Official Farm Benefits?

[RazrRebel]

I've got a good flock of laying chickens. Getting ready to buy a few pigs, probably three. Had three beef cows last year, probably get at least four this year. Big garden every year. I was wondering about the benefits of being an actual farm. I see people with farm use tags, and hear a lot about writing off expenses and equipment. Is there anybody with any experience that could tell me a little more about it. I just bought a 2014 Polaris Ranger and all I use it for is hauling feed, fencing material, chasing cows, just everyday work. Just hoping someone with a little actual experience could give me some info.

[simi-steading]

I don't know much about taking a farm exemption, other than I have a friend that WAS... He decided he was done with it when the government sent him a "census" form wanting to know all the details, like how many pigs, how much hay, how many buildings, so on and so forth... I forget how many pages and questions it was, but it was a bunch.. WAY too much personal info wanted..

We're both pretty sure it has more to do with "requisitioning in an emergency" than it does with just being noisy...

[Danaus29]

My grandparents had an "official" farm for years. They had to save every receipt for tax purposes. It took hours of record keeping and they had an accountant do their taxes.

[oneokie]

Talk to a CPA that is familiar with Schedule F.

[.netDude]

There is a difference between a 'hobby' and a 'business'. If it is your primary source of income, you can recored and deduct your expenses. You may only be able to expense the amount up to what you earn as income, though, depending how your farm is classified. I'm in NY, so consult a local tax guy. As your extension office for a list of tax preparers that work with farmers.
If you don't sell your beef/pork/chicken/eggs and report it as income, this is of no use to you, you won't be able to expense anything. Not sure about the farm tags though - I don't do it since I don't have a dedicated farm truck.
This really doesn't take long, maybe an hour to get the receipts sorted and added up, another hour dropping the package off at the tax guy. In my opinion, it is definitely worth it.
As for the census, yeah, I got it and it really was no big deal. I've done it 2 times in the last 10 yrs or so. If you don't want to answer any of the questions, don't.

[Jan in CO]

We use Turbo Tax Premier Home and Business. It has schedule F for farms in it, and is a piece of cake. Just sort your receipts, assuming you kept all your feed, vet, farrier, fuel, parts etc receipts. Add up each one and enter the amounts as prompted. The program does the thinking for you. Takes me maybe half an hour to input the information every year after I add up the figures. Now, if I were handy with spread sheets, I'd have it all on there and printed out, but I'm not. We also have farm plates on our pickup. Just track the miles as you use them, and you have to have more than a certain percentage of the miles as farm use, picking up feed, taking animals to the vet or auction, and so forth in order to claim the use of the vehicle as a farm vehicle.

[Alice In TX/MO]

Absolutely talk to an accountant. Raising your own beef and etc., is NOT a deductible farm. If you get audited, you're in trouble.

A real schedule F deductible farm has to be intended to make a profit. You are supposed to have a business plan. (That's what the IRS would look at, i.e. "how you conduct your business")

Here's the Purdue University PDF file about how you tell the difference between a hobby and a farm.
http://www.agecon.purdue.edu/extensi...faq/FAQ_14.pdf

[Alice In TX/MO]

Summary of the nine items in the PDF that Big Brother looks at when determining your status:

1. Do you conduct business like a business? (detailed records)
2. Expertise (consulting with experts and using accepted methods)
3. Time/profit ratio
4. Expectation that assets will appreciate
5. Your other experience in conducting profitable business
6. History of income (good years to offset bad years)
7. Substantial profit
8. Your other financial status (if you have significant income from another job, it's not good)
9. Business plan vs personal pleasure and recreation (you have to prove your intent)

[edcopp]

The prize is your tax payment.

Did you pay taxes last year?
You see you may be on a retirement and already owe no tax OR you may be an overpaid professional and owe $100,000 it is hard to tell the difference on a chat board.

You can save receipts and take deductions to lower your actual tax bill. This is good for the economy. Accountants, tax preparers, and the general business economy is helped by your participation.

I bought a bolt and a couple of nuts the other day. I got a recipt for the 60 cents. Somewhere some logger got a piece of that pie by selling the timber that was made into paper to print for me..

Your farming business may NOT make a profit at all. In thst case you would not owe any tax and you could call your farm a "hobby".

This is America (what's left of it), so be sure that you have saved all your recipts so that you can prove that you lost money. Some IRS agent is just waiting to audit your non existant tax return. She will presume that you are guilty as sin, and ripping off the system from the word go.

In an effort to defend yourself, and to have some planning tools you might consider reading the irs TAX CODE. It's free and it's on line. About 30,000 (+/-) pages. It's a thriller, trust me.

