Tax Planning for Cow-Calf Operations: Don’t Let
by Tina Barrett, Executive Director of Nebraska Farm Business Inc.
The past several years have been profitable for cattle producers.
Cow-calf operations are amid a period of unprecedented high incomes—something that crop farmers experienced back in 2012 and again in 2022. Strong income years are a blessing, but they also bring challenges: larger tax bills, pressure to spend on prepaid expenses, and the temptation to push income forward or load up on depreciable purchases. There are some lessons that we can learn from the peaks of crop profitability that will hopefully avoid some of the pitfalls that come with a downturn that is inevitably ahead.
Early, proactive tax planning is one of the most valuable tools you have. Getting to your tax preparer sooner will allow you more time to make the adjustments that are right for your operation. Oftentimes, if you have just a few weeks to move a lot of income around, panic or quick decisions can turn into decisions you wish you hadn’t made.
Smart Spending vs. Quick Spending
The most common mistake I see is year-end panic spending. A producer says, “If I buy this piece of equipment, I’ll save on taxes.” But let’s step back and do the math.
If you spend $100,000 just to save $30,000 in taxes, you still spent $70,000 you did not need to. It often makes more sense to have that $70,000 available to pay down debt, and shore up liquidity for the next downturn. Debt reduction cannot happen without taxable income, especially when that debt is carryover operating or land debt. To have money to pay principal (a nondeductible expense), your taxable income must be higher than your non-farm expenses, income taxes, and principal payments for the year. If it is not, you will have to borrow more money from your operating note to pay for your expenses.
Buying assets or breeding livestock should be a business decision first, and a tax decision second. When the order flips, that snowball of debt, depreciation, and future tax problems starts rolling—and it can grow faster than you think.
Using Depreciation Wisely
Accelerated depreciation can be an excellent tool, but it needs to be used with caution. We have two options to accelerate depreciation: Section 179 and Bonus (or Special) Depreciation. Both of these provisions received updates with the One Big Beautiful Bill Act passed in July of 2025. The bill enhanced Section 179 limits and made 100% bonus depreciation permanent.
• Section 179: For 2025, producers can expense up to $2.5 million of qualifying purchases, with a phase-out starting at $4 million. That includes equipment, breeding livestock, and certain improvements. It does not include multi-purpose farm buildings such as a machine shed.
• Bonus Depreciation: Bonus depreciation allows you to deduct 100% of the purchase price of almost all new or used farm assets in the year of purchase with no limit. This option includes pretty much all asset purchases including multi-purpose farm buildings.
The key difference between these two options is flexibility. Section 179 allows you to elect in through a dollar for dollar method. You can choose any dollar amount up to the limits
that you want to use. With bonus depreciation you must elect out by asset life class (e.g., all seven-year assets), not just individual purchases. That makes it an “all or nothing” choice for each category.
Between these two tools, most farm assets can be written off in the year they are acquired. That’s powerful — but it also means you can run out of depreciation when you need it most. Stretching deductions across multiple years often makes more long-term sense, especially when you are financing the purchase. In future years when you need to make principal payments, you won’t have a deduction to offset that cash outlay. If you are paying for capital purchases with cash or recognizing gain on the sale of a traded asset, then using accelerated depreciation makes sense.
Prepaying Expenses
Another common tax strategy is prepaying expenses. IRS Publication 225 (the Farmer’s Tax Guide) allows prepaying certain ordinary farm expenses if they meet the following guidelines.
• The expense must be for a specific quantity (e.g., 500 gallons of fuel, 50 tons of hay).
• It must be for a business purpose, not just to reduce taxes.
• The prepayment must not be a mere deposit — it must be for an actual purchase, not just money held on account.
• Feed, seed, fertilizer, chemicals, fuel, and vet supplies are examples that may qualify.
