I need a tax break

[ccatfish]

I bet many of the members here at TBN treat their property as an agriculture business for tax purposes. I want such a "business" for tax purposes. Any suggestions you can give related to the types of business (tree farm, nursery, etc.) or other helpful hints would be appreciated. I can't have an animal farm, too much time.

 

[cowboydoc]

Catfish,
How much land do you have? Anything that you do has to have a significant time factor to be a legit. business or otherwise the irs classifies it as a hobby. If you ever get audited you'd better have a business plan and documentation of your hours and excellent records. If you're just looking for a writeoff but don't have the time to do all the paperwork, don't do it. I have had friends who did the same thing and got audited and it cost them thousands in back taxes and penalties. The other thing is that you have to make a profit at some point as well or you will lose your business status. You also have to be able to justify what you are doing and show your product, etc. For example you can't say that you are going to be a tree farmer and then buy 100k worth of equipment and never sell a tree. If you ever get audited another of their little tests they will put you "business" to is whether or not the operation was ran in the context of actually making money. I haven't been audited yet but I keep records of everything and every year have a new business plan to become profitable for the next year.

 

[Thomas]

ccatfish,
You don't really get a break becoming a tree farmer {least up here}and you better read the fine print,for you will be surprise of the do's and don't's. /w3tcompact/icons/frown.gif
Do you have such a thing...Under Current land Use or Conservation Act in your area...but there also cons to these acts....be careful.

Thomas..NH /w3tcompact/icons/wink.gif

 

[GrantMO]

Catfish,

Richard is correct about making a business plan, keeping records and intending to make a profit even if it is only a small one. You might want to consult an accountant. I've been told second hand that such businesses need to show a profit, even just in the black, 4 out of 7 years to legitimize business deductions. I'm planning to ask my accountant about this to see if it's true.
Another tax to consider is sales tax. In Missouri you can buy farm related items for your farm/ag operation and they are sales tax exempt.

Grant

 

[Rowski]

You may want to look at land stewartship program or something similar.

Derek

 

[ccatfish]

Thanks for the info. I do have a CPA and will be meeting with her soon to talk about this in more detail. I am aware of all the requirements of a normal business, but I have been told that agricultural businesses are covered by a completely different set of tax laws. For example, I don't think an Ag business has the same profitability requirements. I also think you can still file a 1040 without a lot of the forms required for a sole proprietorship (sp?).

In short, I am going to purchase 20-40 acres of land in a few months regardless of the tax issue, so I figure I might as well find a way to make a business out of it. I know several people that have used this approach for years with CPA oversight.

 

[heehaw]

"i need a tax break"; don't forget, tax breaks are not dollar for dollar; i have a lot of friends that have cattle for a "tax break", but they don't understand, they would have more $$$ in their pocket without the "tax break". tax folks, including cpas, don't seem willing to explain this to folks; if your in the @ 33% tax range, spend @ $10,000, you get the big tax break, and get @ $3000 back, but you still spent $7000. (these are just estimates of course). sometimes i think i would rather spend the 7k than let the govt get the 3k??? whats that ole saying about spite!!!!!
heehaw

 

[cowboydoc]

Catfish,
What you are talking about is not the same as a true business. What you can do is any hobby that you do you can take off expenses to match income BUT you cannot claim a loss with this type of business. You get the benefit of not having to pay additional taxes on the income you make but most people just do that kind of stuff under the table because there are no real tax benefits. The other option is that you are a sole propietorship and you file a schedule C.
As far as the yearly losses yes that is true but you absolutely have to have a plan in place to make money and it becomes very hard to convince them that you are a business and not a hobby. Where you don't have employees they also look very hard at how much time you spend with the business.
I have a very good accountant who used to be one of the head guys at the IRS. He knows everything to avoid an audit and we follow everything to a T. The only reason I do it is because I love the way of life. To be honest with you if I didn't love doing the horses and cattle it wouldn't even be worth what I save in taxes making it all work. I have a hired hand and spend at least 20 hours every week working at it. I don't make a dime for all that work except for the tax breaks that I get. If I worked that 20 hours at my regular job instead of at the ranch I'd be way ahead of the game.
If you do something that isn't really a business but something that you love to do and won't mind putting in the time or doing the paperwork then do. If it's just something you want to do to get a tax break, in my opinion, it's not worth it. There are much better ways to avoid taxes.
Just some thought for you.

Richard

 

[Rick572]

Hello to all,
I am new here so if I' intruding please accept my appoligy in advance, but I like to put my two cents, because I agree with everything Cowboydoc said in his post, and it matches my own experience. I operate a Pet Cemetery which provides me with a fairly good tax break and allows me to do many of the things I enjoy doing, and would probably be doing without the tax break. I'm basically retired, so can afford to dedicate
some time and labor without immediate compensation. I have been able to show a profit most years, but it certainally does not reflect time and effort expended. To me, its a labor of love and a service to my community which otherwise is not provided. I believe that most people who would get into a business with the goal of acquiring a tax break may be making a serious mistake. Kinda like having children in order to get a tax deduction. It may work, but its sure the long way around. Thanks for letting me get my $.02 in.

Rick

 

[DennisY]

cccatfish,
One thing you need to consider is if you depreciate equipment such as a tractor and other machinery over say 5 years it now has a book value of $.00 as far as the IRS is concerned. If you then sell it you now have a taxable gain of the entire proceeds. This happened to my Dad a few years ago when he became too old to use the machinery and sold it.
Since everything was in very good shape it was worth quite a bit in some cases as much as he had originally paid for it. The G.D. government gets you coming and going!