Enjoy.

[Raymond James]

On your records of the "farm business" if you sell cattle for $500 a head then you have to account for the $500.00 you owe the business for the cow you ate. Keeping business accounts separate from your personnel accounts.

I used to keep separate accounts for the Golden retrievers we bred and sold puppies from and accounts for the pet dogs. Records of feed bought/ expenses and profit/sales for each activity you do. Chickens, cattle , hogs, dogs, produce then add the profits and expenses for the total farm.

It may seem like a lot but it allows you to take deductions (depreciation) on equipment /durable farm equipment/ supplies ( fencing/ tools/ animal housing/ greenhouse ) . You show several thousand in losses a year on schedule F and get to subtract it from income before figuring taxes. Of course when you make a profit you then show income earned which is usually very little.

The thing is with a 15k tractor, a 4k stock trailer and a 30k truck to pay for you aren't very likely to make much of a profit if any. Still you are likely to have these things anyway so keep the records and do the depreciation and schedule F to cut your Federal taxes.


As to farm surveys - you might be right, filing as a farm on the taxes could be what triggers the surveys. I have had a few they usually only take about 10 -15 minutes to do.

In Missouri farm animals and equipment are taxable by the county as personnel property tax due in December. My real estate taxes is a few dollars over $1,000.00 but my personnel property tax is over $1,500.00 .

As to farm truck license tags I occasionally drive my truck on long trips out of state. Farm tags restrict you as to how far and what you can do with the truck. With farm tags I cannot legally drive to California pulling a travel trailer. Now for the federal tax I have to keep those miles separate if I am taking depreciation on the truck.


It may seem hard but no harder than tracking expenses and profits in any other business.

[rambler]

It is worthwhile if you generate income from your farm products. If you sell critters, grain, produce, meat, etc for cash and report the income.

Then it is very worthwhile to use the costs you incur in producing those products.

If you have more deductions then income (and that is very common some years in farming, ESP as you start out) the govt will want to make sure you are a real business, trying to make more money than you spend, and you are -not- trying to to use a hobby with no hope of ever turning a profit as a tax shelter.

We can easily get more detailed info to you, but figure out if this applies to you or not.

If you mostly consume 90% of your produce yourself, and only sell $100 worth of stuff a year, then likely it will not work out for you.

Your Polaris would be a mid term asset, and you have options of deducting it all this year, or over a 5-7 year period, 1/7 per year. Seed or fertilizer would be a short term purchase, all this year. Buildings and permanant stuff is long term, and may be deducted in one year sometimes, or over 20 year period, 1/20th each year.

This allows you many options for working takes, provided you do have farm income.

Paul

[Jeremy_M]

This bring up a question I have been struggling with. If I run my business as a sole proprietorship can I sell to myself? As an example, I produce 6 dz eggs a week and sell 5, can I claim the remaining dozen as a sale if I transfer the purchase price from my personal account to the business account?

[RazrRebel]

Thanks everybody. I was thinking along the same lines with most of you. I had spoke with my tax lady from H & R block and basically the same thing. As long as you're trying to make a profit you really don't have to show one, especially early on. I'm from Southwest Va. and she told me they don't expect anything from a small farm the first five years. Thanks again.

[Jolly]

People go into business to make a profit. Nobody stays forever in a losing business. After about three years of losses, the IRS starts to see your business in a very unfavorable light.

Having said that, many people go into businesses that fail. Even side businesses.

Say...you just happen to go into the purebred cow business. Maybe something a bit less common, like Dexters.

Say, you already own the land...You're gonna need new fencing, perhaps a utility tractor, some sort of shelter for your cattle and other odds and ends.

Now, you do your best to make money for a few years...although I doubt you make any with the startup expenses and the fact that each year one of your yearlings fell into the freezer and died. You simply cannot go on sustaining such losses, so you go out of business.

That's sad. What is not sad, is that you have fencing, a tractor and possibly a barn still standing on your place. All of it written off of your income tax.

[ArmyDoc]

Originally Posted by Alice In TX/MO

Absolutely talk to an accountant. Raising your own beef and etc., is NOT a deductible farm. If you get audited, you're in trouble.

A real schedule F deductible farm has to be intended to make a profit. You are supposed to have a business plan. (That's what the IRS would look at, i.e. "how you conduct your business")

Here's the Purdue University PDF file about how you tell the difference between a hobby and a farm.
http://www.agecon.purdue.edu/extensi...faq/FAQ_14.pdf

This is the key. It has to be intended to make a profit. How do they check this? There are several methods, but the most reliable is to make a profit. If you make a profit, you can deduct the expenses associated with making that profit. If you consistently fail to make a profit, you are in danger of being declared a hobby.

