Schedule F Tax Question - at risk?

[Callieslamb]

This is our first time doing the schedule F
Line 36 says
Check the box that best describes your investment in this activity

choices
36a All invesments are at risk
36b -some investment is at risk
36c not applicable

It says to see the instruction since answering incorrectly will cause you some trouble. But the instructions don't really explain what 'at risk' is.

What is an "at risk" investment?

[mistletoad]

In very simple terms "at risk" means that you, personally, will be responsible for paying for any losses. If you started up your farm using your own money or a loan that must be repaid no matter how much you make or lose on your farm, your investments are all at risk. If you have money from somewhere that only needs to be repaid if you make a profit - that investment is not at risk.

[rambler]

If you rent out your farm for $100 an acre and cash the check every year, you have no risk.

If you rent out the farm for 40% of the crop and sell your part of the crop yourself, you have risk as you don't know if a crop will be harvested or not, and you don't know what you will be payed for the crop.

If you rent out the farm with a combination rent - basic cash price plus a bonus crop on top - you have some risk but not all.

If you own it, grow the crops, and sell them yourself, you are 100% at risk for getting a crop at all, as well as 100% at risk for the price you get on the crop.

If you grow and sell your crop, you are all at risk.

Paul

[rambler]

This is an unusual year for schedule F. Because of the late stuff decided in Congress, the forms and software the IRS isn't going to be ready until mid-March. But a profitable farm needs to file a schedule F by March 1st......

So this year only, farmers can likely file by April 15 and not have penalties. Look up your own rules on that, as well as state rules, to be sure. There has been a lot of changing rules on this so I hate to make statements I can't back up......

Since this is your first year at schedule F, just wanted to point out the deadlines....

Paul

[Penny in IN]

Along this thread I have a question about who can file schedule F. I am working towards a small urban farm. I raise chickens & Angora rabbits, this spring (2013) I will be adding Nigerian Dwarf goats. Two does to start with then as they kid I will, most likely, be selling the offspring. I'm planning on registered stock so expect to be able to get the price that registered animals bring in. When all my plans are in place will I be able to file as a farm? Thank you for any input! Penny

[Callieslamb]

Thanks for the info....
We put up our own money and haven't borrowed a thing for the farm.

Rambler: so I won't have the correct form until March? We didn't make a profit- almost did. We just wanted to claim the income correctly. When we finish up the forms, we'll see if it makes any difference on our taxes this year to file the schedule F or just claim the income as "other" on the 1040. Thanks for the heads up though.

[ET1 SS]

All of our farming is 'at-risk'.

I own the land, I pay for seed, I farm, I may or may not have a large harvest. It is fully at risk.

[salmonslayer]

Originally Posted by Callieslamb

Thanks for the info....
We put up our own money and haven't borrowed a thing for the farm.

Rambler: so I won't have the correct form until March? We didn't make a profit- almost did. We just wanted to claim the income correctly. When we finish up the forms, we'll see if it makes any difference on our taxes this year to file the schedule F or just claim the income as "other" on the 1040. Thanks for the heads up though.

First year filing schedule F and you almost made a profit is very encouraging, how did you do it? We are filing schedule F for the third year and I feel encouraged that we lost a lot less this year than the year before but we are still a ways away from true profitability. Are you not claiming depreciation or capital costs?

[rambler]

Originally Posted by Callieslamb

Thanks for the info....
We put up our own money and haven't borrowed a thing for the farm.

Rambler: so I won't have the correct form until March? We didn't make a profit- almost did. We just wanted to claim the income correctly. When we finish up the forms, we'll see if it makes any difference on our taxes this year to file the schedule F or just claim the income as "other" on the 1040. Thanks for the heads up though.

Met with my CPA last week, and he was not sure of the status of the schedule F stuff. I certainly don't feel comfortable telling anyone what they need to do, other than there are some issues this year.

My understanding is if you file electronically their computers will not be able to process some forms most farmers use. Alternatively if you file on paper, some of those same form will be in a ,preliminary' status and not be official. I realize this is not totally helpful, but as best as I understand it.

