small farm//business help
 

I have what is basically a subsistence farm with marginal outside sales. my outside cash income has come from on the farm sales (of animals and food), and briefly a small "farm market" that did not require me to collect sales tax (none on food) or carry insurance.

I have always reported the full amount as "hobby income" with no expenses deducted. primarily because I have always felt like I don't/can't make enough money to cover the costs of insurance, regulation, and accounting if I were a business.

I would like to expand what I am doing. I now have 14 goats. I have a potential market for kids and breeding fees. I have a nearby farmers market that would provide a good outlet for farm products - which requires a tax ID number, a business name, and insurance.

I am capable of filing my own taxes, but I am overwhelmed by the idea of the paperwork and possible cost of being a "real farm." I do not want any financing or aid (beyond that provided by my extension office) although I wouldn't mind not paying tax on my feed.

What I need is someone who can tell me "this is what you need to do" step by step to comply with all applicable laws, and "this is what it will cost" I actually found a man to talk to about the "this is what you need to do" of legal cheese production. after talking to him I decided that it wasn't worth it - the cost of bringing my "facility" into compliance was above what I could imagine recovering in profit from my local market as a single part time worker in my probable career (I am 44). I do not want to become a business with employees or a wholesaler.

I am in ohio, and I do not know where to look for answers. all the "small farm" resources I can find are about management and marketing, and how to get government money. They want to teach me integrated pest management, and intensive grazing, and agritourism opportunities, etc....

I want to know for each product - what forms do I need to fill out, what licenses or permits do I need, what kind of insurance should/must I have to protect myself and my property, what regulations must I be aware of, and overall, what form of "business" (llC?, sole proprietorship? something else?) makes the most sense. and how much would all of this cost?

anybody know where to get those answers?

oh,, and yes, my website is awful. I got it started, never figured out picture loading or how to add a chart, and my "website manager" left for college.

I would contact an accountant and go from there.

What I would suggest is for you to contact an Ohio Small Business Development Center.

https://www.ohiosbdc.org/

They have the same here in GA, and they should be able to assist. Or at least point you in the right direction.

Good luck!

wix.com does nice and easy flash websites-- click the form and fill it in= comes out looking pretty polished.

i think you have a moral obligation to beat the govt out of everything you can

dkhern, I can respect that position, but after years as a homeschooler, my attitude is more of a pragmatic - here is your money, now leave me alone!

What are you thinking that it is to be a "real" farm? If you want to go the formal, federally accepted accounting route, you need a business plan (with a five year projection of expenses and income), insurance, etc etc.

Just start tracking your expenses and deduct them on the farm page of your taxes.

You don't HAVE to do all the government/lawyer/insurance company hoops, unless you want to do the farmer's market option.

If you want an official farm name and tax i.d. number, here's the info page:
http://www.irs.gov/Individuals/Inter...n-Numbers-(TIN)

Call a local insurance BROKER to get a liability policy.

Alice, the link says that is an outdated bookmark. can you give me a specific term to search for?

The farmers market is going to be key to making the minimum gross income required for farm property tax classification (which will actually be the most profitable part of my farm for some time to come)

I am not sure what the difference is between "formal federally accepted accounting route" and filling out the farm tax forms? I do not intend to use the accounting method when you carry expenses and spread costs from year to year, I am going to use the simple method where you close out each year. (I went to a tax class) I will miss some deduction options, but I am ok with that in exchange for the simplicity.

If you're only selling at a local farmer's market, why not walk around and talk with the others doing the same thing and ask them what they did?

Try this one:
http://www.irs.gov/Individuals/Indiv...n-Number-(ITIN)

The difference is the business plan and insurance (not required by the feds, but a good idea). My accountant told me I HAD to have a business plan in order to claim the goats as a tax deduction legally. The amount of work to produce the plan that he said I had to have was completely overwhelming. I only milk a few goats, and I sell a few bucklings to the Hispanics here for barbecue. It would have been great to be able to deduct expenses, but my (very nitpicky) accountant vetoed the idea without the larger, longer, more intense process of writing the plan.

I even googled for small business/farm business plans, hoping to cut and paste, but I just didn't want to take up my time. Your needs may vary. :D

business plans aren't required for tax purposes, but are usually required for loan purposes. That said they are good for long range planning the direction you want your business to go.

Professional plans are only needed when competing for dollars whether grants or loans, but a long hand written plan for personal use is a very good idea, you are already doing research on the direction you want to go, why not write it down.

Federal tax ID number and state tax Id are fairly easy to sign up for (at least in Arkansas) or you can use a service such as legal zoom.

