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  1. #1
    Platinum Member wasabi's Avatar
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    Mar 2002
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    717
    Location
    Cullowhee Mountain, NC
    Tractor
    PT2445 and PT1850

    Default Farm Equip Tax Issues

    Being knee deep in tax season, I thought it would be a good time to skate ahead of the puck a bit by posing the question of how to make our upcoming (soon) tractor and implements purchase legitimately tax deductible.

    To my horror, my CPA quickly opined that our wasabi and trout farming endeavor would likely be interpreted as a "hobby". I said nothing, but knew right away the right thing to do would be to ask friends at TBN for more considered perspectives. Surely you farming pros can point us in the right direction. We're absolutely serious about making this a going concern (intend to make a profit), even if it is fun at times.

    So, really, whatsupwitdis?

    Caveat Note: any thoughts exchanged on this subject will be considered as discussions only, and will not be construed as tax advice!

  2. #2

    Join Date
    Dec 2001
    Posts
    73
    Location
    Live in Upstate SC, farm is in NC
    Tractor
    NH TN55

    Default Re: Farm Equip Tax Issues

    You might want to check IRS publication 225 available at http://www.irs.gov/pub/irs-pdf/p225.pdf.


    IRC Section 183 is relevant for determining whether the operation is a hobby or for profit.

    If you pass muster as being for-profit, you may qualify for Section 179 expensing of equipment.


  3. #3
    Veteran Member
    Join Date
    Aug 2001
    Posts
    2,387
    Location
    Mid-Missouri
    Tractor
    Kubota L210

    Default Re: Farm Equip Tax Issues

    You have any sales tax issues? In some states the sales tax is less/none for farm implements, which are actually to be used for"farming".

    Chuck

  4. #4
    Platinum Member wasabi's Avatar
    Join Date
    Mar 2002
    Posts
    717
    Location
    Cullowhee Mountain, NC
    Tractor
    PT2445 and PT1850

    Default Re: Farm Equip Tax Issues

    Steve, thanks for the gov link...I'll check it out. I have a vague memory that the section you refer to allows accelerated writeoff of equipment. Looks like we share the Carolinas ...is your farm in the Piedmont area or west?

    Chuck, dunno yet, but I have heard if equip is for a farm, some states waive the sales tax. Can you or anyone else confirm? It would make a difference on sig purchase.

    Thx, Sabi

  5. #5

    Join Date
    Mar 2002
    Posts
    8
    Location
    North Florida
    Tractor
    Century 2045

    Default Re: Farm Equip Tax Issues

    The sales tax is waived in Georgia if the equpment is for "farm use". Just purchased a new Century 2045 with no sales tax.

  6. #6
    Silver Member
    Join Date
    Apr 2002
    Posts
    151
    Location
    Pensacola Fl
    Tractor
    Kubota bx2200, L3940

    Default Re: Farm Equip Tax Issues

    I'm a CPA, although I haven't worked in taxes for over 15 yrs. But back in the days of dinosaurs when I prepared tax returns, the rule of thumb was that the IRS expected to see a profit in 3 yrs from farming activities after which point they'd begin to investigate whether there was indeed a sincere business interest or if the 'farmer' was just wanting the gov't to help pay for his/her hobby.

    The primary thing the IRS will look for is revenue/income: What sales did you have? Have you sold livestock, pulp, fish, timber, hay, corn, beans, etc. in the last 3 years? If not, will you be prepared to so in the near future? Do you lease farmland (and where exactly is that lease income reported on your return)? Is your farm/business what you do to pay the bills or do you have a 'real' job? Is farming all you do ... or is it a hobby?

    Are you using your business assets for personal use: Do you mow your yard w/ your tractor? Do you use your tractor to build personal use things like a garage for your car? Do you use your tractor for landscaping your residence? Mowing your yard w/ a business asset more than once or twice a year is the kiss of death (but only if the auditor knows that tidbit).

    Do you have employees? If you have employees, you have a business.

    Basically, the IRS will ask you to prove you are running a business/farm. If you are legit, they will go away. I owned a tract w/ a lot of pine trees and depreciated my first tractor as equipment necessary to manage my 'pulp tree farm'. I didn't live there and the tractor was only used on my 'tree farm'. I never showed any sales (trees take a while to grow to harvest size), only losses for 3 years, and the IRS never bothered me. I sold the place after 3 years for a reasonable profit and the IRS got their chunk of the proceeds. They were happy and I was happy knowing I contributed to yet another cruise missle (not).

    I think you will be ok as long as you can look the auditor in the eye and say 'I'm running a business and here is the proof.' Then be able to show him/her some proof.

    If the IRS disallows your deduction, you will be responsible for the additional tax, interest, and a penalty. However, you will almost always be able to talk yourself out of the penalty if it just an honest mistake and you weren't really trying to evade taxes. Forget arguing successfully about the taxes or interest. You will pay those.

    And, finally, if you are never audited, there is never a problem.

    mark

  7. #7
    Platinum Member wasabi's Avatar
    Join Date
    Mar 2002
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    717
    Location
    Cullowhee Mountain, NC
    Tractor
    PT2445 and PT1850

    Default Re: Farm Equip Tax Issues

    Thanks Mark. Your experienced perspective jives with what I would think would be fair and reasonable. Yes, we have a full time caretaker (employee) who helps tend the property (and help protect our stuff) when we're not there. Yes, we intend to generate sales.

    My CPA mentioned something about showing a profit for at least two out of five years. I find it very hard to believe that farms in this day and age show a profit at all, much less forty percent of the years, so I was sure there must be other facets to this issue.

  8. #8
    Platinum Member
    Join Date
    Jan 2002
    Posts
    856
    Location
    South West Pa/Greene county
    Tractor
    Long/Landtrac360DTC

    Default Re: Farm Equip Tax Issues

    I don't pay sales tax on farm equiptment in Pennsylvania. I bought my tractor, implements, and even my quad without paying sales tax. You must have a certain acreage, I think its at least 10, but I'm not sure as to the exact amount.

  9. #9

    Join Date
    Apr 2002
    Posts
    280
    Location
    Rindge, NH
    Tractor
    Kubota L48 (Ellie Mae)

    Default Re: Farm Equip Tax Issues

    One of the many GREAT things about living in New Hampshire is that there is NO SALES TAX ON ANYTHING! I probably shouldn't have said that so loudly - we like you guys to come visit, for a little while.[img]/w3tcompact/icons/grin.gif[/img]

    Don't you just hate transplants? I used to be a Texan, so I have to brag once in a while! [img]/w3tcompact/icons/grin.gif[/img]

  10. #10
    Platinum Member
    Join Date
    Jan 2002
    Posts
    535
    Location
    Central Florida
    Tractor
    Kubota L5030HSTC

    Default Re: Farm Equip Tax Issues

    N.H. may not have sales tax, but the last I heard was N.H. has one of the highest property taxes in the U.S.

    Worst thing would be to work in Boston and live in N.H. Therefore, you pay very high income tax, and property tax. [img]/w3tcompact/icons/smile.gif[/img]

    Joe R.

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