# Hobby Farm tax filing.



## dianneS (Feb 6, 2013)

My farm is not a "working farm" yet.  I don't have any income to speak of and I don't have any tax exemptions either.

I would like to produce something here on our farm and pull in some income some day.  I'm just not sure how the taxes would work?

First of all, I'm "clean and green" which means I can't make more than $2000 a year in PROFIT off of my land.

My accounted informed me that we can only deduct household expenses and operate a home based business at a loss for three years.  Then the government considers it a "hobby" if its not turning a profit and you can't deduct expenses any longer?

She also said that any home based business is going to make income taxes a major pain in the you-know-what to file and unless its going to result in a bigger tax return (like $3000/year) its just not worth it.

I'm not sure what to do?  Scrap the whole idea of ever selling eggs, produce or milk?  Forget about hosting weddings and events on our land?  Just let this farm be a big expense to us for the sake of having "fun" with it?  That's disappointing.

Any advice on how to proceed, or how do you file?


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## goodolboy (Feb 6, 2013)

H & R Block only charges us $600 to do our taxes. I would start by looking into finding someone else to do your taxes. $3000??? Any profit and big brother won't bother you. It may take a few years to get to that point. You don't have to sell many eggs before it's worth doing. The second kid or lamb can be profit. If you turn everything into pets, it will be harder to get out of the "Hobby" thing and into a farm. If your think your going to get rich farming, you're probably kidding yourself. There just aren't that many small farmers making much money. We do it because we LOVE it. The money's nice when we get it, but if that's the only reason we do it, we'd quit along time ago.


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## dianneS (Feb 6, 2013)

goodolboy said:
			
		

> H & R Block only charges us $600 to do our taxes. I would start by looking into finding someone else to do your taxes. $3000??? Any profit and big brother won't bother you. It may take a few years to get to that point. You don't have to sell many eggs before it's worth doing. The second kid or lamb can be profit. If you turn everything into pets, it will be harder to get out of the "Hobby" thing and into a farm. If your think your going to get rich farming, you're probably kidding yourself. There just aren't that many small farmers making much money. We do it because we LOVE it. The money's nice when we get it, but if that's the only reason we do it, we'd quit along time ago.


I'm not paying $3000 to get my taxes done, my accountant said that claiming farm/household expenses are only worth the trouble claiming if my refund will increase by $3000 or so.  I just paid $260 to have my taxes done yesterday.

I have no desire to get rich farming, I'm looking to take more deductions and run a home based business.  I am already limited by our wonderful government who says that I can't make more than $2000 profit off my land anyway or else my property taxes will double!  (Typical,  they punish us for trying to be productive!)

I just feel like we could be taking advantage of some more deductions if we actually ran as a business.  Right now we deduct nothing farm or household related other than the typical mortgage interest etc.


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## Shelly May (Feb 6, 2013)

Never forget that profit isn't always something seen at the end of the year on your tax return, Profit is also about how much you save by not going to Walmart every week and buying your meat and eggs from them. What we raise and eat is also so much better for you, And if you can save a few trips in a years time by staying away from the doctors office because something you ate else where, well thats profit only you see. So don't give up raising your own because of tax reasons and maybe someday you will get there. Just my two cents.........


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## Stubbornhillfarm (Feb 6, 2013)

I guess my question would be:* " She also said that any home based business is going to make income taxes a major pain in the you-know-what to file and unless its going to result in a bigger tax return (like $3000/year) its just not worth it."*

Whom is it going to be a pain for.  You or her?  If it's her, well...that is what you are paying her for.  If it is you.  You just need to decide if the joy and pleasure of having weddings at your place and being more self sufficiant is worth it to you.  To me personally, you can't put a dollar value on that.  If its what you desire and it brings you joy, it is worth the headache come tax time.  

I hope to some day be in the position that you are in right now.  Asking those important questions.


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## goodolboy (Feb 7, 2013)

I just don't get the part "only worth the trouble claiming if my refund will increase by $3000 or so". If your "refund" stays the same, isn't it worth it if it makes you happy? 

Some years we make money, some years we lose alittle. As long as we come out even or +, we'll always be farmers. It's what we love to do and you can't but a $ value on that.

As far as big brother, if you make $1 every year and pay tax on that $1 they will never say anything. If you lose money every year, they will consider you a hobby farm, and you will not be able to deduct the expences. It's takes so many years in a row(I thought 7) before that happens. So it's worth it to do it for that long anyway. So go "all in" for a while and see if you can make it work. As long as your smiling  it's all good.


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## dianneS (Feb 7, 2013)

goodolboy said:
			
		

> I just don't get the part "only worth the trouble claiming if my refund will increase by $3000 or so". If your "refund" stays the same, isn't it worth it if it makes you happy?
> 
> Some years we make money, some years we lose alittle. As long as we come out even or +, we'll always be farmers. It's what we love to do and you can't but a $ value on that.
> 
> As far as big brother, if you make $1 every year and pay tax on that $1 they will never say anything. If you lose money every year, they will consider you a hobby farm, and you will not be able to deduct the expences. It's takes so many years in a row(I thought 7) before that happens. So it's worth it to do it for that long anyway. So go "all in" for a while and see if you can make it work. As long as your smiling  it's all good.


I don't know why my accountant said that "its not worth it"?  She said it would make our taxes a HUGE, complicated mess (but that is her problem, not mine).  She also said that we could operate at a loss for 3 years, then we'd have to show a profit or we'd be considered a "hobby".

