Tax Deductions/Small Farm Business Ideas

[roadhunter]

I believe in some state timber is considered an agricultural product. Might be the easiest route if that is the case in Missouri.

 

[ovrszd]

One big gotcha that the IRS gets most "hobby" farmers with is that you have to report a "profit" in 3 out of 5 years or you are not considered a "real" farmer but a "hobby" farmer.

Quote from IRS: "An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses)."

I can show you many "real" farmers that rarely show a profit.

I think your posted quote from IRS is their definition of a for profit business venture in regards to horses??

 

[kevin37b]

Your annual household income is SOMEWHAT high , and you are asking questions about taxes and keeping bees ? May you get STUNG .

 

[forgeblast]

We have a program in PA called Clean and Green if you have more then 10 acres and they are wooded, you pay a reduced tax amount to keep them green.
We also have property enrolled in CREP, to help with erosion, it cost shared the planting of various trees, and pays us a rental for the next 10-15 years.
There is a magazine called hobby farms, not a bad magazine might give you ideas.

 

[ovrszd]

Your annual household income is SOMEWHAT high , and you are asking questions about taxes and keeping bees ? May you get STUNG .

I took it that he is exploring tax laws regarding the land purchase. I would think him somewhat naïve if he didn't do that.

 

[ovrszd]

We have a program in PA called Clean and Green if you have more then 10 acres and they are wooded, you pay a reduced tax amount to keep them green.
We also have property enrolled in CREP, to help with erosion, it cost shared the planting of various trees, and pays us a rental for the next 10-15 years.
There is a magazine called hobby farms, not a bad magazine might give you ideas.

Yep. These are the things he will learn with a trip to the FSA/SCS offices. :thumbsup:

 

[JRobyn]

We have had numerous major deductions from our farm property, but have only had minor actual income from "farm operations". Our "operations" are primarily hay pasture (two horses) and timber. We do use a very experienced and trusted tax preparer.

p.s. If our preparer's opinion is correct, the "profit in 3/5 years" rule is NOT an absolute rule. As others have noted, "real" farms often cannot achieve this.

 

[Olympus]

Yep. These are the things he will learn with a trip to the FSA/SCS offices.

I called the local FSA offie and they have loan programs for starting a business, which I'm not interested in, but no programs for wooded acreage. They didn't have any info to provide regarding tax incentives/deductions or ideas.

The CSC wasn't much help either because my land is wooded and not pasture or grazing land.

 

[motownbrowne]

I think, as has been eluded to, that you're gonna hit a snag. Namely that you can only use your farm to offset income from your other sources if your "farm" loses money every year. If you make money on the farm, you'll just have to pay more taxes. I think, like Richard mentioned that the IRS does give farm businesses more leeway than other ventures when it comes to profitability, but even so, I don't think you'll just be able to declare a loss every year indefinitely.

Upon thinking about it I googled it and found this article, which I think is a good starting point. Hobby Farming and the IRS - Modern Homesteading - MOTHER EARTH NEWS

Basically, it says you can deduct losses from a farm for a pretty long time, but the IRS wants to see some evidence that offsetting other income isn't your primary goal (which might be tough given that, in this case, that seems to be your primary goal. You're gonna need to sell stuff, for one thing. And demonstrate that your activities are business-like and that you're trying to increase your expertise in your field (no pun intended).

As someone who makes their income farming vegetables, which is an area that has lots of hobby farmers, I'd like to respectfully ask you and other readers who are in a similar situation (comfortable off-farm income, producing for a hobby and write off) to not undercut the prices of producers who rely on this income. It's not uncommon for someone in this area to retire from a very comfortable job and start raising bees for example. Then they come to the farmer's market and sell for 25% less than the other vendors. They don't care of they aren't making a profit, but it has the potential to mess things up for the other vendors who need to maintain profitably to continue doing business. Just something to think about. Good luck with your new property.

 

[murphy1244]

I called the local FSA offie and they have loan programs for starting a business, which I'm not interested in, but no programs for wooded acreage. They didn't have any info to provide regarding tax incentives/deductions or ideas.

The CSC wasn't much help either because my land is wooded and not pasture or grazing land.

I am enrolled in a woodlands tax credit that deducts 50% of the property tax. Also enrolled in a EQUIP program that paid for invasive species and grape vine program. Now a certified tree farm.