any tax whizzes on here?

[oceanmist]

Is there anyone on this group that is familiar with how to use the purchase of livestock/ equipment/ buildings/ fencing etc. as a possible tax write off??

Thanks Misty

[rambler]

In general, you need to show a profit in farming sooner or later - you will need to declare income from sales of your farm stuff. Best bet is to show a profit 3 out of 5 years, but if you can document the intent to make a profit you can get by. You cannot deduct $10,000 of farm expense year after year after year, & only be making $1423 of income per year. That would classify your farming as a 'hobby', and IRS does not allow us to deduct hobbies, only real businesses.

Then, there are 3 different types of farm expenses. Short term, mid term, & long term. They are handled differently.

Short term is the feed you buy, or small misc items, or whatever typically gets used up in a year. These get deducted as an expense in the year you buy them.

mid term is like a feeder, or a tractor, or wagon. Something a little higher priced, and will be used for 3-15 years or so more or less. These have a depreciation schedule, and typically you can write off their cost from 1 to 7 years. Some of the finer rules get complicated, lot of 'oops didn't think of that' stuff. However also some room to really help yourself on your taxes, if you know how to work the rules in your favor.

If you buy feeder cattle their cost is a short term; but if you buy breeding stock their cost is a mid-term expense. The feeder cattle you buy to turn around at a profit; but the breeding stock is a long term investment.

Then long-term is buildings, wells, and other things that will be around 25 years or more. This gets written off on a much longer depreciation schedule, with a small % of the cost deducted each year.

That is the basic outline. A good CPA familiar with ag deductions is well worth the cost if you have any farm income/ expenses. There are many little things that can really add up, if you play the game right.

I'm just a simple dirt farmer, so don't take this as any sort of real advise.

--->Paul

[Jenn]

Read up on schedule F and depreciation. I hear of many 'farmers' who for years and years have a schedule F loss without challenge from the IRS. I had a loss for two years then had a profit when we moved off the farm and sold all stock. Might not've had a profit otherwise and in my case might've given up sched F after the official limit- 3-5 years- for making a profit.

[Jennifer L.]

The IRS puts out something called The Farmer's Tax Guide. It's Publication number 225 and will answer all of your questions. I'm sure you can go to the IRS website and download it.

Everything is pretty straight forward except depreciation, and that can get a little messy. Be ready to spend a little time going over the different forms of it before you get it straight in your head. Me, I relearn the darn stuff every year.

Jennifer

[ET1 SS]

Schedule 'F'
http://www.taxengine.com/information/lsschf.asp

Pub 225
http://www.irs.gov/pub/irs-pdf/p225.pdf

Here you go.

Read both.

Then read pub 17
http://www.irs.gov/pub/irs-pdf/p17.pdf

Then read the schedule 'F' and it's pub again.

When you have done so, after you have done so, then come back and ask your next question.

I know that this sounds insulting. I do apologize.

But look, this guy SAYS this, that guy SAYS that, what counts is what you KNOW.

I have been audited. When you can explain what you did and the reasoning behind what you did, then the auditors except it.

If you have no idea, if you were following what some guy said to do, if you used H&R block, then your going to be roasted.

Already in this thread folks have said things [with the best of intentions] that I KNOW I can prove wrong using the IRS pubs. And once you find it in their pubs, then during an audit you are right, and no auditor will dis-agree.

I have filed schedule 'F's since 1985.

May God bless you.

[AnnaS]

I used the farm tax specialist at H & R Block and she was worth every penny! I paid her around $125 and ended up with a taxable income of $2k last year. My dairy goat herd qualified for "breeding stock farm" since they are registered, shown, DHIA tested, and classified. The CPA at H & R told me the people who get in trouble are the ones who don't keep records and the ones that shove a cow on the lawn and call it a farm.


Here's the IRS Farm tax book

http://www.irs.gov/pub/irs-pdf/p225.pdf

[uncle Will in In.]

