
From https://www.beefmagazine.com/business/r ... preciation:

"Although there is some debate as to how to approach raised breeding stock, we have found the best way to do this is to accumulate the cost of raising the breeding bull or heifer until that animal is then transferred into the breeding stock as a fixed, depreciable asset. That transfer point occurs when the bull breeds a female, or the heifer weans a calf. Until that point, they are considered a current asset that is not depreciated."

Keiser, I see what your saying, my argument is that he has already expensed everything related to the livestock while they are raised.

Your client does have some basis for his question.
From https://www.beefmagazine.com/business/r ... preciation:

"Although there is some debate as to how to approach raised breeding stock, we have found the best way to do this is to accumulate the cost of raising the breeding bull or heifer until that animal is then transferred into the breeding stock as a fixed, depreciable asset. That transfer point occurs when the bull breeds a female, or the heifer weans a calf. Until that point, they are considered a current asset that is not depreciated."

Note: "accumulate the cost..."

Wanna bet he wants to both expense everything AND then depreciate the same cost? Just needs to understand you don't get both.

Keiser, not in service "until a heifer weans a calf"? That made me wonder where they were coming from enough to look at the article. Looks like they are discussing management accounting in the section you quoted. No reason cost couldn't be accumulated, but most farmers I deal with have no interest in that sort of accounting. I've heard arguments over depreciation starting at breeding vs when a heifer throws her first calf, but never heard at weaning mentioned.

I think they need to be cancelled for having such gender bias. All the bull needs to do to be considered an asset is copulate, while the heifer must successfully carry and wean a calf. /tic

I have a client who said that his previous accountant was

Good chance the client has no idea what's on the tax return and what he says the previous accountant did and what the previous accountant actually did are not very close.

If the previous accountant depreciated raised cattle, they will be on the depreciation schedule. If they're not there, the client doesn't understand what actually took place.

Thanks all, I was able to talk to him again and help him understand.

A dairy cow has an average productive life of about five years after which it is slaughtered for relatively low grade beef. Milk is the crop of a diary cow with meat being a byproduct. Meat is the crop of beef cattle which gets "harvested" at around a year. Like a worn out machine its "scrap value" of a non productive dairy cow is less than its cost. You depreciate the difference.

Go vegetarian.

Go vegetarian.

Susan.... LOL

https://www.irs.gov/pub/irs-pdf/p225.pdf

Look at page 37 for when cattle is to be depreciated.