IRS Schedule-F questions

[paulsharvey]

So, I know we have smart folks here, and I'm not asking for legal advice. So, spoke with my county about getting my property declared Bona Fide Ag; and 1st, I'm not ready, she said it must be In Production by Jan 1, and planting pastures, adding fence, ect isn't "In production". She said, although not strictly required, they need the same info as on your IRS Schedule F, and that you need to be doing a Sch-F anyways.

So, I've always herd that IRS doesn't want to see two consecutive years of looses, or they might delay are business a Hobby. My goal is between 4-6 cattle, grass feed, grain finished, using some for personal and hopefully selling half shares too.

So, what are other "for profit" "hobby" folks doing. Surely they can't expect profitable in 2 or even 3 years? Is farm profit or loss treated differently than a traditional "side hustle" business?

 

[ultrarunner]

The Christmas Tree farm was scrutinized at several levels of government but passed all including State and Feds.

Several times auditors showed up to inspect... having meticulous records, payroll, licenses, insurance all factored.

The hobby is now 3300 trees last season...@

 

[fishheadbob]

File a schedule F. Christmas trees are a fine example as they take about 8 years to the first sale, and it's no big deal to government agencies. I've seen hundreds of Schedule Fs in my working days and an awful lot of real (dairy) farmers seem to lose money more often than not. On the other hand 4 or 6 cows is a little bit of a stretch, but not totally far fetched. If you happen to get a full blown audit , and if the auditor disallows your farm it's not the end of the world. You would have to pay tax on on your losses. The penalty is usually the interest on the unpaid tax so you just wind up paying what you would have in the first place plus some interest. You still have the beef.

 

[drssg]

I have some experience with this sort of thing related to horses. The auditors are rather touchy in this area, because it is not too uncommon to have people that just love having horses, and they attempt to declare the whole mess as a business.

The general guideline was that an auditor wanted to see a profit four out of seven years, but that's just a starting point. Failure to do so doesn't automatically mean that the business will be declared invalid. Making the four years of profit is not a guarantee that you won't get audited. It comes down to a more general ability to present a convincing business plan for profitability.

I ended up leaving my hobby as a hobby. If my hobby earns some income, but my main income is from another declared source, and I'm not actively promoting the hobby business, I don't think the IRS is likely to bother with me.

The main benefit of the business is being able to write off the initial infrastructure costs. That effectively amounts to a 25% reduction of that cost. On the downside, I have all the record keeping and stress of eventually showing a profit. I would rather just enjoy the process.

 

[workinonit]

Are you breeding and raising horses to sell? If not then I don't see how it could be construed a business. Much different than raising cattle. Not many wranglers like Dick Butkis.

 

[ultrarunner]

Are you breeding and raising horses to sell? If not then I don't see how it could be construed a business. Much different than raising cattle. Not many wranglers like Dick Butkis.

The farm my brother bought had a long history of boarding and rehabbing race horses… it was the business for decades but with the tracks closed the need was no longer there.

It seems income can make just about any enterprise a business provided legal…

Kind of like professional gamblers, etc.

 

[drssg]

Are you breeding and raising horses to sell? If not then I don't see how it could be construed a business. Much different than raising cattle. Not many wranglers like Dick Butkis.

There are a variety of ways to have income related to horses. The only problem is that most of them aren't very good.

Some people board other people's horses, some train other people's horses, some give lessons to other riders. People that have a very good reputation can act as a broker, matching up buyers with an appropriate seller's horse for a percentage of the price.

 

[ChiefBodie]

We had someone try a business doing riding lessons. The first customer, on the first day, had their foot stepped on by a horse. That was the end of that.

 

[Hay Dude]

So, I know we have smart folks here, and I'm not asking for legal advice. So, spoke with my county about getting my property declared Bona Fide Ag; and 1st, I'm not ready, she said it must be In Production by Jan 1, and planting pastures, adding fence, ect isn't "In production". She said, although not strictly required, they need the same info as on your IRS Schedule F, and that you need to be doing a Sch-F anyways.

So, I've always herd that IRS doesn't want to see two consecutive years of looses, or they might delay are business a Hobby. My goal is between 4-6 cattle, grass feed, grain finished, using some for personal and hopefully selling half shares too.

So, what are other "for profit" "hobby" folks doing. Surely they can't expect profitable in 2 or even 3 years? Is farm profit or loss treated differently than a traditional "side hustle" business?

I never saw where it had to be profitable on start up years. My accountant suggested an LLC and just jump in. That’s what I did and here I am decades later. I have never lost money and don’t *think* I will in the future loss of health or some other unforeseen calamity (war, change in policy, etc.)

Your operation sounds smallish if you plan to stay that size. I would suggest finding a customer or 2 and raising more head on their land, or growing crops on other land to have the appearance of a growing operation. Seems to me the guys that get caught are the ones with a few cows in the back yard looking for a tax loophole.

 

[tradosaurus]

The insanity of the entire tax system is that we are "required" to pay taxes and if we make a mistake while trying to figure out the convoluted tax system we are punished.

The American Revolution was fought over much less taxes levied.