The IRS and my (proposed) Tractor

[Dissolute]

Thanks for all the good input on my "4320 vs. 5303" questions.

On the cusp of some serious tractor hunting, I am now wondering if it would be worthwile to set up a business/farm for the purpose of buying and depreciating a tractor with all the equipment.

My wife and I both work for the government, and pay substantial income taxes. It would be nice to have the IRS [sort of] pay for my tractor.

As a practical matter, can I deduct depreciation only from farm income or can it be used to reduce our income my tax burden?

Are such businesses set up as sole-proprietorships or corporations?

What has worked for the forum members?

 

[NoMo]

Your best bet is to talk to a tax specialist.

First thing to think about is your land zoning. Might have to be re-zoned as agricultural vs residential. Here in OK, each county has minimum acreage requirements for ag zoning. Your state may have similar restrictions.

Second issue is running a FOR-PROFIT company (farm). You can set your business up in a variety of ways. Regardless of type, you have to make an effort to earn a profit from the sales of goods off your farm to keep your 'business' status and depreciate your equipment.

Finally, check your local & state tax laws (see tax specialist) as you may end up paying other taxes on the equipment which can offset some of the gains from depreciation. The final "savings" may not be worth the hassle of running a for-profit 'farm'.

 

[JJT]

What state do you live in?

If this is a hobby thing I doubt you will have any luck avoiding the taxes.

 

[JDFANATIC]

dissolute,

220+ replies and you're sure no one from the IRS has seen this post? If I were you, I'd jump on the first flight to the Caaman Islands or Lake Geneva . . . /forums/images/graemlins/tongue.gif

 

[ddivinia]

I say go for it. Even if you can't get ag zoning, try it out. In many places you have ot prove 5 out of the last 7 years you were in production anyway. So, the land zoning is just one piece. What do you plan on doing?

D.

 

[Dissolute]

The gentleman who owned the land before me had cows and a huge vegetable garden, before he became ill. He also kept bees and sold honey.

I'm not interested in doing anything outside the tax laws. I do know that small business owners buy cars, phones, buildings, supplies, etc. for which they have a dual purpose(business + personal use). And the professionals I know seem to pay a smaller percentage in taxes then we salaried employees do. (I will note, that small business owners gripe about taxes more than I do, but I think that is more a function of them having to pay them out of pocket rather than being deducted from a paycheck).

Surely there are small farmers who subscribe to this Board, who have worked this out or are faced with the same situation.

I live and work in the Southeastern U.S..

 

[ddivinia]

I am in the same situation. What is the tax status on the land - is it setup with the appraisal district as agriculture? I would hit up your CPA and see what they say. It sounds like a "no brainer" to me.

D.

 

[2nstonge]

Any home-based business that's losing money and is not the primary occupation of the person taking the deductions has many, many red flags for the IRS. Even if it is the primary occupation and you don't have the strict business structure, insurances(s), permits, licenses, etc, it sets off alarms at the IRS. If you set it up as a corp or LLC there are minumum reporting rules (and expenses incurred to report them)...the time and recurring expenses could easily outstrip any write-off you might gain for a tractor.

Your best bet is to meet with an accountant, lawyer and insurance agent - in the same room at the same time if you can arrange it - and open your kimono. Let 'em know what you want to do, what your short & long term goals are and hash it out. There may be a way, there may not.

-Norm

 

[Shawk]

This might be a good place for you to start...
IRS HOB

IF you plan to pursue it you really need to spend time with a tax professional. Over the net advise on something like this isn't your best bet. Good luck... /forums/images/graemlins/cool.gif

 

[Alan L.]

If you have enough acreage that you can really operate a business for profit, you can probably depreciate at least a portion of a tractor. If you have 5 acres and you plan to sell $200 a year of hay, forget it.