Prepaying can be a good tool when used deliberately, but don’t prepay just for the sake of lowering taxes if it strains your cash flow. Also, be sure to consider the impact that operating interest rates have on these decisions. With higher rates, the cost of carrying prepaid expenses can be significant and could be more than the actual tax savings. Planning prepaid expenses with a “business first, tax decision second” mentality can save your operation money in the long term.
Balancing Debt and Cash Flow
High-income years bring a unique temptation: borrowing money to “buy down” taxes. But remember—debt payments don’t go away just because income is lower next year (or three years from now). If you finance $200,000 in new purchases to save taxes today, you’ve committed to making those principal and interest payments for years to come.
That’s where liquidity and cash flow planning becomes critical. Having strong cash reserves gives you options when markets soften, interest rates rise, or other things out of your control impact the operation. Paying down debt in good years may not feel as exciting as driving home new equipment, but it often leaves your operation in a far stronger position. This has to be one of the biggest lessons we can take from crop operations. The high-profit years led to increased spending and debt. When margins got tight, those debt payments were still waiting to be paid.
Final Thoughts
High-income years are opportunities to build lasting strength into your operation. By planning early, spending wisely, and using depreciation and prepay strategies with care, you can lower your tax bill without creating tomorrow’s snowball problem. Smart tax planning keeps that snowball from gaining speed and size. Done wrong, it can crash into your operation.
Done right, it can melt into opportunities that keep you stronger for the long haul.
The goal isn’t just to reduce taxes—it’s to keep your ranch resilient, flexible, and ready for whatever the cattle markets bring next.
Three Considerations When Comparing the Cost of Buying Bred Heifers to the Cost of Developing Them
by Dr. Kenny Burdine, University of Kentucky Extension/Southern Ag Today
As we roll through fall, spring-born calves will be weaned and many of those heifer calves will be held for replacement purposes. At the same time, a large number of bred heifers will hit the market and be available for the same purpose. It is not uncommon for someone to comment on how expensive bred heifers are and assume that they can develop their own heifers for much less. While this is true in some cases, I also think it is easy to underestimate some of those costs. The purpose of this article is to briefly highlight three things that are crucial to consider when a cow-calf operator tries to make this comparison. And I would argue these are even more significant given the strength of the current cattle market.
The Opportunity Cost is the Biggest Cost
I hope this one is obvious, but the largest cost of developing a heifer is the opportunity cost of that heifer at weaning. High-quality weaned heifers, in the 500–600-lb. range, are bringing $2,000 and higher across most US markets. Whatever those heifer calves are worth in the marketplace is the first cost of heifer development. By not selling that heifer calf, one is forgoing that income. This cost is huge right now due to the strength of the calf market and higher interest rates, which makes forgoing that income even more significant. While the heifer herself is the easiest opportunity cost to quantify, this applies to all the costs of developing her (feed, pasture, breeding, facilities, labor, etc.).
They Won’t All Make the Cut
After the initial cost of not selling the heifer at weaning, another year of expenses will be incurred to get that heifer to the same stage as those bred heifers on the marketplace. She will be carried through a full winter and summer grazing season and be bred to calve the following year. There are significant costs in doing this, but it is also important to understand that not all those heifers are going to end up being kept for breeding. Some will fail to breed, and others will simply not meet the expectations of the farmer. Heifers not kept for breeding will end up being sold as feeders and likely won’t cover all those expenses. The “loss” on these heifers becomes an additional cost of the heifers that do enter the cow herd as replacements.
Next Year’s Calf Should Be Very Profitable
This is another one that doesn’t get much attention but really matters in a time like the present. It’s easier to think about this one applied to a specific timeline so I will frame it for a heifer born this spring. A heifer calf weaned in the fall 2025, kept for replacement purposes and bred in 2026, won’t wean her first calf until fall of 2027. Conversely, those bred heifers on the market in
fall of 2025 should wean their first calf in 2026. While nothing is guaranteed in the cattle markets, fundamentals suggest that 2026 should be a profitable year for cow-calf operations. The potential profit on that calf in 2026 becomes capitalized in the value of those bred heifers in 2025. For this reason, comparing the cost of a bred heifer in fall 2025 to the cost of developing a heifer weaned in fall of 2025 can be misleading.
