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Dog Breeding Business

In 2006 I started the process of starting a dog breeding business. I purchased a couple dogs, built a large kennel area, and started the process of training and showing the dogs. This obviously cost a lot, including the vets, trainers, stud fees, food, supplies, licenses, show fees etc. I did not include it on my 2006 or 2007 return because I had not started earning income yet. I had already spent $40,000 by

2008.I am treating the whole thing like a business, separate accounts, advertising, etc. Anyway,here are my questions: 1- Can I go back and ammend those returns? Business, vs hobbie issues? 2- Schedule C for those years with no income? 3- Show fees are very large, but without the champion lable these dogs will not produce much income. 4- Depreciation of my dogs, the purchased ones? Thanks!!!!!
Reply to
SMF
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"SMF" wrote

It all sounds like, at best, start-up costs, which are capitalized and amortized (IRS speak for expensed over time) once you begin the business, meaning once you actually have a product or service to sell. When that happened is a matter for you to discuss with your tax advisor.

Reply to
Paul Thomas, CPA

Does one have to file a Schedule C or something for years 2006, 2007, to list the costs that will be amortized when business starts? I'm not aware that this is necessary, but it seems it you amortize start- up costs from two years ago, then maybe it is a nice idea to file a form with your 2006 and 2007 tax returns.

And how does one determine the start date of the business? Is it the date when you are ready to sell dogs? If this is the case, and for some reason you did not sell any dogs, then you're still open for business, and all the costs such as salaries for vets and trainers, dog medicines, etc would go on Schedule C as expenses -- that is, deducted all at once instead of over 5 or 15 years.

What is the depreciation life of a dog?

Reply to
removeps-groups

wrote

If you weren't in business at that time, then don't file a Schedule C.

There's be no point in it, as there would be no deductrions.

It's generally when you are ready, willing and able to make sales, provide the goods and services, etc.

It's proven out with advertising, a sales receipt, etc.

If that's all you did for revenues, then yes.

Yes.

But you have an up-hill battle if you never make any sales. Then the whole idea of you being in a business comes into question.

Reply to
Paul Thomas, CPA

(snipped....

7 years. Now here's the rub. To use section 179 to max out your deduction for total cost of dog, it must be used for year dog is placed in service. If you didn't file schedule c's for first several years, then you start to use depreciation for breeders in first year of schedule c use. Of course after business opens, any subsequent purchase of dogs gets the immediate write off.

Oh, and the life is 7 years.

ChEAr$, Harlan Lunsford, EA n LA

Reply to
Harlan Lunsford

I'm confused. Say you purchase 2 dogs before business opens in January 2006 for $7000. You are open for business on January 2007 because you are advertising. So on Schedule C for 2007, assuming you use straight-line (SL) depreciation, do you:

(a) Take $1000 depreciation for 2007 and each of the next 6 years. (b) Write off the purchase of the dogs as a startup cost amortized over 5 years, and take a depreciation of $1400 a year for 2007 and each of the next 4 years. (c) For 2006 depreciation would have been $1000 but you weren't open for business, so in 2007 deduct the startup costs over 5 years, so in

2007 and the next 4 years take $200 a year. In addition, take $1000 a year for 2007 and the next 5 years.

Section 179 only accelerates your deduction. But no matter what method you use, you still get the full deduction by the end of 7 years, so all methods max out the deduction. Is that right?

I thought it has to be depreciated over 7 years (unless of course you can and choose to use section 179).

Reply to
removeps-groups

Section 179 can only be used in the year you commence business (first schedule c) or thereafter. thus if business begins Jan 1 2007, and dogs were bought previous year, you start in 2007 depreciating them for 7 years, but under the MACRS system. See charts in the IRS publication for depreciation and you'll find you use a percentage of .1429 for the first year, other percentages for each of the 6 years thereafter.

And yes, your depreciation and/or section 179 recovers the full cost(s) of de dawgs no matter which you use. It's just a matter of timing.

For my client back when he was what I called him, a "dog farmer" (but no schedule f, mindyou!) I picked and chose whether or not to use section

179 for each year's purchases, depending on other factors, so as to smooth out his deductions over the years. Sometimes it's an art. (grin)

ChEAr$, Harlan Lunsford, EA n LA

Reply to
Harlan Lunsford

I hope that you meant that 179 can only be used in the year that the item was BOTH purchased and placed into service.

If the dogs were not purchased with the intent to start a breeding business (i.e. it started "later"), then I have a problem with the whole thing. There is no deduction for your PETS.

Reply to
D. Stussy

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