Check with your local extension office. Depending on the agent they can be very helpful or not at all. Next check with Small Business Administration. They can offer great guidance and will sometimes put you in contact with a mentor who has experience in your business. See if OSU or any state university near you offer any workshops or seminars in your area. They might also be able to put you into contact with breed registries, marketing organizations or other producers you can mine for info. Network, network, network.

Here's where the business plan comes in. If you have to PROVE to the IRS that you are a business, you'd better have one.

Read this very informative article. If you are in a hurry, scroll down to Hobby Farm Loss Rule.

http://www.hobbyfarms.com/farm-marke...xes-14991.aspx

Here's a small excerpt that mentions business plans:

Here is an example where losses would be denied:

Bill buys a farm in the country with a lovely house that he intends to retire to someday. Many of the surrounding farms are now subdivisions and his farm is only an hour away from the large city Bill lives in. Bill grew up in the city and knows nothing about farming, but he likes llamas so he buys his own herd. The livestock pens at the farm are old and Bill leaves them as they are. He never had a plan for making money and never prepared a business plan. Bill thinks all the money is coming out of the same pot anyway so he only has one checkbook and writes all of his personal and business expenses out of that checkbook.
At an IRS examination, it would be hard for Bill to show that he meant to make a profit. He did not have financial records nor did he have a business plan or separate accounts. And, he never sought out help to make the operation show a profit.

The purpose of making a business plan is so that you can see for yourself how realistic you are. If you sit down and list your assets and liabilities you will be ahead. Costs and earnings. How much will it cost you to sell at the market? Cost of booth, cost of gasoline there and back, cost of what goes in the booth such as table, chairs, roof over your head, lunch, cost of seed, cost of feed, cost of butchering, etc. Money coming in from produce, meat, fleece, etc. Once you look at your lists it may help you to look at your farm over the long haul, improvements you may have to make as well as ideas for added value (selling your extra jam, market for the wool, teaching classes, etc.). Write these down as well. As you work your plan, keep track of the actual expenses and earnings. This will help you plan for the future, what to keep doing, what to change. You don't have to show it to anybody since you aren't asking for a loan. It's for you.

The IRS doesn't care if you have a business plan. They just want their money. Get an assumed name, probably at the county office. It will cost $10 to $25. Your assumed name can just be your name, or you can make up a name for your farm. If you are selling at the market I'd suggest naming your farm. Once you get your assumed name the state should send you a packet all about paying tax. Ask when you apply. The state will send you a number and certificate showing you are in good standing tax wise.

When you do your taxes you will fill out an extra form. Since you've been keeping track of your expenses and income you will easily be able to fill out the paperwork. It's not hard, pretty straight forward, and you can do it yourself. If it feels too overwhelming you can go to an accountant or H & R Block. Your county extension can also help you.

I intend to run it as a business, and I do not intend to lose money, so I don't think the IRS will bother me. I realize that no one "intends to lose money" but I am not sheltering outside income. I have most of my significant infrastructure in place and expect no large costs. I figure if I do come out behind I can claim fewer deductions and pay taxes anyway and not get in trouble. The law specifically states that if you are profitable 3 years out of 5 you are a business, the end. I don't think the hay guy is going to say "oh no, she bought twice that much hay. Even with the cash discount she should have lost about $200."

I am running at a very small scale. My start-up goal is to gross $3,000 and spend less than that. I have an evolving "business plan" for this year, but it is on notebook paper.

I can do the schedule F. I took a class through OSU and I have a number to call for free help if I get confused!

I'm not so much worried about the IRS as I am the USDA and state regulations. Like, this morning I read that you need a license to sell more than $500 worth of plants in my state - how do I know where to look for stuff like that before I get into trouble?

This post reads like a neighbor of mine, who hauled lumber. Year after year he hauled lumber. He did not ever make a profit so he did not ever file a tax return. He owed no taxes.

So one day he decided that he could improve his situation by getting a bigger truck.:bandwagon:

So small farming without making a profit is done all the time. I doubt that things will improve with more confusion. If you really want confusion call a government agency. If you want more confusion then call two agencies.

It sounds to me like more cash flow would help. I doubt that a cash investment (more goats) would accomplish this. Do the math just for yourself.

It is important that you "intend" to make a profit, none of this hobby stuff is needed. If you do not make a profit then you will not need to pay taxes.

As far as licenses go, the government will sell you all you want. You decide how much punishment you want to take. If you do not like punishment don't apply for licenses.

It is easier to ask for forgiveness, than permission.:bash:

I don't think it's a problem that your plan is on notebook paper. Just keep the documentation for IF you get audited.

I'd ask the farmer's market folks what they require and go with that.

Is there a SCORE office there? We have them here in NC. SCORE is a free source for good business advice and help. Look here:
http://www.score.org/

We have attended SCORE classes near us and found them to be very helpful. Some were free and other cost only $25.00.

