How do taxes work?

[bp fick]

Each state or province is different, I am quite sure. Can only speak about Michigan. We too are a legit farm. Acreage is not important. You could theoretically make 50K per year off an acre, if the crop is specialized and marketable, I suppose.

Michigan definitions include claiming $1000 per year farm produced value of Ag products. We achieve this handily. Our farm products are purchased without sales tax of 6%. No sales tax on the tractor or implements.

However, you must actually claim and add you farm profits on income tax forms and dutifully pay income tax on the amount.

Advantages? I suppose, but it isn't earthshaking at our scale.

 

[MikeD74T]

Purchased 10 acres, how exactly does it all work with buying equipment and everything? Not looking at really starting a "business" or anything just wondering if I would be eligible for a tax deduction from buying equipment? Thanks for all replies

In New Hampshire lots 10 acres or greater ( or any acreage of wetland) are eligable for property tax reduction via "Current Use" program. Farm, forest, & unproductive lands are assessed at a much lower rate thus less land tax is paid annually.
For example a 2 acre building lot in my town would be assessed at about $200K where the same two acres in orchard might be assessed at $800 per acre, forest land under $200 per acre, unproductive wetland $15 per acre. There are some restrictions on what can be done on current use land & a penalty for changing out of current use. MikeD74T

 

[MossflowerWoods]

Purchased 10 acres, how exactly does it all work with buying equipment and everything? Not looking at really starting a "business" or anything just wondering if I would be eligible for a tax deduction from buying equipment? Thanks for all replies

I'm in VA and I am currently struggling with this myself. I have a legitimate timber operation, and I generated good revenue last year (at basis - i.e. no profit). This has cratered my CPA so bad I still have not filed for 2010 (and I'm dreading it).

I get a small break on my property tax for having over 25 acres of managed timber (very small break).

I did pay sales tax of 5% on everything, mostly out of fear, and because the rules seem to require annual ag income, and timber is harvested only every 15 or so years.

My understanding is that most of my legitimate "AG expenses" are added to my basis in the timber and when I do cut and sell, it reduces the profit I must pay taxes on.

I was lucky that I already had my own "S" corp for consulting work in DC for 3 years and I could just add Timber to the company biz plan.

My experience so far is that it is all a royal pain in the tookus. But I refuse to pay MORE than my unfair share and I plan to get EVERY deduction I can!

Best of luck to you with your haying operation sir!
Be well,
David

 

[Dr_Zinj]

You have to have a legitimate business before you can claim business expenses. And you have to have a legitimate use of a tractor and attachments before you can claim them as part of your business expenses.

Theoretically, I could buy and sell rocks as a business here in New Hampshire. Use the tractor & FEL to move them to sorted piles, include a back blade for moving, a mower/brush hog for keeping the area between piles maintained, a snow blower to clear in the winter.

Looked it up a few years ago. I seem to recall there being a certain dollar figure you have to realize before being able to claim it as a real business, something like $5000 within a 3 year span. Since I didn't qualify, I haven't kept up on it.

 

[5030]

Each state or province is different, I am quite sure. Can only speak about Michigan. We too are a legit farm. Acreage is not important. You could theoretically make 50K per year off an acre, if the crop is specialized and marketable, I suppose.

Michigan definitions include claiming $1000 per year farm produced value of Ag products. We achieve this handily. Our farm products are purchased without sales tax of 6%. No sales tax on the tractor or implements.

However, you must actually claim and add you farm profits on income tax forms and dutifully pay income tax on the amount.

Advantages? I suppose, but it isn't earthshaking at our scale.

Neither is it at mine and actually, one end offsets the other. The paperwork is much more elevated, like the yearly farm census wher you have to list all your cropland, shared acres, livestock, tractors, even quads...what a PITA.

The only realized advantage I can see is in major purchases of tangible assets/machinery. A 50K tractor looks better minus 6% sales tax. So does a 35K bailer. We have ground in 116 but it can't be sold or subdivided without paying up...at the highest permissible tax rate allowed.