A Taste of Life at Windrush Alpacas

April 2, 2008

Being in Business and Keeping Good Records

Filed under: alpaca, Alpacas, General — Tags: , , , , , , — alpacalady @ 7:32 am

 Yesterday was the day that I took my annual visit to our accountant so that he can prepare our tax return for 2007.   While I can understand businesses being required to file tax returns every year I am still a little bemused that the average worker in the US is expected to keep on top of the tax laws and file a tax return that is 100% correct.  My suspicion is that the average wage earner ends up not fully understanding the tax laws and probably paying more tax than they really are required to. 

As a business though it is important for us to keep good records, both of information relating to our herd and of the various activities of our business.  There is absolutely no way that I can keep up with all the various tax laws and that is why we choose to employ our accountant.

Our accountant loves his job, he seems to view tax journals as enjoyable reading.  Tax journals are not my idea of a bedtime story, but his willingness to read and keep up to date on tax laws makes him a great accountant.  While the cost of using an accountant is not cheap, the service he provides more than pays for itself.  Going over the books of your business with a fresh set of eyes also helps raise questions that you might not have thought of yourself and gives you a different perspective on your business.

One thing that the alpaca industry is vulnerable to is the IRS argument that an alpaca business is a hobby versus a business.  Should an audit occur the business needs to be able to show the IRS that they operated with the intent to make a profit and have taken steps to make that happen.  To run an alpaca business is not as easy as just buying a couple of alpacas and enjoying having them, that would most definitely be determined to be a hobby farm by the IRS and I am sure the IRS would be asking for some tax money back in that situation. 

If you are in business, then you need to act and operate in a professional business like manner.  Good financial records, a business plan and a business bank account are all things that can help show that you are indeed running a business.  Keeping record of marketing efforts (copies of ads, screen shots of your website), communications from clients and potential clients is also a good idea.  Document any unfortunate circumstances that may have had an effect on the profit of your business for that year.  Perhaps you had an alpaca die, or someone backed out of purchasing an alpaca.  Maybe one of your expenses shot up dramatically due to circumstances beyond your control.  All businesses can experience set backs, correct documentation of such events will assist you in proving that despite those set backs you are still in business and still trying to make a profit.  Of course the best way to satisfy the IRS hobby farm/business argument is to have your alpaca business make a profit on a regular basis.

If you are thinking of starting an alpaca business, or even if you are already in the alpaca business and feel uncertain as to whether you are operating as a business within the definition provided by the IRS, then take the time to seek advice and learn how to do things properly.  Quite often the Small Business Administration in your area can provide advice at low or no cost, but they will not offer specific legal or tax advice.  With any business it really is worth the cost of an attorney and an accountant to ensure that you have the best business setup for your situation and that you fully understand what it takes to satisfy the requirements of the IRS.  Every time I visit my accountant I come away having learned something new and I value the good relationship I have with him as part of my business.

Of course I have my own personal argument for the IRS should they decide to question whether our business is really a business.  If I could persuade them to come and spend a few days working with me I think they would learn pretty quickly that while this is a business I dearly love it is most definitely a business.  I doubt that they would take me up on my offer though!

Rosemary

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