Also, see if your local community college has a Small Business help center or other similar resource.

About notebook paper and other paper type of records keeping: I would strongly suggest you scan and save as much as you can to a computer. We lost a lot of paper work after a shed was cleaned out and a box accidentally burned. Saving important papers in the computer helps protect it.

Good luck.

I like the comparison at the end...in reality though, "Sarah" would be too busy keeping journals and records to actually produce anything on her farm.:hysterical:

I've posted the link before here and can't find it now but in Ohio you can sell all the annuals and herbs you want without having a license. If you sell over $200 in perennials, then you do. (Yes, some herbs are perennials but they are excluded it seems.) BTW, I shared the info with Danaus29; she might have the link.

Don't get me wrong a plan is necessary to any successful business, but the IRS isn't going to be interested in your plan only your P&L sheets.

The extension agency and score are outstanding sources for information, a good accountant with experience in your chosen business is also a good source of ideas that have worked, clubs, prefessional organizations are also excellent sources of help and information.

You also mentioned doing value added sales with cheese but felt deterred by start up costs. Have you talked to any other cheese producers in your area about the possibility of renting their facilities for production. I know of more than a few people who have used restaurant kitchens in off hours to process foods or make baked goods.

The Ohio extension service might be able to tell you for free.

Here in Kansas the listing for the extension service is found under the colleges.

the trouble with the cheese wasn't on the kitchen end. the trouble was the "enclosed milking parlor with water, electricity, and impermeable interior surfaces and area for milk processing closed off from the milking area" that was not allowed to be attached to my house. I can sell "pet milk" to local people with show dogs and orphaned kids and lambs for $2 a quart. There wasn't enough value added.

Possibly on the Federal level, just file as a Sole proprietor "DBA" ...doing business as and use your SS number if you are planning to stay small, otherwise, yes, you should pay for an hour of a CPA or tax attorney's time to decide what is best for you.

You do anything else you have to apply for Federal for an EIN, or Employer Indentification Number. You can do this online. http://www.irs.gov/Businesses/Small-...r-(EIN)-Online

Or by mail. http://www.irs.gov/pub/irs-pdf/fss4.pdf

Then once you have your EIN, in the city or county you reside in, go to city hall and purchase a business license. You MAY have to have a dedicated business bank account first, depending on the localities rules. The bank account can be opened with $100 and your EIN and DBA info. Then business license probably won't be more than $50, again, depending on your local.

Here is info on Ohio's tax ID requirements. http://www.tax-id-number.info/tax_id_number/ohio.htm

If you plan to pay your a paycheck, in addition to state and fedral withholding, you will also have to pay unemployment insurance. Here is info about that. https://unemployment.ohio.gov/EmployerChoice.html

Last but not least. Insurance. You will have to have a umbrella liabilty, possibly workers comp, and maybe an asset type policy. Again, this depends on your state requirements. You can go talk to your personal agent, just to see what's what. And you can also shop around your requirements with a broker, which will probably be cheaper. This will be your biggest expense up front by a few to several thousand dollars.

Health insurance requirements are now up in the air, but don't ignore this...it's coming.

Hope I have helped, I'm sure if I forgot something, but someone will chime in. Keep great records and be organized. Take things step by step and it'll be fine, we've been self employed since 1996.

That price seems very low for "pet milk".

I thought $8 a gallon sounded pretty good. If you can't make money selling it at that price you need to re-look at things.

I've seen it higher. $8 would be my limit and really should allow a decent profit.

it does allow a decent profit. and therefor I would rather expand my market through word of mouth in dog breeding/baby animal raising circles than invest in cheesemaking - too much investment and work for too little added value. but demand has not reached supply yet.

One of my customers got her own goat, raised it on my milk, and is now a potential breeding customer - product diversification. :-)

thank you everyone for the links btw. I am checking them and they are helpful. It looks like this may be less complicated than I had feared.

The taxes are pretty easy to give you a rundown, but I think your question is more about the regulations for selling processed foods on a homesteader level.

Your state and your county will have 1000 regulations, some apply, some don't, and good luck figuring it out.

I think your local extension office would be a good low-key starting point, they tend to offer help without the punishment other government offices might.

Your local county inspectors would be the source, but you do open yourself up for a visit for what you currently are doing.

Paul

The taxes are pretty easy to give you a rundown, but I think your question is more about the regulations for selling processed foods on a homesteader level.

Your state and your county will have 1000 regulations, some apply, some don't, and good luck figuring it out.

I think your local extension office would be a good low-key starting point, they tend to offer help without the punishment other government offices might.

Your local county inspectors would be the source, but you do open yourself up for a visit for what you currently are doing.

Paul