I need a tax break

[richh]

Richard I have a small business logging xmas trees firewood and hay crop. We do get some type of tax break but not much. Like you say you gota love it or your better off to go back to your 9-5. I would like to know what other ways you mite have to cut/avoid tax's! /w3tcompact/icons/smile.gif
Rich

 

[ccatfish]

thanks for the replies. i already live the "way of life" several of you mention, I'm just looking to live it a little more.

after the winter we've had this year, i think a business selling firewood may be an option.

 

[Alan L.]

Farms are treated as any other business - yes there are some farm related tax rules, but two rules still apply. Number one - in order for a farm loss to be deductible the farm business must have been entered into for the purpose of making a profit. Number two - the expense that are being deducted must be ordinary and necessary.

Since cash basis farmers can deduct production expenses (to grow a crop or raise livestock) when paid and don't have to wait until the product is sold to deduct it, losses in some years are a pretty normal occurrence. Multiple year losses from the farm do not necessarily mean that the farm will be disallowed as a hobby, but showing a profit 2 out of 5 years goes a long way to proving that the farm is a real business. Ranchers incur years of losses building a herd because all of the feed and expenses are deducted up front while female offspring are retained for breeding.

The burden of proof as to the profit motive of a farm or any other business is on the taxpayer.

 

[cowboydoc]

Rich,
Do you work for yourself or someone else? How is your logging business set up? Sole prop. or are you a corporation? Email me if you want and I'll let you know everything that I do.
Richard

 

[bsauter]

I find that doing this is fairly easy. /w3tcompact/icons/smile.gif My wife and I operate a small horse farm on 10 acres. We are looking to buy 40 more acres next to us to expand. We board three horses and have two ourselves and import Dutch Warmbloods from The Netherlands every now and then for training and resale.

I write off my tractor, barns, fencing, trailers, implements, some state taxes, my truck, feed, hay, diesel fuel, vet bills etc. /w3tcompact/icons/cool.gif It has been a definite advantage doing this. 6 years ago we started this and I took a $20,000 loss in startup after writing off $10,000 in fencing and other stuff. It also helped cover capital gains that I was going to have to pay on stock market sales I did that year.

I was AUDITED by the IRS /w3tcompact/icons/frown.gif two years later of course with the initial loss. I went and represented myself with the business plan, drawings and photos, all records and receipts and when they asked for something I had it right at hand. I left the audit with a clean record, a "GOOD JOB" from the auditor and a favorable recommendation for my tax return to the auditing board. /w3tcompact/icons/shocked.gif I was told to do the same thing that I have been doing and the auditor even gave me some tips for future returns. I was later notified that my tax return would stand as is and I did not owe anything. /w3tcompact/icons/laugh.gif I can also say the IRS was very courteous and helpful to me. Not a horror story like you hear so often.

Moral of the story is that you can probably do that too! I did not and do not use and accountant. I prepare my returns on Kiplinger TaxCut software. IRS agent liked that very much! I have no special skills to do this.

You must be prepared to make a profit though so don't try and screw the Government. /w3tcompact/icons/mad.gif I have to make a profit 1 out of 5 years and I have made a profit 4 out of 6 years and don't mind paying taxes on that because I get a lot of advantages.

The best thing is called a Section 109 where you can take up to $19,000 off right away on stuff (don't know yet what it is for 2001). All my implements are this way. I just tell my wife it's a write off and I go buy it! She can't say a thing!

If you are not comfortable with doing this consult your accountant or a tax attorney. But I can tell you that I passed the ultimate test with the IRS audit and have come out ahead. I just make sure that I am on the up and up with them and keep diligent records and follow all the tax laws. I also get farm rates on insurance for my truck and house. Nice extras and lower rates.

Good luck!



Brad, Kubota L3010HST, loader, R4 tires
Pictures at http://albums.photopoint.com/j/AlbumIndex?u=179207&a=9183978

 

[cowboydoc]

Brad,
Yes you are right but you passed the ulitimate test. 1. You kept good records. 2. You had your plan. 3. You made a profit. 4. You put a significant amount of time into the operation. With all that said it's a piece of cake. How many hours would you venture to say you put into this operation a week? Also with livestock it's much easier to write off as well. If you do it right and enjoy it it's not a hassle.
Richard

 

[Alan L.]

Congratulations bsauter on getting a "good" agent. I would think any agent should have disallowed an immediate $10,000 writeoff for a fence. Its a land improvement not subject to section 179, and so is supposed to be depreciated over a period of time.

I'm prejudiced, but software doesn't make laymen tax experts. I highly recommend you let a professional handle it if there are any complications at all. There are so many subtle rules that require daily pouring over IRS and court actions that there is no way the layman could ever keep up with it. There are elections that you only have one chance to make properly that could cost a lot of money if mishandled. I would equate it to heart surgery, but fortunately nobody will die if you mess up your own return. Thats why we CPAs don't pull down the BIG bucks.

Farms are especially good for tax purposes when you think about messing around with the land and cattle and the outdoors and being able to "maybe" take some tax losses.

 

[bsauter]

Hi guys,

Richard, We probably put 20 hours a week in. Sometimes more, sometimes less.

Alan, I was allowed the fence because Section 179 specifically states that single-purpose agricultural or horticultural structures are eligible for total expense in the year it is purchased. The IRS considered the fence to be an "agricultural structure." Most storage facilities are included in this also. Before I did it they said I could take a section 179 on it and during the audit they said it was OK. After the audit during review it was allowed too. Of course, I could have depreciated it but I needed the tax break right away in that case. My barns are depreciated over time including the single purpose ag storage facility that I could have taken a S179 on.

But you are so right about having a competent accountant do this work for you. I do not take all the deductions that I can because I don't care that much. I just take the biggies and pay taxes on what I make. I am interviewing a couple accountant becasue my tax situation keeps getting more complicated every year and it is hard to keep up. I am sure that a good accountant will save more money in the long run. If we depended on the farm income to live I would have started with an accountant to milk everything I could.

Software is a great help but you still should have the tax laws available to read and understand. You are right that it does not make an expert out of a layman. Far from it.

Brad, Kubota L3010HST, loader, R4 tires
Pictures at http://albums.photopoint.com/j/AlbumIndex?u=179207&a=9183978

 

[Alan L.]

I am impressed. Sounds like you really did your homework. The rule you are referring to is supposed to equate what would otherwise be treated as real estate to equipment. Grain bins, feeders, chicken coops, silos, etc. A standard barbed wire fence to keep the cattle in the acreage really should not qualify but you can bet that I will thoroughly research it next time it comes up. I assume there was something special about your fence and if not I congratulate you for selling it to the IRS. In your case it qualified.