We breed and sell kittens, where do I enter the purchase of breeding cats? It doesn't list animals as an asset type to choose from?

[sandbeha1993]

This is the answer I recd from Turbo tac concerning dog breeding:

TurboTaxDawnC answered your question: Where do I enter costs of animal purchases, food and misc supplies and vet costs?

Unfortunately, the IRS generally views dog breeding as a hobby and not a business. You may only deduct hobby expenses equal to hobby income. You cannot take a loss on a hobby.

To enter hobby income and expenses in TurboTax please follow these steps:

• Sign in to your TurboTax account
• Click on Federal Taxes tab
• Choose Wages and Income
• Scroll down to Less Common Income and click Start
• Scroll down to Miscellaneous Income, 1099-A, 1099-C and click Start
• Click Start to right of Hobby income and expenses

If you believe that you are in this business with a profit motive, you may report the income and expenses on Schedule C, Profit and Loss from Business.  

See these three articles for more on how the IRS determines if your activity is a hobby or a business:

• When the IRS Classifies Your Business as a Hobby
• Is Your Hobby a For-Profit Endeavor?
• IRS Tax Deduction Implications Business vs. Hobby
  

The IRS generalizes with this statement (referred to as the "3 of 5 rule"):

"The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses."  

If you determine that your activity is a business and report it on Schedule C, then you can deduct your expenses.  You would enter your information in the Business Income and Expense section of TurboTax.  Your principle activity code for dog breeding is 112900.  Your individual expenses (costing under $2500 each) can be entered under Other Miscellaneous Expenses

[parobk]

We breed dogs.  It seems there aren't a lot of QB or tax experts that understand "farm" accounting.  :(

The breeding dogs we purchase are entered on the Chart of Accounts as Assets as follows.  Note, this example accounts for separating your "breeders" from the cost of a regular kitten.   You'll see how this benefits later with depreciation and further, when you stop breeding that particular cat - sold, neutered, or otherwise.

Let's start out with your Chart of Accounts:

1)  Create a new account in Chart of Accounts - call it "Purchased Breeding Stock", choose B/S-Assets: Buildings/oth. depr. assets

2) Create a sub-account of this account - use the name of your source, ex: Lovable Kittens 2019

3) Create another sub-account of Lovable Kittens called "Breeding Rights"

4) Create two sub-accounts of Breeding rights, one called "Cost" and one "Depreciation"

5) Create a sub-account of Lovable Kittens called "the name of the breeding animal", ex: Cuddles

6) Create two sub-accounts of Cuddles, one called "Cost" and one "Depreciation"

This basically moves your cash asset to an asset represented by your breeding cat (will show the B/S as an asset).

Now Let's Describe Your Assets:

We'll make some assumptions here... Cost of kitten:  $500   Cost of a Breeding Cat $2,500.

1) Go to Lists, Fixed Item Asset List

2) Create a New Item called "Lovable Kittens 2019"

3) Enter all your pertinent information with a cost of $2,000.

4) Choose the Asset Account "Purchased Breeding Stock:Lovable Kittens 2019:Breeding Rights:Cost"

5) Create another New Item called "Cuddles"

6) Enter all your pertinent information with a cost of $500.

7) Choose the Asset Account "Purchased Breeding Stock:Lovable Kittens 2019:Cuddles:Cost"

OK, now lets get the breeder on your Books!

1) Enter a bill for Lovable Kittens for the $2,500

2) On the "ltems" tab,

      Put Cuddles on the first line, Description "Breeding Female" for $500

      Put Lovable Kittens the second line, Description "Breeding Rights" for $2000

Pay the bill with a check.  Done!

Every year, depreciate the Breeding Rights AND the breeder separately. 

[HollyP]

Yes, @sandbeha1993 is correct, that generally dog and cat breeding is considered a hobby. Please review our FAQ to determine, Is this a business or hobby? However, if you are truly in business then typically you would report the animals under other miscellaneous expenses instead of depreciating them on your Schedule C.

If you are operating a farm, then in that situation the cats would be listed as an asset.  Per IRS Pub 225, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as owner or tenant.

[heavensid]

a couple things how much will my breeders cat/dog depreciate every year?

and two what category is it when i share my breeder boy who studs , there is one i co own and pay out 1/2 for kittens when each sells and also if our boy studs out 1/2 cost we get for services?

[LeonardS]

As was previously posted the IRS generally considers the breeding of cats and dogs as a hobby.  However, if you are operating as a business with the intent to make a profit you may depreciate your breeding stock.

You may want to review https://Publication 225 (2021), Farmer's Tax Guide. This is for livestock operations but will provide you with an insight into what the IRS requires for animal breeding and selling.

As a general principle when you are breeding animals (dogs, Cats) for market (sale)  your breeding stock is a depreciable asset.  Their offspring have a tax basis of 0 dollars and you deduct the expense of raising them as it occurs so when you sell them the full sale price is taxable income.

[heavensid]

amortize start-up expenditures ? I do not know where to start with this .... what if i had no start up costs?

if i didn't claim the cats n dogs as assets 

instead of claiming as a business i did self employment still getting the costs of expenses and although i didn't know what to put as start up so i didn't claim any. as this would have been my breeding stock if i was claiming as a business but i think i was under the assumption as a self employed as i do not pay any employees.

[JulieS]

Self-employment is a business even if you don't have any employees. 

Start up expenses are expenses you pay to start a business, prior to launching your business. For example, research costs and legal advice. 

The IRS does look at the breeding of cats and dogs as a hobby, but if you feel your breeding activity rises to the definition of a business, your breeding stock is listed as Assets.