Tax Question

[2manyrocks]

A good many farmers couldn't afford to farm without a good paying job elsewhere.

 

[ericm979]

Doesn't @ericm979 make cider?

We do! But only on a hobby basis. We looked into doing it commercially, just out of curiosity, and were quickly scared off by the alcoholic beverage control board and commercial kitchen/food production requirements. Between startup costs and paperwork it looked like a lot of effort and money.

I think there's at least one cider company in Sonoma (we stopped at their tasting room a while back) and given it's rise in popularity in the last decade there's probably more. And more who are close enough to be able to use the apples.

I'd assume that in this case the contractor would be plugged in to the market and would know who is buying apples. But maybe it's worth checking around.
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[two_bit_score]

I am no tax professional. But I question why the contractor is giving you a 1099?

1099's are for services in excess of $600.

I think his 'services' are pulling the stumps and cleaning up the place. But I think your question is one the IRS may ask first.

 

[two_bit_score]

A good many farmers couldn't afford to farm without a good paying job elsewhere.

Or a wife with one.

 

[California]

Re 1099, the one for 2023 is the first I've received. He checked 'rent' so it's reported to IRS that way.

In prior years I logged his annual check as sale of product on the Schedule F.

Then this year, HR Block pc software refuses to take a 1099 on Schedule F, it went to Miscellaneous Income instead.

Maybe those cow sales generating a 1099 are the model for this. Categorizing income that way, avoids the self-employment taxes that are due from someone where farming is their occupation.

The more I look at all this ... This may be the end of over a century that this was a productive orchard.

 

[two_bit_score]

The more I look at all this ... This may be the end of over a century that this was a productive orchard.

I'm sorry to hear that. Sounds like the government bureaucracy and tax issues finished you off. That is sad.

 

[ultrarunner]

Seeing a lot of this in Northern California where the effort required makes it easy to shutter the doors that have been open decades or longer.

The complexities of a business today can be enormous...

I think of a friend trying to open a little bakery in SF... she is a very experienced Baker with a tremendous offering but the web if overlapping regs and delays with cost overruns and no end in sight has turned her dream a nightmare.

 

[LD1]

I think his 'services' are pulling the stumps and cleaning up the place. But I think your question is one the IRS may ask first.

Hence my confusion.

A contractor renting an orchard and harvesting apples is paying the property owner....to pull stumps and clean up their own property?

 

[LD1]

Re 1099, the one for 2023 is the first I've received. He checked 'rent' so it's reported to IRS that way.

In prior years I logged his annual check as sale of product on the Schedule F.

Then this year, HR Block pc software refuses to take a 1099 on Schedule F, it went to Miscellaneous Income instead.

Maybe those cow sales generating a 1099 are the model for this. Categorizing income that way, avoids the self-employment taxes that are due from someone where farming is their occupation.

The more I look at all this ... This may be the end of over a century that this was a productive orchard.

So if the you or the IRS declares it a hobby that looses money......what to do with the 1099?

Kinda a catch 22. You get a 1099 and they want you to claim income....yet show that it looses money. Seems they only want you to claim it if it's profitable so they can cash in and not the other way around.

So what happens if next year you declare it a hobby and DON'T claim the 1099. I think that would get you audited quicker than showing a loss

 

[fishheadbob]

You enter the 1099 on a 1040 where it's taxed as income. The farm has only expenses so shows a loss. Example: the farm has expenses of $1000 entered on a schedule F. Net result is minus $1000. The 1099 shows a payment of $1500, enter it on the 1040. Overall the farm made $500, just not on the schedule F. The IRS can understand this.
I'm a Christmas Tree grower. Many tree growers can show trees sold as a capital gain (Timber sales). Their schedule F constantly shows a loss since all sales are reported as capital gains. Never heard of it being an issue with the IRS. Why report it as a capital gain? Lower tax rates, and no self employment tax.
After thinking about this I get the feeling that the OP knows how to grow apples. While he worked for government as an auditor and knows how government thinks (scary) he might be wise to bite the bullet one year and hire a CPA with agricultural experience. Some of those guys are very knowledgeable about the tax code and know more of the ins and outs than the best farmers. It's what they do. I was in a situation where we had an LLC, a subchapter S, a limited partnership, and I had a timber sale. all in one year. Way over my head. I learned a great deal. While the CPA wasn't cheap, he saved us a bundle and the learning I received was "free tuition".

