tax issues

[oceaneering]

anybody know alot about tax benifits of buying a tractor. not less sales tax, im talking about deducting for farm use. how much land you have to have, and how to get started, different people say things like oh yeah you can write it off as farm exspense. save on taxes. If so how to do it. do i register some where for a farm or is it a form to turn in with taxes. i have 5.5 acres in Louisiana. In addition anybody know good source of tax tips for a small business. Im considering starting a small carpentry company. I've been working for the man for years and always did standard deduction. Now im looking into smart purchases and anyother means for tax shelter. nothing illegal just good practices

 

[Bird]

Your best bet is to talk to either a tax attorney or a CPA. Yes, there are forms to include with your income tax return if you have legitimate farm expenses, but of course you first have to actually have a "farm" business; little things like a business plan, a sincere attempt to make money at farming, etc.

 

[randy41]

i am a cpa and you most definetly need to really be in business and be tryin to make money and the business (farm) must have a use for a tractor.
but my advice to you is to find a local CPA and go talk to him/her about it.

 

[midlf]

A local CPA who specializes in farm, or at least does a lot of farm business. Ask you neighbors who they use.

 

[Alan L.]

anybody know alot about tax benifits of buying a tractor. not less sales tax, im talking about deducting for farm use. how much land you have to have, and how to get started, different people say things like oh yeah you can write it off as farm exspense. save on taxes. If so how to do it. do i register some where for a farm or is it a form to turn in with taxes. i have 5.5 acres in Louisiana. In addition anybody know good source of tax tips for a small business. Im considering starting a small carpentry company. I've been working for the man for years and always did standard deduction. Now im looking into smart purchases and anyother means for tax shelter. nothing illegal just good practices

If you only have 5.5 acres you are going to have a hard time justifying a tractor for income tax purposes. If its a tree form or vinyard or orchard maybe, but not cows or a standard crop like hay. Just not enough activity there to indicate the possibility of making a profit.

 

[oceaneering]

Thank you all for your responses. I do plan to get with a cpa as soon as I get a chance I was just taking a moment to ask some experienced people some specific questions. As far as realistically making a profit I,m to new to farming to have a clue. Basically I was consiering different options for some recently purchased property that I now call home. A small far with some animals seemed cozy. Something I can get my kids involved with.calling it a part time business and making a few dollars while losing money overall because of initial equipment costs seemed like a natural fit. I could subtract that loss against my regular income. If a Man decided to start making cabinets out of his home garage as a part time business he would start by buying tools. At the end of the year say he spent 20,000 on tools and he only had one cabinet job for 10,000 profit then he lost 10,000. Can he deduct that dollar for dollar against his regular income at his weekly job, or is it a percentage. Is it the same for farmers. Is there a minimum amount of acerage for a farm or specific types of animals apply, or crops or what.
Again I thank you for your responses and I do plan on talking to my local cpa by listening to you guys I know what questions to ask.

 

[rswyan]

If a Man decided to start making cabinets out of his home garage as a part time business he would start by buying tools. At the end of the year say he spent 20,000 on tools and he only had one cabinet job for 10,000 profit then he lost 10,000. Can he deduct that dollar for dollar against his regular income at his weekly job, or is it a percentage. Is it the same for farmers.

I'm not a CPA or a farmer .... nor did I stay at a Holiday Inn last night .... but generally when you start a business you have startup costs - to some extent these start up costs are capitalized and then depreciated (charged against revenue or income to reduce your taxable income) to take the expense over a period of years.

Ongoing capital expenditures and depreciation expenses are generally done on things that the IRS considers have a useful life of greater than a year - and they provide a schedule based on the type of item (computer, motor vehicle, etc.) showing you how many years your have to depreciate the item over - it varies.

There was also an option (under Section 179 of the Internal Revenue Code) for small businesses to expense certain items (used to be up to $100K) completely in the year of the expenditure, which would normally be capitalized and depreciated over a period of years. Not sure what the current status of that is - but this defintely an area that you either need to speak to a qualified tax professional - or be prepared to invest a bunch of time researching the code yourself (not for the faint of heat.)

 

[randy41]

the size of your farm has nothing to do with it. you can write-off your money losing enterprise against your other taxable income dollar for dollar. you can deduct any expenses incurred in your business. there are rules to differentiate between calling a business a hobby or a real business. in almost 40 years of being a CPA i have never seen this imposed on farmers. if you are investing money and trying to sell your products and can show that you spend time trying to make the business work (farm and business are interchangeable in this discussion) the IRS would be hard pressed to show that you are just a hobbyist.
the specifics as to depreciation and what expenses can be written off can be found in the IRS publication Farmers Tax Guide. you dont have to be a rocket scientist to read and understand it. that and other publications are available online at irs.gov.
i repeat my advice to find a local CPA to discuss this with. Not a local tax preparer. and discuss with the CPA who would do your acual tax return to be sure that they follow through with their advice. CPA's have different ways of looking at things.

 

[woodchuckie]

Section 179 is the way I went. It's also called the suv deduction. I use my tractor for making and maintaining trails and firelanes on my land. I was able to deduct the entire amount two years ago. here is a link to some information.

Section 179 Tax Deductions

 

[oceaneering]

Thanks, I feel like i'm really getting a lot of insight into this. Feel free to post any other tax info if you want. I'm listening. Thanks again