# Our Animals Come Tax Time



## Egg_Newton (Feb 6, 2013)

So, I started my taxes this morning and it occurred to me even though I'm not really in this for the money and to make a business out of it there is a possibility of a profit to be made and a much greater possibility of a tax write off in my back yard. 2012 was my first year really investing in goats. With all the feed supplies animals supplements etc it can be an expensive hobby to start up but if I classify it as a business I can write off that expense and keep a really close eye on my sales and expenditures to see if I actually do make a profit. I'm curious how all of you handle your herd at tax time?


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## goodhors (Feb 7, 2013)

Any livestock is an expense, we turn no profit on them.  Money spent is just
like other folks would count towards Entertainment.  We entertain ourselves
with the livestock!  We have never tried to use them to go the business route.

Unless you have a business plan, have a REAL way to turn a profit with the 
animals, you probably shouldn't try using them as business expenses.  Almost
100% guaranteed to be audited.  With no real plan, you will probably not get
the allowances.  And in "real life" the folks who jump into animals like 
goats as a business, jump out again when they get overwhelmed by the 
time needed to BE a business.  Sucks you dry with the work, constant
demands from all parts of the system.  Cleaning, feeding, handling milk,
selling offspring, getting in hay or feed, losing animals with NO days off.  
They are then a job, including HARD WORK, not fun anymore.

What we tell folks who are gushing about how they "LOVE" their livestock, 
intent on building herds, flocks, is to STOP!   Then we ask pointed questions
about their Goal for these ever increasing numbers of animals.  Stuff like
"How many horses can you ride in a day or a week?  Why can't you own ONE
horse who does several things, instead of a horse for each job?"  Others 
would be "How many goats can you milk in a day?  CAN you eat those baby 
goats that come from breeding the mothers you want to milk?  Who will BUY
your extra goats?  How MUCH does it cost to feed ALL these goats (or sheep, 
or chickens, ducks, geese, cattle) in a week?  Do you LIKE fixing fence, shoveling
coops out, dragging bales around?

Unfortunately, they tend to go crazy with quantity, overload themselves, their 
smaller acres, so they burn out as fast as they jumped into the owning thing.
Our questions are to make them THINK, get answers, before they are 
overloaded.  All this animal keeping REALLY cuts into free time, time with the 
kids, visiting family or other activities they USED to enjoy.  I see maybe 1 out of 
15 folks who still do livestock in 6 years.  Others dropped out, dumped animals
at a loss just to get them gone.  Lot of wasted money, though they had fun for
a while.  They never seem to do things in a small way, just jump in with a big 
splash in buying better stock, improved fence, buildings, ways to haul the animals.

You might better put the cost of your animals in the Grocery column, think of it 
as part of your food expenses for better living.  

I wouldn't even try to use them as a tax deduction, you are not a business.  I wrote
all the same kind of thing on Hobby Farms Tax:

http://www.backyardherds.com/forum/viewtopic.php?id=24378


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## Egg_Newton (Feb 18, 2013)

Wow, that was depressing.....

Okay so not a tax write off. But, I still want to track profit vs. cost for my own curiosity. I'm not in it to make money. I'm in it because I want to provide my family with healthier food and because I love the animals.


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## goodhors (Feb 18, 2013)

Tracking your animal expenses and possible profits is a great idea.
You can match the better food value (milk, eggs) against what 
purchasing those products would cost.  Usually the flavor is much
better as well.

You might want to track your work hours on the animals, because
your labor has a value too.  Should be added in to expenses, so 
you know that good stuff, food production, doesn't "just happen".
Or if you make products to sell from the animals, soap, beeswax,
eggs, the labor involved in producing those items for sale.

Kind of like that joke about what does a wife do all day?  If 
a person had to PAY for all those "wife jobs" they would have
more money spent than some other expensive kinds of employment!


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## ksalvagno (Feb 18, 2013)

It may be depressing but a reality. You have to show a profit after 3 years too.

But tracking everything is a great idea!


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## Bossroo (Feb 20, 2013)

I would heartilly suggest the one hire an accountant/ tax preparer that is well versed in farm operations.  I can't give specific data or location of the farm business,  only generalities due to impending possible law suit.   Here is an example of yesterday's  IRS audit that will cost the tax payer  over $5,000 in additional taxes and likely end up with the client suing his tax preparer ( as stated by very angry tax payers).   Tax payer and his wife own a farm and decided to form a corporation with both of them as owners of the business.  They purchased inventory,  well pump, farm truck, supplies, etc. as a start up. Their tax accountant was not too familiar with farm operations, so he did some fancy depretiation on above as well as deducting " rent costs" of land for the corporation's operation resulting in a very handsome refund.  The tax payer did not pay any rent since they have started this business on their own land and did not know how the tax accountant came up with any of these claimed deductions.  The IRS will do additional  audit surveys  on this tax preparer's other clients  and if found with  additional/ creative deduction  errors, and will make a visit to his business to audit his records and business practices.  If found deficient, he will  be fined many thausands of dollars.  























theri


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## jodief100 (Feb 20, 2013)

We claim ours.  You have to track EVERYTHING.  I have a spreadsheet I can send you.  You have to save your reciepts.  You have to have income of some sort.  You have to have a plan.  You have to be prepared if the IRS comes a knocking.....  