I say GEE WHIZ everytime I pay my taxes.
Does that make me a tax whiz???

[rambler]

Originally Posted by ET1 SS

Already in this thread folks have said things [with the best of intentions] that I KNOW I can prove wrong using the IRS pubs. And once you find it in their pubs, then during an audit you are right, and no auditor will dis-agree.

I agree with your thoughts.

So, what did I say wrong in my advise? I'd like to learn. Been filing since 1980, always with the help of a CPA. Like the electrical code, there are different understandings of the same words, be interesting to see what we've been doing wrong. Was audited in '83, had no problems then, but has kept me on the paperwork trail.

--->Paul

[Bricker]

I just got in and it's late, so I'll keep it short. ET1 SS, my wife has owned an H & R Block franchise for 27 years. She has been to 5 audits in that time and has won every one of them. She started out with 280 clients and now has around 1200 clients. She is as good as they come in preparing a tax return concerning farm deductions. She is an Enrolled Agent, which means she can represent the client at an audit without them having to be present. Every H & R Block is as professional as the person doing the return. Don't lump them all together because I assure you that the one my wife owns does not fit in your describtion.

[ET1 SS]

I have been audited three times, we smelled of roses each time.

Once there was a time when a schedule 'C', 'E' or 'F' had to show a profit once every three years. Then it changed. You no longer need to do that.

My wife and I have been through the IRS taught VITA courses many times, and have been certified to assist others to prepare their taxes.

I have not had a positive AGI since 1983.

Schedule 'C's, 'E's and 'F's help to maintain full tax sheltering over our income. Keeping our AGI zero or negative.

It takes a while to become fully accustomed to good tax planning, it took us a while to get all of our budgeting and investment portfolio within those parameters.

In VITA courses, it is common for the IRS auditors [the instructors] to use H&R block prepared filings as examples for us to go over to find which write-offs were missed.

[rambler]

Thanks ET1 SS.

I have not shown very many profits farming in my time. Certainly not 2/5 of the time. But I have no other job or income, so it is of little matter. It had been different if you have a 'real job' and farm on the side......... My CPA gets kinda mad if I do show a profit actually......

My understanding is that you are not questioned at all if you meet that standard 2/5 of the time. If you fall below it, it is more likely the burden will be on you to prove that you are a real business trying to make real profit. For many, many reasons you don't have to be profitable, but you need to show an intent to have done so - business plan, so forth.

Has all that changed, or are we both in about the same space on this?


In my local area, the chain tax preparers do not have a good reputation for doing anything but a simple biweekly paycheck income & housepayments expenses. More challenging tax situations those places seem to miss a lot. I'm glad to hear in other places they may do better. Many try them for a couple years 'here' & find they save $120 in fees, and lose $500 a year in deductions.......

(That's my PC way of agreeing with you on this, but trying not to add more fuel to the flames. )

Thanks again, ET1 SS. I'm not trying to argue any point here, just understand & learn.

--->Paul

[ET1 SS]

He is going from what used to be the letter of the law, and made it a rule of thumb.

I only meant to be pointing out that it is no longer the law.

If I have 40 head of cattle, and I fail to show a profit, and three years later the IRS audits me, now: I have seen the auditor question whether I had any cattle three years ago. But I have not seen an auditor question my intent in raising those cattle.

Has your tax guy actually seen a farmer living on a farm, farming, and yet an auditor question the farmer's intent?

To me it seems fairly obvious that by having beehives, and attending conferences, and medicines for the bees, and books on bees; that my intent is fairly obvious.

The IRS' distinction between a hobby and a business lies only in intent. However with many operations intent seems pretty obvious to me, and I have not witnessed that intent being questioned.

A store owner, who physically has a store, employees, stock, and hours of operation; does not have to prove that his intent is to show a profit; even if he rarely does show a profit.

[RachAnn in NW Okla]

Melissa over on CountrySide Families does taxes but she does have a lot on her plate right now....you could post your questions over on CF and see if she can answer you

Rachel