Tax Deductions/Small Farm Business Ideas

[motownbrowne]

Check with the DNR for timber programs.

 

[adventure bob]

Small businesses as a tax write off are tricky when your trying to lower your overall tax burden with the idea of the farm being a small business. Here's the rub: If you consider your other income as part of the business then you can use it as a capital stream for the business. However it also puts that income stream into direct fire for liabilities of the business. My LLC does not include my day job thus if the LLC gets sued I keep my day job money, my house, my car. If my LLC folds, I don't have to pay off its debt with my day job money. I pay separate taxes on each. I cant write off LLC purchases or expenses to lower my other tax burden. Bummer is that if I pay myself a salary from the LLC, that simply increases my personal tax burden.

 

[roadhunter]

As I said earlier USDA has programs forforested land as part of their Conservation Stewardship Program. One example I have seen is cost share on cutting invasive species off your land or for cleaning up the slash after logging operations. Selling some of you wood might help legitimize your "farm/business" operation with some income. Then participate in some of these government conservation programs to clean up the mess, build animal habitat, conserve water, etc..

I help landowners in this area turn wood waste into biochar as part of the USDA NRCS Conservation Stewardship program, land enhancement E384135Z. There are thousands of enhancements you can do on your land and receive payments on top of what the program pays without enhancements.

Deadline to enroll is Feb 4. Contact your local NRCS office for more details.

 

[teejk01]

I guess my question to that would be how can that be possible with say a Christmas tree farm? It takes 6 to 10 years to grow a mature tree, so that's 6 to 10 years before a profit is even possible.

The numerical tests contained in the IRS hobby loss rules are merely "safe-harbors" and have been around for a long time...note the language that says "presumed". Meet them you are fine. Fail to meet them, then you might have to explain. That "presumed" thing in the underlying tax law is a "rebuttable" presumption.

 

[teejk01]

I guess my question to that would be how can that be possible with say a Christmas tree farm? It takes 6 to 10 years to grow a mature tree, so that's 6 to 10 years before a profit is even possible.

There must be some specific guidance out there for Christmas tree growers. Being a tree they might get special treatment, otherwise you probably have to defer (capitalize) all expenses until you start selling trees. I think whiskey works that way.

 

[ovrszd]

As someone who makes their income farming vegetables, which is an area that has lots of hobby farmers, I'd like to respectfully ask you and other readers who are in a similar situation (comfortable off-farm income, producing for a hobby and write off) to not undercut the prices of producers who rely on this income. It's not uncommon for someone in this area to retire from a very comfortable job and start raising bees for example. Then they come to the farmer's market and sell for 25% less than the other vendors. They don't care of they aren't making a profit, but it has the potential to mess things up for the other vendors who need to maintain profitably to continue doing business. Just something to think about. Good luck with your new property.

Very good point!!!!

 

[motownbrowne]

Very good point!!!!

Thanks Richard, I appreciate you saying so. We have a strong reputation, and usually have no problem marketing our products (mostly wholesale), but many growers I know who sell retail often encounter this. It's very frustrating to complete against someone who's operating at a loss.

 

[ovrszd]

Thanks Richard, I appreciate you saying so. We have a strong reputation, and usually have no problem marketing our products (mostly wholesale), but many growers I know who sell retail often encounter this. It's very frustrating to complete against someone who's operating at a loss.

Yep. I see that here with Sweet Corn. Farm kids will show up at the Wal-Mart parking lot with a pickup bed full of sweet corn for sale. Last Summer the going price was $4.50 a dozen. By sundown it's down to $2.00 a dozen.

 

[randy41]

seems like it would be a good plan to increase investment income that you can offset with the investment interest expense paid on this property on your taxes.

 

[David P]

I think the first thing you should do is to assess the opportunities you have on your land now. We purchased about 70 acres of vacant land in 2010 and started looking at the land for ways that the land could generate income. Found a bunch of previously planted blueberries and started a very small you-pick operation; noticed maple trees scattered around and now produce maple syrup; the orchard provided a local contact selling a honey business and so we added several hives a couple years ago. Deductions? Yes, sir I've got lots!! Oh yeah, this year we added three Dexter cows to our small operation. I'm a financial advisor and the farming losses offset some of my self-employment income (a financial advisor who is farming? I never said I was a good one!).