Find a good accountant who specilizes in farms.  It will be worth the few hundred dolaars you pay him/her.


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## Bossroo (Feb 27, 2013)

Bossroo said:
			
		

> I would heartilly suggest the one hire an accountant/ tax preparer that is well versed in farm operations.  I can't give specific data or location of the farm business,  only generalities due to impending possible law suit.   Here is an example of yesterday's  IRS audit that will cost the tax payer  over $5,000 in additional taxes and likely end up with the client suing his tax preparer ( as stated by very angry tax payers).   Tax payer and his wife own a farm and decided to form a corporation with both of them as owners of the business.  They purchased inventory,  well pump, farm truck, supplies, etc. as a start up. Their tax accountant was not too familiar with farm operations, so he did some fancy depretiation on above as well as deducting " rent costs" of land for the corporation's operation resulting in a very handsome refund.  The tax payer did not pay any rent since they have started this business on their own land and did not know how the tax accountant came up with any of these claimed deductions.  The IRS will do additional  audit surveys  on this tax preparer's other clients  and if found with  additional/ creative deduction  errors, and will make a visit to his business to audit his records and business practices.  If found deficient, he will  be fined many thausands of dollars.
> Update... yesterday, the tax payer agreed to the results of the audit paid the substancial additional tax and penalties due and agreed to cooperate in forthcomming audits of the tax preparer as to their tax returns.
> The tax preparer  will now face an audit of all  of the tax records for the last 3 years  and most of the cliens' past 3 years tax returns will also be audited.
> 
> ...


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## ourflockof4 (Mar 6, 2013)

I would talk to a good accountant & see what they have to say.

It has been mentioned that you have to show a profit in 3 years, I'm not so sure about that. I have been filing a farm loss for 5 or 6 years now. The first couple of years it has only a few hundred dollars per year, but it was still a loss. At that time I was renting out some of my land and the rental income was less the the amount of the percentage of insurance & tax on the land, so we had a loss. I asked him about the whole 3 year thing & he explained to me that if your income (from a day job or other sources) was high enough to justify the loss it wasn't a big deal.

Maybe our setup is different though since we have decent non farm income. What he said makes sense to me though, I don't know how you can start farming slowly & not have a loss for the first 5 years or so.

Also, right or wrong we kind of pick & choose what animals we will actually write off. Our cattle, hogs, & meat birds are here to make money, so we right off everything for them. The chickens, goats, & turkeys are more of my wifes hobby so we dont write off anything for them (even though it would be a loss)

We bought quite a few feeder stock last year along with the feed to go with it, so we had a bigger write off. This year I will have income from all of those animal & no loss since everything was bought last year. But, that income will be offset by facility improvments & upgrading equipment. I can cash flow the equipment after I sell the feeders. The 2 will cancel themselves out & since we are still getting our farm started I will still have more investment/loss then I will income. I will be building equity in our operation though. I will have income, but no profit.


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## goodhors (Mar 6, 2013)

ourflockof4 said:
			
		

> I would talk to a good accountant & see what they have to say.
> 
> It has been mentioned that you have to show a profit in 3 years, I'm not so sure about that. I have been filing a farm loss for 5 or 6 years now. The first couple of years it has only a few hundred dollars per year, but it was still a loss. At that time I was renting out some of my land and the rental income was less the the amount of the percentage of insurance & tax on the land, so we had a loss. I asked him about the whole 3 year thing & he explained to me that if your income (from a day job or other sources) was high enough to justify the loss it wasn't a big deal.
> 
> ...


Keep ALL your records, receipts, for at least 10 years, which I believe is the limit the IRS can come back for auditing tax returns.  Could be wrong on time length, ask your accountant.  I know several people doing things like you describe, appeared to pass with the IRS when filed.  However after about 7 years down the road of losses, they did get audited and had to pay when things got gone over.  They also had independent income and farm was the write-off.  For some reason their number came up for the IRS and they got audited.  You may not have a problem, tax laws are ALWAYS changing, but it is best to hold on to all the paper records for proof, if needed.  You can't argue your side with no physical evidence to produce.


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## Bossroo (Mar 7, 2013)

ourflockof4 said:
			
		

> I would talk to a good accountant & see what they have to say.
> 
> It has been mentioned that you have to show a profit in 3 years, I'm not so sure about that. I have been filing a farm loss for 5 or 6 years now. The first couple of years it has only a few hundred dollars per year, but it was still a loss. At that time I was renting out some of my land and the rental income was less the the amount of the percentage of insurance & tax on the land, so we had a loss. I asked him about the whole 3 year thing & he explained to me that if your income (from a day job or other sources) was high enough to justify the loss it wasn't a big deal.
> 
> ...


