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White River Alpacas, LLC |
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Informed, Fair & Respected |
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The How Tos & Whys of Investing in Alpacas |
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In an unstable economic environment, people are looking for alternatives for their financial security. And with the American Recovery and Reinvestment Program of 2009, starting a new business with an developing industry still in its infancy with a proactive and supportive national organization, Alpaca Owners and Breeders Association (AOBA) makes good financial sense. Why? There are five reasons people turn to alpacas as a business or investment: 1. Fear of Wall Street 2. Tax Savings & Shelters 3. Financial Independence 4. Lifestyle 5. Growing Industry
PLUS... Alpacas have seen such a high, steady growth rate over the last decade. How? Raising alpacas is a lucrative business that is appealing to people from all walks of life. It’s what attorney, alpaca owner and president of the Alpaca Fiber Coop of North America (AFCNA) Daryl W. Goodrich calls living by the Rules of the Rich. To summarize his article which can be found in the 2009 AOBA Farm & Ranch Guide, Goodrich says that the rich: 1. Seek a Favorable Business Climate 2. Seek Investment Income 3. Limit Liability from Claims by Others 4. Leverage their Money 5. Make Federal Taxes Work for them
Alpacas certainly fit into each category. Continued below... |
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Alpacas are a business for the whole family. |
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The Business of Alpaca Ownership |
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1. Wall Street vs. Alpacas The nation’s mutual funds have decreased by billions of dollars over the last year, yet the Alpaca Registry says that registrations are on pace to rise 7% this year and currently stand at 140,297. That’s quite impressive. In 1980 the first 10 alpacas (outside of zoo sales) were imported into North America. To currently stand at nearly 150,000, that’s an impressive growth. Especially when you consider that the industry closed the borders for importation ten years ago and all alpacas to qualify to be registered must be purchased from within our own borders.
2. Tax Savings & Shelters When alpacas are raised as a business, (with the intent to make money), they qualify for the following tax savings and shelters: 1. Section 179—a Federal tax cost recovery system 2. The American Recovery & Reinvestment Program of 2009 Section 179 of the Tax Code can decrease the amount of taxes you would normally owe by allowing you to deduct all or part of your capital asses (your alpaca) purchase in the year that it was purchased. The purchase price not used as a deduction my be depreciated. The “secret” to owning your own business, is to put your business income/loss on your personal tax return. This is called a tax shelter. The manner in which this will effect you personally should be discussed with your CPA or tax advisor. The ARRA of 2009 is similar to the personal $600 stimulus checks that you received last year, but this year you could say it’s on “steroids”. The government made it a little sweeter for business owners. Remember, the purpose of the Act is to STIMULATE the economy allowing business owners to deduct purchases off taxes owed. When you purchase alpacas, you are starting a business and can qualify for these tax advantages.
· Business owners can elect to expense up to $250,000 (increased from $128,000) of qualifying property (up to $800,000 in value) instead of taking depreciation for assets put into service in 2009. · Businesses are now allowed a 50% bonus depreciation on assets placed into service in 2009.
Here’s an example of how this works:
· A $50,000 asset is placed into service in 2009 · $25,000 may be expensed under Section 179 · $25,000 remains to be depreciated · A further $13,500 may be expensed as Bonus Depreciation (50% of $25,000) · Asset now has a $13,500 base from which to take standard 1st year depreciation · For this example we'll assume 5-year property = $2,700 1st year depreciation · Total deduction in 2009 is $41,200 on the asset · Remaining $8,800 cost of the asset is recovered under the otherwise applicable rules for computing depreciation
*Consult your tax advisor for specific details in how this will effect your personal tax situation Here’s a link to the 2009 Farmer’s Tax Guide: www.irs.gov/pub/irs-pdf/p225.pdf
TAX LAWS ARE CHANGING IN 2010: As of January 1, 2010, Section 179 will be REDUCED from $250,000 to $134,000 and the 50% Bonus Depreciation will be eliminated.
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3. Financial Independence With the economic slowdown and unemployment at the highest rate since the 1960’s, more and more people are changing their lifestyle, going back to the “basics” and looking for alternative sources for income. Basic economics states that the difference between Investment Income and Earned Income is as follows: Earned Income is you working for money. It is limited by the hours in a day you can physically work, by your health and employment opportunities. Investment Income is money working for you. It continues to work for you and is not effected by physical limitations. Alpacas are an investment; they work for you. Although they do require daily care (who could resist being with them daily) they are “working” every day of their gestation period. Crias (baby alpacas) may be sold or held to build your herd (tax sheltered wealth building). If you have a herdsire, outside breeding may be sold as well as their fleece, or product of their fleece. If you have a talent for the fiber arts, or choose to open a farm store whether virtual or bricks and mortar (or barn wood) your products may be sold for additional income. Another strategy for financial independence is to use other people’s money to work for you. We use this strategy every time we buy a car, house or use a credit card. The difference with financing your alpaca purchase goes back to the tax advantages. You are purchasing an asset that will increase in value, may be deducted from your taxable income and depreciated. Borrowed money leverages your cash purchase allowing you to purchase a higher valued asset (alpaca) and receive a higher return on your investment (ROI). Leverage Example: Purchase a juvenile alpaca for $10,000 Pay $2,000 cash Finance $8,000 Later sell her pregnant for $15,000 This is a $5,000 profit. The gain is a 250% return on your $2,000 invested cash Add the Tax Advantages: · Deduct the entire purchase price of $10,000 from your income · If you are in the 30% tax bracket = $3,000 tax savings
Cash Example: Purchase a juvenile alpaca for $10,000 in cash
Later sell her pregnant for $15,000
Same $5,000 profit. The gain is a 50% return on your $10,000 invested cash
** We offer financing** |
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2010 Tax Laws are changing. As of January 1, 2010, Section 179 will be REDUCED from $250,000 to $134,000
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the 50% Bonus Depreciation will be eliminated. |