How to Account for Livestock Breeding Fees

Let's face it, breeding fees can be expensive and paying them out of pocket can be a strain on a breeder's bank account. So the big question come tax time is often, "Can I write off breeding fees?"

The answer to that is a little complex and like most things in tax "it depends." There's a couple of main factors at play, first does the breeding come with a live offspring guarantee? And second does the breeding fee fall under the deminimis amount?

If the breeding fee does not come with a live offspring guarantee the fee does not need to be capitalized. This makes sense when you think about it - there's no guaranteed asset to come from a breeding if there's not a live offspring guarantee. You could breed a cow, mare, etc multiple times and not get anything for it.

If the breeding fee comes with a live offspring guarantee the you treat the breeding fee like you would the cost of any other asset. You capitalize it as part of the basis in the offspring and depreciate the offspring.

There's a catch to this rule as well. If the breeding fee falls at or under the deminimus amount for assets you can elect the deminimus safe harbor and expense the breeding fee. The deminimus amount is $2,500 for businesses without formally audited financials and $5,000 for businesses with formally audited financials.

It may also make sense to capitalize the breeding fee rather than immediately expense it for a couple of reasons. You may want to save the depreciation on the offspring for later years in which you anticipate being in a higher tax bracket. You may also want to capitalize the costs to protect your Qualified Business Income Deduction.

So when you're classifying breeding fees first determine if there is a live offspring guarantee, then determine if it falls under the deminimus exception, and finally look to see if there are any other reasons to classify the fee as an asset.