I would ask this  good accountant if he/she is willing to pay for your back taxes and penalties before I go on this current path any longer. I would more likely than not think that the IRS ruling after an audit would consider this a hobby loss against non farm income.  I wish you luck !


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## ourflockof4 (Mar 7, 2013)

So I assume that both Bossroo &  Goodhors are accountants? I agree, tax laws are always changing, and ever situation is different. Thats why I recommended talking to a local tax professional. I trust my accountant is doing the right thing in my situtation.


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## Bossroo (Mar 15, 2013)

Bossroo said:
			
		

> ourflockof4 said:
> 
> 
> 
> ...


Dateline Portland, Ore.:   A taxpayer was audited by the IRS with a loss situation very ( almost identical to yours) similar to yours... audit found this 5 year old farming endeaver to be a hobby loss against ouside income and this taxpayer agreed to pay back taxes and penalties.  Also agreed to cooperate in investigation  of tax preparer.  Three IRS business tax examiners were randomly selected to review this tax preparer's records  untill all have been examined as well as this tax preparer's  own business proceedures in the IRS offices for 3 audits per day untill all have been audited.  Yesterday, letters were sent out to all of this preparer's clients with any connection with farming endeavers for the last 5 years with  audits starting within 30 days.


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## aggieterpkatie (Mar 15, 2013)

I write off goat stuff because of my (mainly soap) business.  Sheep, chicken, rabbit, etc is just out of our own pockets because even though I sell stuff from them, it's not a business, it's just a hobby.  This was my first year writing off stuff for my soap business, and I had a loss.  I predict I will show a profit this coming year or the year after (I hope!), but it really didnt' help me out on my taxes like I was sort of hoping it would.


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## Bossroo (Mar 22, 2013)

I deleated this post due to a now filed law suit by the tax payer vs. accountant.  Thank you !


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## aggieterpkatie (Mar 22, 2013)

How do you make a small fortune with horses?   Start out with a large fortune.


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## Bossroo (Apr 3, 2013)

Husband and wife , both high income professionals, owns  5 acres + home .  Wife started a flower wholesale business on their farm with fairly large losses over 4 years. 2011returns showed $ 1,600 in sales and  $35,000 in losses.   Audit result declared this was a hobby loss operation.  Couple  whent to tax court where they were found to be indeed a hobby loss operation against income.  They were assessed back taxes, interest, and a heafty penalty.


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## Bossroo (Apr 3, 2013)

Taxpayer owned 4 mares and a stallion .  These mares never produced a foal in 4 years when bred naturally to their stallion as well as his  frozen semen for the last 2 years.  Stallion was " put down" in 2011 and taxpayer claimed a $30,000 Vet fees for this proceedure and AI services .  Tax court found this venture to be a hobby loss operation.   Hmmm ! one would think that this stallion was sterile to begin with ?


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## Bossroo (Apr 10, 2013)

A gentleman with outside income baught 5 acres 7 years ago.  He decided to go into the ornamental tree growing business to sell to small retail nurseries and devoted 1+ acres to this venture. He only had sales of just over $1,000 in 2010 with none in all other years.  His accountant prepared his tax returns for all of his 7 years.  Ruling was that he was NOT in this venture for profit as his motive was to take the Agricultural exeption to lower his property taxes.  He was ordered to pay  back full property taxes with penalties.  This accountant as well as his clients will now be subjects of audits.


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## Bossroo (Jun 21, 2013)

A large income taxpayer was ruled not a for profit business  as claimed in the horse BREEDING venture ... taxpayer owned 4 mares as well as several dozen geldings but only produced ONE foal sired by an outside stallion in 6 years.  The wife was the breeding manager/ trainer. Taxpayer also stated that they baught cheep geldings to be trained by the trainer ( wife) and hoped to sell them  at a huge profit .  In 5 years, they sold only 2 geldings , one at  $ 2,000 more than they payed for it and another at the same price that they baught it for. Costs / losses FAR outwayed any sale... ruling... venture is not for profit breeding / training/ sales operation and the wife's training was for her own riding pleasure.  Taxpayers signed agreed and paid the back taxes and penealties.    Oh... the tax preparer did NOT KNOW that geldings could    NOT REPRODUCE.


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## Bossroo (Jul 17, 2013)

Recent ruling of a farming venture  was not for profit. A high wage earner raised Alpakas and claimed expenses of 3- 4 times more than any sale over a number of years and never showed a profit.  Tax preparer had used some rather creative deductions for this client.  This resulted in a tax bill of over $60,000 in back taxes plus penalties for the taxpayer.  Taxpayer signed agreed after consulting with a tax attorney.


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