Christmas tree farm

6or7dazeaweek · Feb 16, 2006

Here's the deal.....I've been wanting a tractor for a long time and thought I would be getting one right after having my taxes prepared. WRONG!

I retired in 2003 and started a small groundskeeping business just for something to do...you know, small client base & work the hours that I want to work. I did it right...registered with the county & the State and depreciating my equipment. I thought I'd be able to get a tractor and expense that as well. however, my accountant just informed me that I'd have to be bringing in a lot more $$ in order to do that. Talk about getting bummed out.

The other part to the equation is that I signed up for early social security benefits so I'm limited in how much I can make before being penalized. I think the limit is around $12,000 before you get penalized.

Being that I'd like a tractor to use in the groundskeeping business, I'm considering starting a Christmas tree farm. Yup, I'd have to buy the land, tractor & tiller but that's not beyond the realm of happening. I guess my question is does this sound like a viable thing to be doing in retirement? I am not afraid to work and a tree farm might not need constant attention...but I might be wrong on that one.

I would think that buying land, equipment & trees to plant for the farm would be a good way to depreciate a tractor & implements without running afoul of the IRS or jeopardizing my social security. The other benefit would be that I wouldn't really need commercial liability insurance for the tree farm since it would be my own land. I think the time for harvest is somewhere around 7 or 8 years so by then, I'd probably start making a profit.

Any thoughts on this project or am I being completely senile in my old age? Be kind! /forums/images/graemlins/blush.gif

Jon

arthr31 · Feb 16, 2006

Hi Jon,
I don't think you're crazy or senile for such an idea. I have been thinking about the same thing, in fact (and I'm not quite 40 yet). But, if you buy enough land, don't limit yourself to just xmas trees. You might be able to raise all sorts of shade, ornamental, evergreen, and xmas trees. There's a constant need for these all in the NE region. Xmas trees will take about 5-8 years to harvest, so maybe a few different growing types would get you there quicker. And, if you buy the land to start up the business, write startup costs in your business plan which include the tractor of your choice /forums/images/graemlins/grin.gif
good luck, -art

woodchuckie · Feb 16, 2006

I was able to depreciate the entire cost of my trator the year I bought it using the tax law section 179. Check out this link to chech on weather or not you can use it.

SECTION 179

ToadHill · Feb 16, 2006

I agree with arthr31. Don't stop with christmas trees. I planted blueberrys, rasberrys. currents. gooseberrys, and I'm looking at small shrubs like juniper,taxus,etc. If you can sell them direct at 1/2 the nursery price you'll have no trouble selling out.

XmasTreeGrower · Feb 17, 2006

Jon

You can do Christmas trees, but it is not a get rich quick process. It takes a significant amount of time and attention at certain times of the year. Quotes of 7-8 years are only if your growing conditions and management practices are ideal.

Here's a link to the best "primer" I have seen that will give you a good feel for what is involved. It also has a detailed section on taxes:

Growing Christmas Trees in North Carolina

Don't rely on your tractor to do much of the work for you. Most tree farmers plant by hand. Yep, open hole with a tree planting bar, bend over, insert tree, close hole with your boot, move to next hole, repeat 2000 times every year. Planting is done in the spring as soon as the ground thaws enough, and usually too muddy to use mechanical equipment. I have a mechanical tree planter pulled by my tractor that I have only been able to use once in seven years.

Once the trees are set in the field, your biggest challenge will be to keep the ground cover under control. In the most common spacing of five foot centers, a "normal" size tractor with bushog simply doesn't fit. The prefered tool is a simple backpack sprayer with very dilute concentrations of Original Round Up. "Chemical Mowing" is the terminology used. Applications last for about six weeks, but again all hand work. For example, an application on all of my trees requires a five mile walk with a 30 pound backpack up and down sloping terrain in my case, in the heat of the summer. No need for a gym membership or exercise equipment though!

After the trees reach about four feet, you must do the annual shearing ritual. Christmas trees don't just get there preferred cone shape naturally, they must hand trimmed to achieve the perfect look. There are mechanical tree trimmers, but they are more work than they are worth. The most efficient method is with a razor sharp tree shearing knife where you kind of imitate a ninja warrior; walking around each tree, slicing down the sides, until you have the perfect cone shape. Again, visualize doing one tree, move to the next, repeat 8,000 times. Takes the full month of August in my case to get it done.

Then there is the hand fertilization of each tree twice twice a year, possible pest infestations, deer browse damage, etc., etc.

When you finally get to marketable stage, you will find there is no "magical" place to sell your trees. You must either build contacts with individual tree lot owners, or employ a commercial broker who will attempt to beat you down to a ridiculously low cost. Another alternative is to do your own "choose and cut" farm, where you get the locals to come out and pick their own, or set your self up to retail cut trees on your own lots. I went the choose and cut route last year. My wife basically ran the thing, and had a great time. Nothing more fun than watching the kids and parents having fun running all over the farm trying to pick out one tree from several thousands. Lots of internet sites out there to learn from of farmers who have made a major event out of this each year. We didn't make a killing our first year, but we sold some quality trees to our customers, and that word of mouth advertising will build each year going forward.

Attached picture of one of our fields that was ready for sale last year:

One last bit of advice on the tax thing; you MUST be able to show a profit from your growing adventure. You can take the tax credits as you go, but if you don't wind up at some point showing a profit, you will be raising the "audit flag" with the IRS.

