Our cows which we listed as assets last year had calves.

[shellypn]

I understand that I am to list these calves as inventory. I just don't see where in Turbo Tax that I add inventory.  Or do I not report them until they are sold?

[Cattlerancher · Accepted solution]

A farm rarely uses inventory, so rarely that TurboTax doesn't even provide an inventory account as an option in the farm section. There is just a lot of misinformation about inventory on a farm in this forum probably because it's used commonly on a schedule C. Large commercial feedlots do use an inventory account, but not small sole proprietors. (with less than one million in inventory)

If you purchased cows or bulls (breeding stock), enter them as assets. Enter the sale of them by editing that asset in TurboTax in the year sold. (This is recaptured deprecation, taxed as ordinary income)

If you raised your own cows or bulls, do not enter them as assets. Enter the sale of them in TurboTax as non-depreciated business property. (Taxed as L/T capital gain income on form 4797, part 1)

Calves/yearlings (non-breeding stock) you bought to feed and resell after increased gain, enter the sale of them in TurboTax as "Livestock bought for resale" on line 1a,b,and c on schedule F in the year sold. (Taxed as earned income) 

Calves you raised from birth do not go in an inventory account on a farm. Enter the sale of them as "products raised on your farm", line 2 schedule F in the year sold. (Taxed as earned income)

Please view the page snip below to help locate where to enter the sale of non-depreciated business property (breeding stock);

Here's a link to view the IRS schedule F form;

https://www.irs.gov/pub/irs-pdf/f1040sf.pdf

[shellypn]

Thank you very much.  I had read elsewhere about the "inventory" and it totally had me confused.  So to be clear, the only time I have to report cows that were born on the ranch, is when they are sold.  Correct?

[Cattlerancher]

Yes, cows born and raised into breeding stock are sold as non-depreciated business property and only reported in the year they were sold. You will need to check a box in the Farm Income and Expense section, under Final Details, Special Situations, click Start, Other Situations, click the box "During 2016, I disposed of non-depreciable business assets" to report the sale. It's a little hard to find that box. When reported correctly the sale will report on form 4797, part 1. You will need to report how long you have had them by entering the date acquired, any date over two years will work, they just want to know if it's long term gain or short term gain. I use one acquired date for all raised cows sold that year. In the description I enter "Raised Cows".

[shellypn]

Thank you so much