Breeding and the IRS

Hey, for those of you who are more experienced breeders, how do you handle your taxes? I'm just now starting to get into investment-quality BPs; they are still babies and I have maybe three years to prepare for the business side of things.

How are animals (specifically BPs you plan on breeding) reviewed with respect to US federal tax laws? What about the hatchlings you sell? What are some expenses you have for breeding that are legitimate?

Someone told me that a dog breeder they knew got audited every year because breeding isn't "a legitimate business" according to the IRS. Is that still true? Do you guys get audited often?

Do you run your breeding as a business, or as a hobby in your tax filing?

Any help is greatly appreciated. I want to do this by the books.

Keep all receipts if you expect to make enough money.

Anything you buy or sell can be reported. And 9 times out of 10 you will be in the red and wont owe anything for breeding and selling due to supplies add up fast. Just hand over all your reciepts to the Tax agent and they will figure it all out for you to see if you made a profit or lost and if you owe.

I havent had to owe anything as i dont make but maybe $5-7k a year selling snakes and other online items. But when you add in the cost of buying food,electricity, water,equipment,new snakes and so on like i said adds up fast to where you can never get out of the hole.

And if you cant provide a profit 3 years out of 5 your put into a different tax bracket as a hobbyist which is where i am.

Thanks for the information, Rich!

When I go to expos, the sellers typically don't give me a receipt for the snake. For example, at an expo about two weeks ago, I purchased $1000 in snakes and the seller didn't give me a receipt, so I wouldn't have a record of that buy. Is it normal to ask for a receipt at expos? If so, will sellers typically provide them? What if they don't provide one?

Usually at expos when cash is involved dont expect a receipt. Theres a lot of vendors that do this just to have no record or it so they dont have to claim it.

Now if you pay with credit card,paypal you can just use the receipt/invoice as youre proof.

If you pay with money order/ cashiers check use the receipt/stub you have as your proof.

But you can still ask the vendor to hand write out a receipt for your proof but not always accepted by tax agents.

I have wondered this recently. Do you need to have a business license to be able to claim the cost of animals and supplies?

Wow, thanks for all the great info!

Good discussion! Moved to Business talk, since it technically isn't about breeding, ovulations, outcomes, etc.

I can't speak for the states but here in Canada tax audits try to at least break even. The cost of an audit is about 2000-5000$ so if it looks like you owe less back taxes than this it is just as unlikely auditors will show up. It is when things look fishy that they arrive like the pizza place that orders 1500 boxes a month but only sells 500 pizzas....

You only need a business licenses if your planning on being a business and having a store front.

When doign it out of your house all thats needed is a State Tax ID number for charging local taxes on sales and paying taxes.

But even thats not needed is most states when it comes to live animals. As long as you claim all your sales and supplies your fine.

I know the breeder I bought my fennec fox from needed a USDA license to breed her animals (granted they were mammals). Do you have to be USDA licensed to breed snakes?

Depends on the state and country you live in. But most wont require one for reptiles as mammals are a lot different.

I've been going through last year's return and I'm trying to figure out what all of this crap means and what I should be doing to prepare for future returns/audits. I probably should have done this before I started buying snakes for business purposes, but whatever.

• What tax code are you guys using? Does it matter too much? The CPA put code 115210 "Support Activities for Animal Production" on my Schedule C and listed the profession as "Animal Husbandry".

• How do you represent your animals to the IRS (if at all) on the Schedule C. And if you don't, why not? All of my snake purchases were totaled up and listed as inventory last year. Do I now have to create each snake as an inventory item in QuickBooks and keep track of them?

Is any of this good or bad either way? Something I should try to correct before this year's return is filed?

Maybe I should actually go find a CPA experienced with this garbage and speak to them :rofl:

I'm just starting to gather receipts and calculate milage etc getting ready for taxes. Any advice?

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Originally Posted by LotsaBalls

I'm just starting to gather receipts and calculate milage etc getting ready for taxes. Any advice?

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I would keep track of all of your expenses categorically. It helps to know exactly where your money is going, what needs to be changed, how much money to set aside for the next year, etc.

For instance, yesterday I discovered that we have spent almost twice as much on more startup/upgrade costs (racks, tubs/bowls/hides, thermostats, etc) than we did on snakes last year. $4K was purchased feeder rats for the first half of the year before our ASFs took off. Another $4K for food/bedding/plumbing/ventilation/heating/rack building supplies for the rats. So initially I was shocked that we spent $8K on rats last year, but digging deeper realized that only about $1K of that was rat food/bedding, and the majority of that was for the 2nd half of the year. Now we know to set aside around $2K for rats this year.

QuickBooks was a huge annoying PITA to set up (for me anyway), but now that it is I will keep using it to track every dime. I think a lot of people use spreadsheets like this one that just surfaced:

http://www.faunaclassifieds.com/foru...wpost&t=299949

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Originally Posted by LotsaBalls

I'm just starting to gather receipts and calculate milage etc getting ready for taxes. Any advice?

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I organize everything and hand it to my CPA. Some things are worth paying for and this one is high on my list.

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Originally Posted by Dave Green

I organize everything and hand it to my CPA. Some things are worth paying for and this one is high on my list.

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This is what I would like to do, my wife will want me to do everything though.

To add to what Rich said, if you get classified as a hobby (unable to make a profit 3 out of 5 years), you can't deduct more than you owe. Put another way, you can't deduct it as a loss. So if you make $4,000 and you have $4,500 in expenses, then it's just zero. You can't deduct a $500 loss.