Thanks
Bill

SnowRidge · Feb 17, 2006

Thanks for posting that link. I took a quick glance, and so far it looks like it is the best xmas tree 'manual' on the web. Wish I'd seen it before I started.

In my quick glance, I didn't see how they came up with those income figures for trees sold. Maybe I just missed it, but I don't know where they got numbers that high.

I will be planting for our fourth season in a few weeks and can attest to just how much work is involved. We planted an 8x6 grid the first year and 6x6 thereafter. With 6x6, we can mow using our Power Trac PT-425. 8x6 just ate up too much land.

How many years before you were able to show a profit? I don't see how it is possible before 6 or 7 years with most species. My understanding is the growing trees represent capital value and the IRS takes that into consideration in lieu of making a profit in the early years of the operation.

Jon, profits from xmas tree sales are not considered ordinary income. They are treated as capital gains, so you don't have to worry about being penalized. You do have to worry about starting a tree farm for the purpose of tax avoidance.

6or7dazeaweek · Feb 17, 2006

Hey guys...some great advice you've given me and deeply appreciated. Art, I wish I was at your age again...I know I'd be beeting feet to get this project off & running. A lot of people are telling me I've worked hard all of my life & should be enjoying retirement...and here I am looking into another adventure.

I just knew that I could get some good advice here....just didn't know this quickly. I read with earnest the "Section 179" article & think it could apply to this venture.

Quite a few years ago, I worked with a guy that had an ornamental shrub business and he did very well at it. He's since retired and now he & his wife travel. The ornamental shrub business I believe could be pretty lucrative if done properly.

As far as the tree farm goes, I think I'd lean towards the select & cut rather than wholesale out. I wouldn't need liability insurance until the trees are ready to be harvested, and then I'd certainly opt in for some insurance just in case someone got hurt while on the property.

I understand that the IRS wants to see a profit and I'm quite certain that could be accomplished with this type of venture....barring something unforseen like a forest fire. I don't even want to think of anything like that.....fire's a scarry thing.

I'm sure that the deer population would love to browse on the tender trees....and I don't think there's much of a way to stop that. I have some Balsam and Holly at my residence that the deer brazenly come up to & munch on.

I thank all of you for your words of encouragement and advice. This gives me something to brainstorm over. /forums/images/graemlins/smile.gif /forums/images/graemlins/confused.gif /forums/images/graemlins/smile.gif

Jon

6or7dazeaweek · Feb 17, 2006

SnowRidge: No, I'm not trying to avoid paying taxes at all. I'm just trying to avoid being "stupid" when it comes to purchasing equipment.

I've lived long enough to make a lot of stupid decisions...and that comes from lack of education. I think I've learned a lot in the past few years of my life that I want to become an informed consumer and purchase wisely. /forums/images/graemlins/smile.gif

Jon

SnowRidge · Feb 17, 2006

<font color="blue"> As far as the tree farm goes, I think I'd lean towards the select & cut rather than wholesale out. I wouldn't need liability insurance until the trees are ready to be harvested, and then I'd certainly opt in for some insurance just in case someone got hurt while on the property. </font>

I don't think you are correct on this. Even though you wouldn't have any buyers on the property, there are other liability issues, including trespassers (think kids and the attractive nuisance doctrine), legitimate visitors, drift from spraying (or alleged drift), etc. Since the property would be business property (a farm), home owners insurance may not cover it.

Not having a business (farm) policy could also be a red flag if the IRS did an audit. They look at many things.

These are precisely the reasons why we dumped our home owners policy and bought a farm policy. The cost was nearly the same, but with a company specializing in farm insurance. We are covered for virtually any liability issue except sales to the public. We will add that coverage when our trees are mature enough to start selling them.

mathey · Feb 17, 2006

here's another link to check out Christmas tree info

We have about 7 acres of trees on our 20 acres. We did it in 2 plantings about 2 years apart mostly Douglas Fir with some Fraser Fur and Scotch Pine (wet areas) mixed in.

We have about 1200 trees per acre, and every year we lose a certain percentage...the first year we lost almost half due to dry conditions. We will have some ready to sell this year but will most likely wait one more year to open to have a larger selection available. We will do a cut-your-own operation mainly because the potential for income is greater than wholesale. We allowed parking for about 20 vehicles, so we'll have to limit our advertising a bit to avoid "overcrowding". We will have to evaluate our liability insurance coverage once we open to the public, since the potential for injury seems quite high (picture weekend warriors in a field with a sharp saw and a tree waiting to fall on their heads!). We currently have a farm policy which covers us as long as sales stay below $14k.

I'll go along with most everything XmasTreeGrower has stated, but we do the bulk of work with tractors. I have the advantage of having a FIL who is a "professional" tree grower (7 farms total, sells 5-6K trees wholesale a year, and another 1200 retail) and he does this stuff year-round, so I benefit from his expertise and equipment.

All the ORGINAL planting is done with tractor and tree planter, but any additional plantings (replants, skips etc) must be done by hand. We can fertilize and spray (herbicides and pesticides) using a NH TC21 with the narrow Ag tires. We can currently mow with our CK20 and a 48" rotary, but the industrial tires will eliminate that in the next year. He recently bought a Kubota B7800 narrow model that works well with either a 40" or 42" rotary mower. Shearing is done by hand, but he has a crew that can zip through a field in no time. We do pick bagworms by hand - ugh.

here's a photo of one field, you can just see the corner of the second field on the right...