Our Animals Come Tax Time

[Bossroo]

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.

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 !

 

[ourflockof4]

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.

 

[Bossroo]

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.

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 !

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.

 

[aggieterpkatie]

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.

 

[Bossroo]

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

 

[aggieterpkatie]

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

 

[Bossroo]

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.

 

[Bossroo]

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 ?

 

[Bossroo]

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.

 

[Bossroo]

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.