Farming is an interesting tax game. The govt tries to suck money out of you, as you are just an individual. As well the social security is doubled, and so forth. But many of your activities and costs can be related to the farm, and you can plan them to help you decrease the tax bill. Planning ahead with long term, short term, and medium costs, as well as planning sales if you can, will help decrease taxes.

If you are into anything above a hobby and making some money at farming, a year or 2 with a good CPA might return you more than his fees on the taxes. This sort of planning can lead to thousands of difference on your taxes.

In farming we often gain assets to help us farm better, but don't gain much cash income really. Then the govt takes that little bit at the end of the year...

Paul

[Callieslamb]

Originally Posted by salmonslayer

First year filing schedule F and you almost made a profit is very encouraging, how did you do it? We are filing schedule F for the third year and I feel encouraged that we lost a lot less this year than the year before but we are still a ways away from true profitability. Are you not claiming depreciation or capital costs?

That was said tongue in cheek. Capitol costs? Legally, we have to claim the income so we might as well go to the bother of deducting the expenses. We bought a tractor and overhauled it as well as hay making equipment. But when we bought them, we didn't think we were going this far into farming as to actually come close to making any money. It was all considered just the expense of feeding ourselves - and DH wanted to play with the tractor anyway. We didn't get or keep any receipts for any of that. So we didn't count it. Ta da....instant almost profit. LOL!!

Mostly we counted the cost of the sheep and their feed. I sold 4 lambs/ewes at $400 each. I've had them for 3 years and didn't take their original cost out the total since trying to do so would be a little difficult. The lamb sales was 4x the cost of their feed. We did count the cost of the fencing in this year since it's basically electric fence, not a ton of money.

Yes, we could have done it differently and claimed a lot more. But we'd like to keep under the watchful eyes out there. So, again 'almost' profit. LOL!!

[rambler]

Originally Posted by Callieslamb

Mostly we counted the cost of the sheep and their feed. I sold 4 lambs/ewes at $400 each. I've had them for 3 years and didn't take their original cost out the total since trying to do so would be a little difficult. The lamb sales was 4x the cost of their feed. We did count the cost of the fencing in this year since it's basically electric fence, not a ton of money.

Yes, we could have done it differently and claimed a lot more. But we'd like to keep under the watchful eyes out there. So, again 'almost' profit. LOL!!

Livestock can be considered yearly if sold for meat, or will be considered long term asset if for breeding stock.

The fence supplies, if for repairs are a yearly expense, but if you built new fence should be pro rated over the years and considered a long term expense.

I understand on the tractor, cant clim it when you bought it as you weren't farming. There would be ways to go back for 3 years and kick it in, but that does require a lot of forms and such. Certainly you still have the canceled check, in farming one keeps the reciepts at least 7 years... If a couple thousand it probably is fine to leave well enough alone I understand. You can deduct fuel and repairs from here on out tho.

Planning the big, long term purchases can really help you. At this time we have options to deduct the full cost of a tractor in one year, or spread those costs out into the future over 5 or 7 years, taking 1/7th the cost as a deduction every year. Again, this helps you if you know you will be making more or less sales in a certain year.

Just ideas, you probably know already.

Paul

[Callieslamb]

Nope, we're blind as bats. We really should have gotten an accountant just to help ensure something's not going to come back and bite us. There was electric fence around teh whole property when we got here. It was broken and falling down. We are just putting up more as we need it. We buy a couple 100 ft of fencing a year or so. We paid cash for all the tractor and equipment except for the brush hog. We bought it new. I don't mind not counting everything as long as we don't get ourselves in trouble. I raise a few sheep to sell the lambs to pay for their upkeep. DH raises a few calves to sell as feeders. But legally, we have to count that income so we do. This year, it was enough to affect our taxed amount.

[salmonslayer]

Originally Posted by Callieslamb

That was said tongue in cheek. Capitol costs? Legally, we have to claim the income so we might as well go to the bother of deducting the expenses. We bought a tractor and overhauled it as well as hay making equipment. But when we bought them, we didn't think we were going this far into farming as to actually come close to making any money. It was all considered just the expense of feeding ourselves - and DH wanted to play with the tractor anyway. We didn't get or keep any receipts for any of that. So we didn't count it. Ta da....instant almost profit. LOL!!