She told me to go ahead and track our expenses/profits this year and see how it goes.  I think I'm going to give it a shot!


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## goodhors (Feb 7, 2013)

You probably should get more information on "what counts" in tracking your Hobby Farm expenses.
I know that using a credit card for ONLY the expenses of the business is helpful.  Showing income, 
expenses, for ease in tracking will make your life easier, when you are balancing things.  Going for
the "picky details" like a room for "the business" deductions, may or may not fly.  YOU CAN put
the expense of your Accountant on the Business Expense list!

The shorter time for not turning a profit, is probably because if someone lost money doing business
for 3 years or MORE, they are not a business.  They would have had to stop working at it because 
they were not sustainable without other income being pumped into that business.  If this was your 
ONLY method of making money, you would have given up as it ate all your cash!!  Or you SHOULD
have given it up, gotten a job elsewhere, before you ended up on Welfare!!

As a business, you MUST PAY YOURSELF, so the money you spend will come back to you with added
income.  No equalized spending and income, that is not profit making, not paying you, which businesses 
HAVE to be doing.  Would you consider $3000 a good year's salary?  That is money left over and above 
the expenses of the business.  Most folks wouldn't consider it to be much, would be looking at other ways
to turn a profit, which is what the Accountant was telling you with that money number.

Husband is self-employed, has a GREAT small business Accounting firm doing his numbers.  She knows 
all the tricks, attends seminars every year on the constantly changing rules that govern what he and other
small business owners are allowed to use in business as expenses.  She flat out tells him that sometimes
he just "can't afford" to work for some folks.  He spends too much time, driving miles, going to their 
location.  What money he makes doesn't COVER what his time and mileage are for doing their jobs.  
They are COSTING him money to take care of them!  When he is driving, he is not earning, simple as that. 
No one would PAY what it cost to charge them, for his driving time and work done, way too high a cost.
As she says "It is not his job to subsidize what they want done", so they must find another person to work
for them.

If you want to be a business, fine, do things like real business folks do.  There really is no halfway point, you
are turning a profit, paying yourself for the jobs, or you are throwing money away, not "business minded" so
you don't deserve the breaks "real business places" get in their tax numbers..  

Why do you suppose folks don't shop organic?  Can't afford it!  Organic is great, but the cost of doing business 
is REALLY HIGH, a lot of "hands on work" so the prices have to show that.  I can't afford organic food.  Some 
low income folks can barely afford to purchase vegtables and fruit in ANY form!!  All the studies show low 
income folks have unbalanced diets, because they can't afford to buy what they need.  Public gardens are great, 
but most of these families don't have the resources to do grow-your-own.  Many lack knowledge, or even time 
to do the garden work. 

 We on this forum are lucky we can garden if we choose.  Or have access to local Farmer's Markets for less cost 
than some stores charge, better quality items, many kinds of produce not seen in stores, out here in our rural places.  
I am amazed myself, after a grocery trip, how little actual  food there is for the money spent.  And we have our 
own meat in the freezer, so not buying that big ticket item at the store.  Buying animals at the Fair is truly a 
bargin for the superior quality, with processing, packaging, the way you want it done.  Tastes so MUCH better 
than store meat.

Being a business is not easy.  But before giving up, you can give it a try, see what the numbers show you.  Do things
weekly, with the monthly total.  Makes it MUCH easier to see how things are progressing, and for the Quarterly
payments of taxes.  You do know business pays Quarterly, on your projected income for the next Quarter?  Then
you have all your numbers neat and clean, ready for Year End taxes, so you can balance everything.  If your 
Accountant is not a Business Accountant, she may not have all the information needed to help you best.  Ask 
other small business  folks who they use, to find what you need.  Husband pays his Accountant monthly, she has 
been and incredible help in improving his business.  Makes suggestions, tells him when he needs to spend money 
so he can depreciate things used in the business.  You don't get that with buying a tax program!  You will also 
want to get a "Doing Business As" form filed in the County Courthouse for your business name, gets you listed 
as a real business.  Good for a number of years, for a modest fee.


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## dianneS (Feb 10, 2013)

Thanks for all the input.  I'm going to give it a go this year and keep track of my expenses and income and see what happens!

Planning the gardens now and going to try all sorts of things.  Throw some stuff at the wall and see what sticks!


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## Dino (Feb 10, 2013)

I hear different time periods for reporting your losses / gains... seven years is the max a farm can lose money or else it is considered a Hobby not a Business.  ????


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## OneFineAcre (Feb 10, 2013)

There was a thread on here a while back about the accounting issues involved with running your farm as a business. The posters spouse is an accountant.

 It was a very good read, maybe you can find it.


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## dianneS (Feb 11, 2013)

Dino said:
			
		

> I hear different time periods for reporting your losses / gains... seven years is the max a farm can lose money or else it is considered a Hobby not a Business.  ????


You are probably right.  I'd be willing to bet that the time period is longer for farms.  My accountant probably only knew the "home based business" number of years off the top of her head.  I think she may have said that its longer for farms to operate at a loss, she just didn't know exactly what the length of time was.


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## goodhors (Feb 11, 2013)

dianneS said:
			
		

> Dino said:
> 
> 
> 
> ...


This is why you NEED an accountant that specializes in Farm Accounting or Small Business Accounting, knows the laws and various things that will affect you.
The IRS has NO SENSE of humor if you try telling them "There was a mistake on line 35....." and try to straighten things out.  Penalties are not fun, and I hear 
getting refunds is about impossible when mistakes are made.


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