The Most Enjoyable of Investments!

There are two basic reasons why people raise alpacas:

1. It can be a profitable business that has major tax advantages.
2. Alpaca breeding provides an enjoyable lifestyle.

Why are alpacas such a good investment? The answer is simple: Alpacas are in strong demand as America's national herd is being built, and there is a growing need for alpaca fiber, which goes into the production of high-end textiles.

As a breeder, you can deduct the expenses associated with raising and caring for your alpacas. There are also generous depreciation allowances that you can use to lower the taxes you pay on other sources of income.

Your alpacas are not taxable until you sell them. So, when a female produces new offspring, the value of your herd increases, but taxes are deferred until you sell the offspring. With an initial investment in a few breeding females, the growth of your herd can quickly realize a positive and substantial cash flow.

Starting an alpaca business as a part time activity by a spouse can quickly grow into a full time profession for the entire family. People from all walks of life have gone from part-time to full-time breeders as they become educated in various aspects of the business. Novice breeders are often singles or couples who are transitioning into retirement. They find that alpaca ownership is not only rewarding but provides a significant financial supplement to their retirement income.

Some of the more important tax considerations are summarized below:

• While there are some tax advantages to the passive method, where you invest in the animals and someone else does the farming, the tax advantages are greatest for those who engage in the active, or hands on method, where you actively raise your animals.
  
  
• Many expenses which you incur, such as veterinary care, feed bills, marketing, education, travel, farm expenses to name a few, associated with the raising of your alpacas, are deductible.
  
  
• As a breeder you can depreciate a male or female alpaca used for breeding purposes over a five-year period. Breeding animals are considered a capitol asset.
  
  
• Capital improvements to your ranch can be written off against income. Barns, fences, pond construction, driveways, parking lots can be expensed over their useful life. Equipment such as tractors, pickups, trailers, and scales have an appropriate schedule for write off. The depreciation schedule for each asset class varies from three to four years.
  
  
• Many of the expenses you incur traveling to shows, national conferences, and training are tax deductible. This includes travel, lodging, marketing, etc.
  
  
• IRS Section 179 deductions. This deduction is available every year when certain asses are purchased. You can deduct up to $24,000 as a single lump sum annually of capital purchases. The following example illustrates the 179 rule:
  
  
  • Purchase alpaca or other capital item (truck): $24,000
  • Section 179 tax deduction ($24,000)
  • Tax savings (assuming 50% bracket) $12,000
  • Actual after-tax cost of the capital asset $12,000
    
    
  Note: Currently the 179 rules has been increased to $100,000 per year, however, this increase is only temporary unless Congress extends.

Before making your initial investment, we suggest that you contact an experienced accountant to discuss your individual situation. The IRS Form 225 Farmers Tax Guide has information you will need. You can download this form at www.irs.gov. Go to the Forms and Publications area and scroll down to Form 225.

You will also find helpful information at the Alpaca Owners and Breeders Association site, alpacainfo.com.

505-466-2945