Mostly we counted the cost of the sheep and their feed. I sold 4 lambs/ewes at $400 each. I've had them for 3 years and didn't take their original cost out the total since trying to do so would be a little difficult. The lamb sales was 4x the cost of their feed. We did count the cost of the fencing in this year since it's basically electric fence, not a ton of money.

Yes, we could have done it differently and claimed a lot more. But we'd like to keep under the watchful eyes out there. So, again 'almost' profit. LOL!!

That makes me feel better, I was thinking we were just slackers!

We are actually in the same boat, when we bought this farm we only had a vague notion we would actually farm it but by the time we moved here we decided to give it a go. We track all farm related expenses right down to the log book in the farm truck and I am re-working our business plan to help us gain some focus because so far money has been flying out the door and the few thousand we made last year doesnt begin to make up for the start up costs. We had zero fencing and zero machinery or other infrastructure other than an old barn and a small greenhouse and our second year in we started the drought and I was laid up from back surgery.

If we didnt consider the capital costs and consider our time worth anything we would be close to breaking even...but we hope to really turn that around starting this year. Bye the way, our CPA has saved us thousands and having one is well worth the fee.

[Callieslamb]

Most CPA's want you to call them before Feb.....

[Melissa]

You only have to have paid the estimated tax by March 1st if you had enough profit that it caused you to owe an amount larger than you had paid. If you need to pay estimated tax, you pay it every three months. However, you generally will not be penalized if you owe less than $1000.

The actual schedule F is filed with your 1040 under the normal filing deadline.

In general, as the sole owner of a farming business, if you have a loss then your investment is considered to be at risk. Only in a few complex situations would it not be.

[Melissa]

Originally Posted by rambler

Met with my CPA last week, and he was not sure of the status of the schedule F stuff. I certainly don't feel comfortable telling anyone what they need to do, other than there are some issues this year.

My understanding is if you file electronically their computers will not be able to process some forms most farmers use. Alternatively if you file on paper, some of those same form will be in a ,preliminary' status and not be official. I realize this is not totally helpful, but as best as I understand it.

Farming is an interesting tax game. The govt tries to suck money out of you, as you are just an individual. As well the social security is doubled, and so forth. But many of your activities and costs can be related to the farm, and you can plan them to help you decrease the tax bill. Planning ahead with long term, short term, and medium costs, as well as planning sales if you can, will help decrease taxes.

If you are into anything above a hobby and making some money at farming, a year or 2 with a good CPA might return you more than his fees on the taxes. This sort of planning can lead to thousands of difference on your taxes.

In farming we often gain assets to help us farm better, but don't gain much cash income really. Then the govt takes that little bit at the end of the year...

Paul

The IRS was not accepting form 4562 which is for depreciation. Many people who file a schedule C or schedule F will use the 4562 which may be what your accountant was talking about. It is being accepted now though. I already have my refund and it went through fine.

[Melissa]

Originally Posted by Callieslamb

Thanks for the info....

We put up our own money and haven't borrowed a thing for the farm.

Rambler: so I won't have the correct form until March? We didn't make a profit- almost did. We just wanted to claim the income correctly. When we finish up the forms, we'll see if it makes any difference on our taxes this year to file the schedule F or just claim the income as "other" on the 1040. Thanks for the heads up though.

If you are selling market animals it has to be reported on the schedule F. You can't report it as other income.

[rambler]

Originally Posted by Melissa

The IRS was not accepting form 4562 which is for depreciation. Many people who file a schedule C or schedule F will use the 4562 which may be what your accountant was talking about. It is being accepted now though. I already have my refund and it went through fine.

I believe that is correct. However, the exception was already made, and in general farmers have until April 15 to file without penalty this one year.....

It would get complicated if you chose to estimate, as perhaps the old rules would then apply and you don't get the exception.....

This is much talked about in farm circles, and I would rely upon expert advice over what I read on the Internet. just making people aware that there is/was an issue and need to look into it if it may apply to them.

Farm taxes become so terribly complex, as we run a real business typically out of our personal checkbook, and the deadlines and paperwork other use does not apply to us. There are many different deductions and rules on how to file different classes of incomes.... It would seem simple, take your income, subtract your expenses, and you get net income to apply taxes to. And basically how it is. But for 273 different rules and interpretations or so.

Paul