The IRS tax code is complex, so livestock producers considering marketing livestock at abnormal times due to dry conditions should consult their tax adviser.
If drought has forced your hand in marketing cattle, make sure you're aware of special federal income tax considerations potentially available to you, says Tim Petry, North Dakota State University livestock marketing economist.
For instance, Petry explains, according to Internal Revenue Service (IRS) guidelines, one provision applying to all types of livestock allows postponement for reporting income from forced sales for a year.
"The normal business practice for a cattle producer may be to background calves after fall weaning and market them the next February," Petry says. "If, due to drought conditions and lack of feed, the calves are marketed at weaning in October, the income may be postponed until the next year. Only sales in excess of 'normal' (usually defined as the number sold in each of the last three years) qualify for the deferral."
Petry points out the drought must have caused an area to be designated as eligible for assistance by the federal government. However, the livestock doesn't have to be raised or sold in the exact designated area, such as a particular county, but only nearby.
The IRS tax code is complex, Petry points out, so livestock producers considering marketing livestock at abnormal times due to dry conditions should consult their tax adviser. Other tax-management tools, such as income averaging, also should be considered, he adds. For more, visit: www.ext.nodak.edu/extnews/newsrelease/2006/071306/09forced.htm