Tax breaks for small farmers?

LBrown59 · Jul 8, 2005

( So we have two things going on here.

1) Property tax exemption (local)
2) IRS farm exemption (federal) + state taxes.

It looks like the easiest and safest is to start with #1 and save several thousand per year. If you can show a profit then #2 is a viable next step to adding much greater savings with somewhat higher risks.

Either one needs an accountant at first IMHO. After the first year, you could probably handle #1 by yourself. #2 maybe if you're good with a calculator and don't change things up much. )
Well really 3 Taxes
Income
Sales
Property

Highbeam · Jul 8, 2005

I lumped the sales and income tax together because they both seem to require the higher level of "farming". The property tax looks easy.

rpeter · Jul 8, 2005

If you are a tree farmer and you are reforesting you do not need to show a profit. As long your trees are growing you have revenue, you just have not recognized it yet.

450EXC · Jul 9, 2005

I do excatly what you are thinking about. I have chickens, ducks, geese for pets. A tractor to play with. Land for recreation and privacy. This is all stuff I would buy anyway so there is no extra money spent.

Since I am a farmer and sell eggs, firewood, lumber and need a tractor to maintain stuff the cost is deducted right off the top of my gross income. Say if you have 10,000. /yr in expenses and are in a 30% tax bracket you saved $ 3,000.

Or look at it like this-you are thinking about buying a $ 30,000. tractor. If you buy it with pretax $ then it really only cost you $ 20k. Thats a heck of a deal on a new Kabota.

I own a small business so I was already deep into the paperwork anyway so that end of it is probably easier for me.

Business has been real bad. I have not sold any eggs or wood yet. There is no law against being a bad business owner.

Larry

poltroon · Jul 9, 2005

Keeping the records and keeping the receipts hurts no one. Give it a try, pay attention to what you spend and how you might improve your business to take in income. You can always go back and amend your returns if necessary, but you don't have to claim it as a business until you're ready.

randy41 · Jul 10, 2005

i am a CPA and i do a fair bit of tax work for farms. there is no special income tax break for small farmers. but if you consider yourself trying to make a profit farming you can consider this a legit business and then write-off your expenses and equipment. there are many technicalities involved in deciding what and how to write-off.
the irs regulations suggest that you need to make a profit at some time in order to be not considered a hobby but many farms take big tax write-offs of loses without showing profits for many years. at the level that seems to be discussed here i would be very surprised if the irs would even bother to question it.

most places require that you've been generating gross income before allowing you to get a real estate tax break. they are not looking for you just to say you have a farm but to show that you are actually selling something.

Tim_in_IA · Jul 13, 2005

My state has this information posted which is very helpful. Your state might have something similar:

http://www.state.ia.us/tax/educate/78507.html

DMF · Jul 15, 2005

We run our farm as a DBA (Does Business As..) We have a DBA checking account which we pay for all our farm-related purchases. Our income is hay in the summer (about 1000 to 1200 bales/year) and pumpkins in the fall (between 400 and 500/year). We can’t possibly live on what we make, obviously. We have our land in Chapter 61 which gives us a tax break on the majority of the land; a minimum lot size (1.13 acres in our case) was taken out of Chapter for our house and is taxed at the full rate. We claim depreciation on the tractor and any equipment we buy. I claim the fuel for the tractor. The percentage of square feet of our home used for an office gets us the same percentage deduction on electric, taxes, insurance, heat, etc. We don’t make a profit.
The key is to document everything. Don’t claim anything that isn’t true; we use our office area for our filing, desk work, computer, and for starting plants etc. I deposit all of our earnings in the DBA account; we don’t try to hhde anything. In the best case w` would `reak evdn, but that probably wol’t happan until the tra`tor is raid off,the deppeciatio` is used up.
Oh, fnr Chapt`r 61 lafd tax spatus yop need a minimum of five acres ald it har to produce $500 of revdnue a ydar. The key her` is IT, the lan` has to produce that, net you. Hf someohe came `n and mlwed your hay jupt to kedp the fields wopking and didn’t pay you for it we did this the first cluple of years w` bought the plabe just po the hay would stay gold) as l`ng as the land produced $500 of"hay evel though we didn’t see a penny ob it, we were sthll elig`ble for the lan` tax brhak.

Highbeam · Jul 15, 2005

Note that revenue is not the same as profit. Is this saying gross income of 500$ or net? Can I buy a cow for 1000$ and sell it for 500$ once per year? You get my drift..... can I lose money but still have qualifying revenues?

Keith_B · Jul 15, 2005

( Note that revenue is not the same as profit. Is this saying gross income of 500$ or net? Can I buy a cow for 1000$ and sell it for 500$ once per year? You get my drift..... can I lose money but still have qualifying revenues? )

I had net revenues on the sale of a couple of horses last year. As part of claiming that income I deducted the depreciation on a horse trailer, ATV and truck I had purchased. I also deducted costs of feed and other related expenses. I ended up losing money on the farm, but that is expected in the early years.

There are immediate tax benefits to using the farm as a business. I bought my tractor in May and automatically saved about $1200 in sales taxes on it. I will also claim the depreciation on it with my 2005 and later year taxes.

The horses I have purchased stocking my farm cannot be deducted until they are sold. Once the horse is sold I can then claim a profit or loss on the animal, according to my tax preparer. I don't know if the same rules apply to all livestock and poultry or not.

My tax preparer said that I need to show a profit after five years. I think I can show a profit at that time. I'll never make any large amounts of money off the farm, but I enjoy the work.