Official Farm Benefits?

**Terri** · #21 12/31/13, 10:24 AM

I looked into this perhaps a decade + ago when I was selling at the farmer's market. This is what I found out.
1. In my area, housing land has taxes that are identical to a farm.

2. Having a farm means that I can offset the depreciation of the equipment agains the small profit I was showing at the farmers market.

And, 3. the folks who did my taxes would want $60? dollars to fill out the form.

On paper I would earn nothing, and lose just a few dollars, and so I decided to not go through the work of claiming my place as a farm. At the time I had smallish kids and I had no plans to expand, and so there seemed to be no point.

That was 10 years ago and in a different state than yours, and so when you crunch the numbers you might get a different result.

Time passes. My youngest is still at home and he wants to try selling sweet corn at the farmers market. So, we had the old tiller serviced and this spring we will see how he likes farm work. We will just try it this year, and if he also wants to do this next year then it may be time to crunch the numbers again, to see if it makes sense to claim it as a business.

Alice in Tx/Mo, that you for that bit about what the IRS wants. I will have him write that up just for practice.

IowaLez · #22 12/31/13, 11:23 AM

And here's a tip to lessen your possibility of an audit, from a very major tax attorney in California who handles things for some major agriculture players that I will not mention by name on here: Don't file electronically. Filing by paper is much safer, and lowers your risk substantially.

An H&R tax preparer is not competent to advise you about much stuff. She's just someone who calculates the numbers of what you bring her. She is not trained that much. I was going to be a tax preparer years ago, when I went back to community college, and it's not much to go by as far as expertise. That would not have made me a good adviser. If she's an expert, why do we need tax attorneys? Around here in corn/bean country, the towns are loaded with attorneys handling the farmers' taxes. And CPA's. A CPA is also a good person to consult, they have much more higher education than a regular tax preparer.

ET1 SS · #23 12/31/13, 12:10 PM

We file a Schedule F every year.

My truck has farm tags.

Our farm income is low. Some years it is more than the expenses, some years it is less then the expenses.

We have been audited by the IRS, three times so far. We have never been 'fined' by the IRS.

You do need to display your intent to make a profit. Even if that profit is only $1.

My Dw is an accountant, she enjoys this stuff.

Yvonne's hubby · #24 12/31/13, 12:25 PM

Our little farm seldom makes much cash profit.... We sell a few calves every year, 5 or 6 usually and sometimes one of the older cows. The real profit comes in a couple other ways.... one is with the amount of income tax saved by being a farm we get lots of deductions that we wouldnt have otherwise. Another is in keeping the farm productive and up in shape the land value goes up... I know it does, cause our property tax bill says so!

ET1 SS · #25 12/31/13, 01:25 PM

When I was on Active Duty, we bought and collected Multi-Family-Residences [tri-plexes, quads, 5-plexes] as our investment portfolio. So we were already in the habit of itemizing our taxes. Handling schedule C's and E's, along with depreciation tables. It is really not a big deal, once you are in that habit.

We filed a schedule F a few years even while I was on Active Duty, simply for our beehives.

Now that I have retired, we sold our MFRs, bought land and built our homestead. So we no longer do the schedule E's. Just C's and F's.

The biggest benefit from filing taxes, is that it shelters your other income streams from being taxed.

We do not see any change in our land assessment or property taxes. Taxes can be extremely low in Maine anyway.

Jolly · #26 01/01/14, 07:02 AM

Quote:

Originally Posted by Irish Pixie

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.

Maybe.

I know of at least a half-dozen people working an angle like this, through raising or growing something.

What gets you in hot water with the IRS, is trying to hide money. If you keep good records, show a willingness to make a profit (even though you don't) and run your farm like a business...Well, about the worst they normally do is deny some of your deductions.

I've had a few small businesses as sideline through the years. Some years I made a little money. Some years I lost a little money. But small businesses are most effective at letting you legally write off things, either to protect other streams of income or to acquire dual-use items.

For example, I like to reload and do a little amateur gunsmithing. My custom reloading business is long gone, but my six presses are still there, along with two shelves full of dies and shellholders. I figure the IRS subsidized all of that hardware to the tune of 30% off.

BigHenTinyBrain · #27 01/01/14, 07:31 AM

We use farm plates on our truck without any kind of filing as a farm (or any plans to ever do so). The laws vary widely from state to state, but in Maine you pay a slightly reduced registration & insurance cost, but you cannot take a farm registered vehicle more than 25 miles from your farm.

Alice In TX/MO · #28 01/01/14, 09:34 AM

Missouri has some wacko limit on miles like that for farm plates. I couldn't even make it to the feed store with farm plates legally.

Grandmotherbear · #29 01/01/14, 10:29 AM

In 1971 GEICO's rules for farm vehicle insurance was NO mileage on public roads. I worked for them till 1972. Things may have changed.

ET1 SS · #30 01/01/14, 03:37 PM

Quote:

Originally Posted by Grandmotherbear

In 1971 GEICO's rules for farm vehicle insurance was NO mileage on public roads. I worked for them till 1972. Things may have changed.

We use Geco. They have not given us any problems concerning farm tags.

Here we are allowed to go into each adjacent township at will. Otherwise any further trips needs to be farm business.

BobbyB · #31 01/01/14, 06:13 PM

TX farm tags are every where. I dont know the particulars for sure any more but you used to be able to go to church, school, shopping, and a vacation a year with them.

As far as income, in most cases you are better off dealing in cash for any side income and keeping mum about it unless it is a substantial amount over the course of the year..

DEKE01 · #32 01/02/14, 09:59 PM

Quote:

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.

Excellent advice and why I tell everyone that they need to have a home based business doing something. Let's just say I have a friend who has employed the tactic you are saying on his farm, new tractor, miles of fencing, lots of other equipment, all bought with tax dollars he did not pay to the gov't. He seriously intends to have a profitable farm one day, but for right now he uses it to wash away income from off farm sources.

For those wanting to get a homestead / farmstead going and are trying to save every last cent to make a purchase, ask yourself if you could eliminate or significantly reduce your income tax bill if it would make a meaningful difference in being able to make the purchase. That's what treating it as a business can do for you.

DEKE01 · #33 01/02/14, 10:03 PM

Quote:

Originally Posted by 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.

I set up my own accounting system because it is what I have done for a dozen or so non-farm businesses. I used Sched F as a guide so that I classify all expenses into one of the specific line items on Sched F. That makes it quick and easy for my CPA to transfer my year end totals right into the form and saves me $$$.

DEKE01 · #34 01/02/14, 10:10 PM

Quote:

Originally Posted by Irish Pixie

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.

It all depends on what you can show as a legitimate effort to produce a profit. If you are going into the pecan business, the IRS can be convinced that it takes ?10? years for new plantings to become productive. If in an audit you cannot show any serious effort to run a business, you may get retro taxes. Investments in marketing, farmer's market stands, web sites, hiring and paying employees, commercial customers like restaurants or custom farm labor (haying, plowing, building fences, etc), facilities outside the home, all can be used to show an intent to run a real business and over ride the profit requirements for a while.

BigHenTinyBrain · #35 01/03/14, 08:17 AM

I should be clear- ET1 is correct that the registration itself in ME doesn't limit your driving, it's the type of inspection you obtain on your farm vehicle that puts a restriction on your travel.