Tax breaks for small farmers?

[dooleysm]

I've been reading the thread on farming with some interest. I've heard of tax breaks for farmers and am wondering what those breaks might be?

I've got 13 acres of pasture and another 30 of woods. I'm planning to start raising chickens, mostly for my own use. But, if I could raise a few more and sell some eggs, could I call myself a "farmer" and get the tax breaks? Do I have to meet certain specifications to be considered a farmer by the taxman? Are the potential tax breaks worth the extra effort to be considered a farmer?

Is it worth the time and effort to turn a hobby into a tax break?

 

[Tim_in_IA]

You're a farmer if you sell what you produce to others. There isn't a land or occupation requirement, but you must be in it to make money, not just as a break even or money losing hobby. Some local codes and property tax breaks tend to indicate a 10 acre minimum, but the IRS docs don't specifiy one, as a greenhouse operation and the like could easily be only a few acres but make a large amount of produce. There is a lot of misinformation out there on this so I would stick to the IRS website and your state tax website for guidlines on how to do this.

Also, avoid terms like hobby and tax shelter if you plan to do this /forums/images/graemlins/smile.gif, they are dead ringers for an audit I have also heard that horses are more difficult to justfiy and people that raise horses as a side business tend to get audited more.

Your tax man should be able to help you with this, and he/she will know the local code.

here is the farmers tax guide on the IRS.gov site:

http://www.irs.gov/publications/p225/

 

[Indydirtfarmer]

You need to meet the requirements of the state in which you operate. Some require from $500 to $2500 of farm generated income to qualify for AG status. (In addition to a minimum acreage requirement)

After 30+ years of farming, the best advice I know of is to get an accountant that is VERY familiar with farm taxes to handle your books. They will save you many times their cost over the long haul.

 

[Tim_in_IA]

right, get a local professional. Just so happens that mine said there was no land or other requirement. People rent and work on shares, but do not own farms, yet they are still farmers. Also, for minimum income per year, if your in my position where you are just starting off and not expecting to make a profit for several years that would not apply. There is a grace period where you can lose money before you make money. Otherwise new farmers would not be able to startup with the high initial costs. For me that means getting my livestock numbers up to a point where I can sell and make profit. Moral of the story is ask your taxman to make sure.

 

[dooleysm]

My taxman is my wife, and she knows nothing about this issue. I'm sure she would be willing to read up on it if it was worth her time and effort. Do you guys think there is enough incentive for her to read up on it and for me to try to make a go of it? I really don't see me doing it for anything more than a hobby and I was just wondering if there was a way to make it a more affordable hobby.

I think I'd have to sell a LOT of eggs to get $500 in profit. Just to make $500 would be a stretch.

 

[dooleysm]

Meant to add this to the previous post...


I'm building a pole barn right now, which I am planning to add chicken coops to one side of. I'm thinking that if I were claiming to be a farmer then I could deduct a portion of the cost of that building from my taxes. Now it sounds like if I did that, then I'd better start showing some profit some time in the next couple years or else expect a visit from my friendly neighborhood taxman.

I've also obviously got tractor related expenses and all kinds of other things that would be related to the "farming" (fencing, feed, etc.) that would be nice to deduct from my taxes.

Should I look into this more, or are the benefits of being a farmer just not worth the hassle in my case?

 

[Tim_in_IA]

Yeah, you'd have to look at it as a business. I was my own taxman before I started this, and then I reasearched and researched. Then I hired a professional /forums/images/graemlins/smile.gif. (sorry turbotax /forums/images/graemlins/smile.gif). You could also think about selling meat in addition to eggs. There are a lot of people looking for organic solutions such as grass fed birds for meat and the like. Either way, it should be treated like a business seperate from your other activities. But it is a good way to help pay for the cost of your expensive tractor addictions /forums/images/graemlins/smile.gif

 

[Tim_in_IA]

look into it. it wont hurt anything. You might find that you could change a few things and make it work, possibly doing more than you were thinking of before, but it will be rewarding in more was than one.

 

[Mosby]

I had 33 acres in Virginia, 20 of which was wooded. My county offered me the opportunity to put the wooded land in to forestry land use and the open land in to farming land use. They had a list of things that could be done to claim the open land as farm use such as 1 cow per five acres, sell a crop whether it was hay, tomatoes or the like, etc... Having it in land use saved me approx 2,200.00 per year in real estate tax at the time. The only catch to it was that if I sub-divided the land, I would have had to pay roll back taxes for five years. I have talked to others in the same state and theirs was different as each county has their own rules. Just a thought. It was far easier than trying to set up the farm thing for income tax purposes!

 

[Highbeam]

I was also mainly concerned with local county type property taxes as an immediate benefit in that post. I'm talking several 1000s per year, not unlike the forestry exemption. In my county If I change from a farming use then I owe 7 years of back taxes. The ability to write off pickup trucks, tractors, fencing, outbuildings, or anything else will be a project for the accountant. The gov't doesn't make it easy to reduce taxes but I will take full advantage of the system in a legal manner.

I think being a farmer for a profit and being a hobby farmer is a fine line. There is no rule that says you may not be a farmer on the side with a full time job. You can call me a tax-break farmer.

Find an accountant that does the books for local farmers and ask them these questions. Pay for a consultation or just tell them what you're doing and what you want to do. You need an expert to guide you on this one since the risks are too high.