Ok, other than bedding food milage time spent cleaning and such, what else can be claimed? Ideas thoughts?

I was just thinking about this issue myself. Glad the people that have experience with it are willing to help :gj:

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Originally Posted by LotsaBalls

Ok, other than bedding food milage time spent cleaning and such, what else can be claimed? Ideas thoughts?

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You can't claim time spent cleaning. You can claim racks/building materials, tubs/ bowls/hides, heat tape/clamps/clips/extension cords, space heater, etc.

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I don't think you can necessarily claim stuff like racks unless you can prove its a business (3 out of 5 years with a profit). Equipment that is used over multiple years such as cages, thermostats, buildings, as well as the animals themselves have to be depreciated over their estimated life (IRS has guidelines for some of this). You can't just expense them. I don't believe you can deduct depreciation if its designated a hobby if I remember correctly but would have to double check. Basically if its a hobby, you are pretty much looking at food, bedding, cleaning supplies, expos, travel expenses, etc. and can not deduct in excess of what you make so you can't have a loss.

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Originally Posted by Hypnotic Exotic

I don't think you can necessarily claim stuff like racks unless you can prove its a business (3 out of 5 years with a profit). Equipment that is used over multiple years such as cages, thermostats, buildings, as well as the animals themselves have to be depreciated over their estimated life (IRS has guidelines for some of this). You can't just expense them. I don't believe you can deduct depreciation if its designated a hobby if I remember correctly but would have to double check. Basically if its a hobby, you are pretty much looking at food, bedding, cleaning supplies, expos, travel expenses, etc. and can not deduct in excess of what you make so you can't have a loss.

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You Most certainly can claim ANYTHING you bought. Just cant keep claiming it year after year, Once and done.

If you build your own racks, Save the receipts of materials as labor dont count here.

I use Jackson Hewitt...H&R Block was a ridiculous disaster.
No way am I going to try to do it myself.

I usually at least add up all of my receipts and information, but sometimes I hand them over to the agent, lol.

Some of my equipment was set up to depreciate, some I just claimed full purchase outright.
Not really worried about being audited, but if it happens, I feel sorry for the person who has to do it, because I really am not organized, and have no clue how to get that way.

I will hire someone to do my accounting in the next few years, lol.

Keep track of: All animal purchases, all supplies related to animal care, all equipment purchases, website and domain name fees, and car mileage for trips you make ONLY to purchase business-related things, or sell business-related things. You can also claim your reptile facility if it is a separate area of your home (or a separate building), and you use it for ABSOLUTELY nothing else. (No storing boxes in it, etc). You calculate it as a percentage of the square footage of your home. Being able to prove everything is crucial. You cannot claim anything that has a dual purpose. (If you buy a vacuum cleaner, and you use it for both your home and reptile room/facility, you can't claim it. If it's ONLY used for the reptile room, and never anything else, then you can).

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Originally Posted by RichsBallPythons

You Most certainly can claim ANYTHING you bought. Just cant keep claiming it year after year, Once and done.

If you build your own racks, Save the receipts of materials as labor dont count here.

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Typically equipment used over multiple periods is depreciated, not expensed. However, in the case of small businesses, there is an exception now which is detailed at the below link. Sorry for the confusion. It's been a while since I sat for the CPA exam and I don't work in accounting at this time so a bit rusty. I think based on this that all of us would probably fall within the limits of being able to expense them. Just remember, if you only qualify as a hobby, you can't deduct them if they put you at a loss for the year:
http://www.irs.gov/newsroom/article/...233824,00.html

Anything you sell should be claimed as income and if you're audited they will ask for all of your business and personal bank statements and you will have to explain any deposits into the account. All expenses (utilities, supplies, food, bedding, website, dedicated phone line, travel, shipping etc) can be deducted if you have receipts and proof of payment. Remember that the burden of proof for all expenses is on the taxpayer, so no receipt no expense if you're audited. Anything like racks and breeder snakes should probably be depreciated. You could probably use 179 for racks if you’re small scale. Breeder snakes should be treated like livestock and depreciated and then any offspring produced would have a basis of zero.

Now how do you do it if you own all the animals and decide to start a business then? Do you sell it to your self based on credit or......

If you are a sole proprietorship, you don't have to worry about that.

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Originally Posted by WingedWolfPsion

If you are a sole proprietorship, you don't have to worry about that.

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If your interested pm me and ill get you the info of a good cpa here in town. shes done my taxes a few years back when i was a 1099 contractor and she only charged me like 50 bucks. she is doing my wifes this year.


on a side note i have an albino male this year that i bought, not sure if your still looking for one :) pm me for details.

ttys

SHROP, that would be FANTASTIC. Thanks!

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Originally Posted by Raverthug

Now how do you do it if you own all the animals and decide to start a business then? Do you sell it to your self based on credit or......

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if you are in this situation and have not saved receipts or had paid in cash, how will you prove you had purchased the snakes in first place?

thanks

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Originally Posted by milha

if you are in this situation and have not saved receipts or had paid in cash, how will you prove you had purchased the snakes in first place?

thanks

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No receipts then your SOL. If you are buying as pets no receipts needed, but for business you need to ask for them even when paying with cash. Otherwise you cant claim what you have no proof for

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Originally Posted by RichsBallPythons

No receipts then your SOL. If you are buying as pets no receipts needed, but for business you need to ask for them even when paying with cash. Otherwise you cant claim what you have no proof for

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thanks