How do taxes work?

[jacobsdaddy06]

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

 

[LeadPoison]

Unless you have a business and deduct it as some type of expense, you won't be able to claim any deduction.

 

[timswi]

Unless you have a business and deduct it as some type of expense, you won't be able to claim any deduction.

Very true, and even if you have some sort of business on the property, you have to be very careful with deductions.

If you're a private guy, you're kinda on your own. Welcome to the club.:thumbsup:

 

[rekees4300]

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

Depending on your state, you may not have to pay sales tax if the equipment is for farm use.

 

[Beltzington]

Don't know the answer but I have also heard of tax savings if you own at least 10-acres of land. After a considerable amount of Google time I could find no mention of these savings or state requirements. Could someone elaborate for us?

 

[5030]

JUST DID.............

We are/have a bona fide farm business and registered business name. When we buy a tractor or implement we pay no tax on it, however, an exemption certificate is provided by us to the seller/dealer.

And yes, we depreciate all the equipment.

...and yes, the IRS is very particular about what you deduct as are the respective states.

...consequently, we have a CPA that takes care of our taxes. Part of doing business.

Just because you own 10 acres don't make you a farm. I actually own less than 10 acres but we derive part of our income (actually a large part) from ag related activities, consequently, we fall under the definition of farming for profit.

The key to the equation is, if you will, do you derive part of your income from an agricultrial related activity? If the answer is yes (and you can prove it with tangible recepits and payment for services rendered or crop sales), then you qualify to be ag exempt from state sales and Federal Excise tax, but be ready to prove it.

My final comment is, if you have any doubt as to the validity of your proposal, don't do it. The IRS and state revenue departments frown upon non agricultrial activities being claimed as ag related. Owning 10 acres and mowing 6 with an acre garden and house on the remaining acre with an in ground pool, is not a bonafide ag operation. Never will be.

You claim an ag exemption under that pretense and you'll get burned, bad.

 

[deere5105]

I consulted my accountant a year or so ago about this. We used to run a few cows and now primarily farm trees. Since there is upkeep to this I was able to file under a farm status and deduct equipment purchases and expenses this way. I usually have them run the numbers with and without each year just to see what the actual difference is. Based on what I do annually, it is not a significant amount but I figure anything coming back is better than nothing.

 

[5030]

I consulted my accountant a year or so ago about this. We used to run a few cows and now primarily farm trees. Since there is upkeep to this I was able to file under a farm status and deduct equipment purchases and expenses this way. I usually have them run the numbers with and without each year just to see what the actual difference is. Based on what I do annually, it is not a significant amount but I figure anything coming back is better than nothing.

There you go. You have a bonafide operation. So long as you can physically show that you indeed participate in some typr of farming, you qualify.

It's significant for me because I turn over serious equipment expense.

In essence t you could live in a subdivision and be in a bonafide agricultrial enterprise like I am. Just so long as you can provide tangible proof of income derivived from an agricultrial enterprise. It's all in the paperwork

 

[jacobsdaddy06]

What I am looking at doing is getting into the hay part of farming, ive done this for years with a relative but nothing by myself, just trying to see what im looking at and have to do, by the way I live in Arkansas, thanks for all the info

 

[mjncad]

All good examples of why our federal and states tax codes are frakked up, and need to be replaced with a flat tax system.

 

[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.