The purpose of this article was not to suggest that either replacement strategy was best. There is merit in both approaches, and it largely comes down to the goals of the operator. While I am an economist, I also recognize there are a lot of non-economic considerations that come into play. But the economics of the decision is complex, and carefully thinking through all aspects of the decision is likely time well spent.
Insights into Calf Mortality at Commercial Calf Ranches
by Andrea Bedford, Bovine Veterinarian
New data from four calf ranches highlight the dominance of respiratory disease and the year-round consistency of health challenges in beef-dairy cross calves. As the dairy industry embraces beef-on-dairy crossbreeding, a new type of animal is reshaping the US calf and feedlot landscape. These calves, born on dairies but destined for the beef supply chain, are prized for their hybrid vigor, growth potential, and carcass quality. Their journey often includes an early stay at commercial calf ranches, where young calves are reared in large groups under varying environmental and management conditions.
While these specialized facilities play a key role in raising thousands of calves efficiently, they also present unique animal health challenges. Calves arrive from multiple dairies, often within days of birth, and face stresses from transport, commingling, and pathogen exposure. The industry has long suspected that respiratory disease dominates mortality at these sites, but until recently, detailed, systematic data to confirm those patterns were limited.
A new study by Rebecca Bigelow and colleagues from Kansas State University set out to change that. The study compiles data from over 240 necropsies performed across four different commercial calf ranches over a 12-month period documenting cause of death, concurrent conditions, and whether these patterns shifted by season, sex, breed, or location. These necropsies included both beef-dairy cross (152) and dairy calves (91). Their findings confirm respiratory disease is indeed the leading cause of death, but they also shed light on gastrointestinal (GI) disease, and septicemia. Their work provides a valuable benchmark for working to improve early-life calf health.
Of the 243 necropsied calves, 67.5% of them had a primary diagnosis of respiratory disease. Gastrointestinal causes accounted for 11.5%, septicemia for 9.5%, and miscellaneous cases (including trauma, umbilical infection, and liver abscesses) for the remaining 11.5%.
Most calves had no additional comorbidities recorded, but among those that did, respiratory plus another condition was the most common combination. Within the respiratory category, bronchopneumonia represented nearly 90% of cases, while bronchopneumonia with interstitial pattern was less frequent.
Considering GI lesions, 49% of calves had no lesions, while 21% had upper GI lesions (rumen and abomasum), 13% had lower GI lesions (small and large intestine), and 30% had both.
One of the study’s more surprising findings was what didn’t change. Statistical modeling showed no significant associations between the likelihood of respiratory or GI diagnoses and season, sex, breed, or ranch. This result suggests the underlying disease pressures in these systems are persistent year-round rather than being driven by environmental conditions or genetic background. Further, beef-dairy cross calves had no improved disease resistance compared to dairy calves under commercial rearing conditions.
These results can be summarized into the following takeaway points for animal caretakers:
1. Prioritize respiratory prevention. With two thirds of deaths linked to respiratory causes, calf ranches must focus on preventative strategies: proper ventilation, gradual group transitions, and consistent monitoring for early signs of respiratory illness. Review vaccination programs and align them for protection at times of stress and exposure.
2. Necropsies pay off. Routine necropsy programs can help producers spot emerging disease trends before they escalate.
3. Maintain consistent management year-round. Prevention and monitoring must remain equally rigorous through all seasons, not just in winter or transport peaks.
4. Collaborate across the production chain. Calf health outcomes at ranches depend on colostrum management, navel care, and nutrition practices at the dairy of origin, as well as transport and receiving protocols. Strong communication between dairies, calf ranches, and veterinarians ensures continuity of care.\