[where I want to]

IRS has a presumption that if your non-farm actvity has a profit in 3 of 5 years, it shows an intention to profit as a business.
But for farms, I think it's one profitable year in seven to meet that assumption.
IRS expects farms to be less profitable. I've seen farms go for a decade without profit as still meet other requirements to be considered a business.

[Lazy J]

Schedule F is your friend, file it with the intention of making a profit and acting like a business. Your accountant can give you advice if you need it.

[Irish Pixie]

Originally Posted by Jolly

People go into business to make a profit. Nobody stays forever in a losing business. After about three years of losses, the IRS starts to see your business in a very unfavorable light.

Having said that, many people go into businesses that fail. Even side businesses.

Say...you just happen to go into the purebred cow business. Maybe something a bit less common, like Dexters.

Say, you already own the land...You're gonna need new fencing, perhaps a utility tractor, some sort of shelter for your cattle and other odds and ends.

Now, you do your best to make money for a few years...although I doubt you make any with the startup expenses and the fact that each year one of your yearlings fell into the freezer and died. You simply cannot go on sustaining such losses, so you go out of business.

That's sad. What is not sad, is that you have fencing, a tractor and possibly a barn still standing on your place. All of it written off of your income tax.

I'd check this information with a professional- I believe if you don't make a profit in a certain amount of years the IRS will declare you a hobby farm and tax you as such retroactive from the first year. This is regardless of a filing of bankruptcy.

[Alice In TX/MO]

I was told by the accountant that the intent to make a profit is validated by having a business plan (not just a page of notebook paper with scribbled notes). A detailed business plan.

Mission statement
Goals statement
Financial plan and forecast
Marketing plan and calendar
Organization chart
Projects list

This needs to go in a file and be reviewed and tweaked annually. Keep the old plans, update with new ideas. Date them all.

Keep detailed mileage records. Odometer reading on Jan 1. Daily mileage record, start, end, purpose. EVEN ON PERSONAL MILES. Odometer reading on December 31.

I figure up mileage on a spreadsheet monthly for my hubby's corporation and my rental properties.

[farminghandyman]

Colorado rules for farm plates, this is from the application for getting farm plates

FARM VEHICLE

REGISTRATION APPLICATION

C.R.S. 42-3-306(4) and Code of Colorado Regulations 1 CCR 204-10 Rule 37. Vehicles Classified as Farm Trucks and Farm Truck Tractors

C.R.S. 42-3-306(4)(a) reads in part, "Trucks and truck tractors owned by a farmer or rancher that are operated over the public highways and are only commercially used to transport to market or place of storage raw agricultural products actually produced or livestock actually raised by such farmer or rancher or to transport commodities and livestock purchased by such farmer or rancher for personal use and used in such person’s farming or ranching operations."
C.R.S. 42-3-306(4)(e) reads, "The Department or its authorized agent shall not require a person registering a farm truck or truck tractor under this subsection (4) to demonstrate that the owner’s primary business or source of income is agriculture if the farm truck or truck tractor is used primarily for agricultural production on a farm or ranch owned or leased by the owner of the truck or truck tractor, and the land on which it is used is classified as agricultural land for the purposes of levying and collecting property tax under section 39-1-103, C.R.S."


I certify, under penalty of perjury, that the below statements are true and accurate to the best of my knowledge.
That the owner of the vehicle(s) listed above primary business or source of income is agriculture, and;
That the vehicle(s) listed above are used primarily for agricultural production on a farm or ranch that is owned or leased by the owner of the vehicle(s), and;
That the land that the vehicle(s) listed above are being used on is classified as agricultural land for the purposes of levying and collecting property tax under section 39-1-103, C.R.S.
That the address of the agricultural land that the vehicle(s) listed above are being used on is:

,

normally to be considered a farm 51% of your gross income needs to be farm generated,

when it comes to records the fuel and such is separated fro farm use and personal use, and the personal use is keep track of,

the simple is if 85% of your expense is farm use, keep track of your personal and subtract it, or never add it to your business side of the accounting,

wife does the personal and I do the business so when I go in I take my computer read out and 97% is deductible, as it is all most all farm expenses,
I have found out that by paying some one who can keep up on all the rules and changes usually saves me more than the cost of the tax preparer ever year in saved taxes, that I would never even know about and how not to build in red flags for audits,