# Do you run your small farm as a Business for Tax Purposes?



## ThreeBoysChicks (Dec 29, 2012)

This year, I have tracked my Expenses for Feed, Goats (Breeding Stock, Buck Service), Poultry Hatching Eggs and then also my sales of Eating Eggs, Hatching Eggs and Poultry.  The chickens pretty much broke even up until this fall / winter.  The goats on the other hand are a big expense, because I have not sold anything.  My wife and I are considering using Schedule C and claiming this as a Small Business so that we can take advantage of the loss on our Taxes.  I have all of my receipts, etc., except for a few items that I paid cash for and did not get receipts.

So do you put your small farm through as a business on your taxes?

If you do, what are the pros and cons?

If you do, what are the things to look out for?

If you do, is it worth it?


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## Royd Wood (Dec 29, 2012)

Great post and subject
We are now full time farmers with a good accountant (My Beloved) but I look forward to reading other replies


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## Bossroo (Dec 29, 2012)

Hi Three...  my wife is a business auditor for Uncle Sam's IRS.  Good for you for keeping good records as well as receipts ( credit card statements and checks without proof of what actually was purchased for one's business operations is NO proof) for your taxes.  You will need to file a schedule "F" instead of the "C" as you are operating a farm and not just a small business. Do you have a seperate telephone for your farm ( your personal phones are not deductable) ?  Do you have a farm name, business cards, letterhead, farm web site, advertising ?  Have you a written business plan with an intent to make a profit for your farming operation ?  You will need to have a depreciation schedule for your livestock, housing, and equipment.  You will also need to further your knowledge of animal husbandry by taking courses and/or attending seminars as well as a hands on operating of the farm ( keep records as well as receipts for them) .  These will help you in your farming operation as well as proving that you are in business for a profit.  Most farming operations will have a loss in the first and maybe the second year, however  in farming, Uncle Sam expects one to have a profit in 3 out of 5 years or the farming operation will be considered a hobby and one's expenses / losses will not be allowed to be deducted.  So, YES ...  it is definately worth it ( we have been in farming business for over 40 years)  !!!   Good luck and have fun !!!


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## alsea1 (Dec 29, 2012)

We do ours as a way to get lower property tax.


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## jodief100 (Dec 29, 2012)

We do.  

Find a good accountant that specializes in farms.   It will cost you a few hundred dollars but will be well worth it.  Ours finds all kinds of deductions we never knew we could take.  He knows what can amortized and at what rates.  

Keep very good records.  Even if you don't show a profit, there are ways to justify things to the government.  Our accountant recommends keeping a daily journal of your activities.  

We deduct farm losses on non-farm income.  We get a break on property taxes. We are eligible for government grant programs- not from the feds but we do get some money from the state.  

Find an accountant NOW!  Sit down with them and ask what you need to do as far as record keeping.  Ours gave us the forms from the government and I converted them to Excel spreadsheets.  Every year I give him my printouts with all the expenses categorized.  

You will need to show some income.  

Remember- you can deduct anything you want, you just have to be able to justify it to the government if the auditors come a-knocking.  

Well worth it!  If I had to take a guess we have saved over $8000 in taxes in the last five years.

There is no way we could have this farm without the tax benefits.  The years we do make money wouldn't make up for the loss years without the tax benefits.


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## Bossroo (Dec 30, 2012)

Bossroo said:
			
		

> Hi Three...  my wife is a business auditor for Uncle Sam's IRS.  Good for you for keeping good records as well as receipts ( credit card statements and checks without proof of what actually was purchased for one's business operations is NO proof) for your taxes.  You will need to file a schedule "F" instead of the "C" as you are operating a farm and not just a small business. Do you have a seperate telephone for your farm ( your personal phones are not deductable) ?  Do you have a farm name, business cards, letterhead, farm web site, advertising ?  Have you a written business plan with an intent to make a profit for your farming operation ?  You will need to have a depreciation schedule for your livestock, housing, and equipment.  You will also need to further your knowledge of animal husbandry by taking courses and/or attending seminars as well as a hands on operating of the farm ( keep records as well as receipts for them) .  These will help you in your farming operation as well as proving that you are in business for a profit.  Most farming operations will have a loss in the first and maybe the second year, however  in farming, Uncle Sam expects one to have a profit in 3 out of 5 years or the farming operation will be considered a hobby and one's expenses / losses will not be allowed to be deducted.  So, YES ...  it is definately worth it ( we have been in farming business for over 40 years)  !!!   Good luck and have fun !!!


I omited that you will need a seperate bank account for your farm . Get one this year to show that you are in the first year as a start up so that you can claim deductions.  I too would highly recommend that you get an experienced accountant that specializes in farms as most of the rest do not even know the difference between a sheep and a goat much less what is deductable or not. The IRS computers will red flag these inconsistancies and you will be audited as a hobby loss enterprize against other income.


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## sawfish99 (Dec 30, 2012)

Bossroo said:
			
		

> Hi Three...  my wife is a business auditor for Uncle Sam's IRS.  Good for you for keeping good records as well as receipts ( credit card statements and checks without proof of what actually was purchased for one's business operations is NO proof) for your taxes.  You will need to file a schedule "F" instead of the "C" as you are operating a farm and not just a small business. Do you have a seperate telephone for your farm ( your personal phones are not deductable) ?  Do you have a farm name, business cards, letterhead, farm web site, advertising ?  Have you a written business plan with an intent to make a profit for your farming operation ?  You will need to have a depreciation schedule for your livestock, housing, and equipment.  You will also need to further your knowledge of animal husbandry by taking courses and/or attending seminars as well as a hands on operating of the farm ( keep records as well as receipts for them) .  These will help you in your farming operation as well as proving that you are in business for a profit.  Most farming operations will have a loss in the first and maybe the second year, however  in farming, Uncle Sam expects one to have a profit in 3 out of 5 years or the farming operation will be considered a hobby and one's expenses / losses will not be allowed to be deducted.  So, YES ...  it is definately worth it ( we have been in farming business for over 40 years)  !!!   Good luck and have fun !!!


Actually, farms need a profit in 2 out of the first 7 years according to the actual tax code.  I researched this very heavily when we got started.  Last year was our first farm tax return (on a Schedule F).  We used an accountant since it was a bit more complicated. Bottom line - we got an additional $5k back on our taxes last year from the farm loss.


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## Bossroo (Dec 30, 2012)

The profit  for horses is 3 out of 7 years due to the leangth of time to raise a foal to maturity ( I have been in the for profit horse business for 37 years), other business indeavers is 3 profit years out of 5.  As I stated in my last post ... please use an acountant that specializes in farm accounting.  The others just parrot what YOU provide them , which in many cases will get one audited and guess who gets to pay not only the tax due, but interest plus penalties too. ( my wife audits these types of accountants that show a pattern of improper returns.  Quite a few get a nice fine into the thausands $s).


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## Alice Acres (Dec 30, 2012)

We file as a farm also


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