 

[California]

Hence my confusion.

A contractor renting an orchard and harvesting apples is paying the property owner....to pull stumps and clean up their own property?

I'm simply paid per ton of apples that he delivers to the destination, Manzana Products.

Not showing the 1099 on the 1040 would cause an automatic deficiency letter to me at minimum, since IRS received his copy of it and their computers match recipient to sender. Or worse, tax evasion charges and fines. I can't ignore it.

Fishheadbob's tax reporting situation is closest to what I have here - except his ownership structure is more complex and he's profitable.

 

[fishheadbob]

Not always profitable.

 

[lincmercguy]

So if the you or the IRS declares it a hobby that looses money......what to do with the 1099?

Kinda a catch 22. You get a 1099 and they want you to claim income....yet show that it looses money. Seems they only want you to claim it if it's profitable so they can cash in and not the other way around.

So what happens if next year you declare it a hobby and DON'T claim the 1099. I think that would get you audited quicker than showing a loss

Whether or not it is a hobby, you have to claim the income. It's in a different form. If it's a hobby, it's very difficult to deduct expenses against the income.

 

[LD1]

Whether or not it is a hobby, you have to claim the income. It's in a different form. If it's a hobby, it's very difficult to deduct expenses against the income.

That kinda seems like a load of crap.

IRS: Your business is no longer profitable.....so please stop taking all the deductions for your hobby....but we still want to tax you on the income. That way, not only do you loose money all year....then you loose even more money when you pay us.

Perhaps just take enough deductions to offset the 1099 income, and only show ~$10-$20 profit each year. That wont break the bank in taxes with just a few dollars owed, yet keeps the IRS off you back with regards to the 1099 income

 

[5030]

I've had modest net income from my apple orchard, until recently when insurance cost tripled along with two years of bad weather and low production.

My role in the orchard is to backhoe out the stumps of trees that fell, to prepare for replacements. Then water and maintain new trees until they become productive at about the fifth year. Then responsibility shifts to the contractor who does 90% of the work here - prune, till, spray, harvest, market. Each year he provides me check and a 1099. So I'm visible to IRS.

This was fine so long as I ended the year with net income. Now, this is the second year with a net loss after insurance, taxes, minimal cost for diesel and welding supplies, etc. Building and tractors were fully depreciated long ago so that isn't an issue.

How long can I file a net loss that reduces overall family taxable income? Sooner or later I'll hit some big expense - broken tractor, re-roof the equipment barn, whatever. Am I at risk of being declared a non-deductible hobby? Do some farms operate at a net loss for years and years?

Any advice? Thanks in advance!

As long as you want, so long as you can substantiate it. Been doing it here on working farm fir at least 10 years now. I have no issue writing it off as a net loss either. You do need a good accountant however.

 

[lincmercguy]

That kinda seems like a load of crap.

IRS: Your business is no longer profitable.....so please stop taking all the deductions for your hobby....but we still want to tax you on the income. That way, not only do you loose money all year....then you loose even more money when you pay us.

Perhaps just take enough deductions to offset the 1099 income, and only show ~$10-$20 profit each year. That wont break the bank in taxes with just a few dollars owed, yet keeps the IRS off you back with regards to the 1099 income

It is a load of crap, IMO. Hobby income isn't subject to SE taxes, but adding it to your income adds up, especially if you're working a W2 job as well.

There isn't a hard and fast set of rules about it, I think it's all about intention. What they try to stop, IMO, is someone using what is really a hobby to deduct a massive about of hobby expenses and using a tiny bit of revenue to justify it.

I sell some woodworking items here and there, just small things. It's easier to just claim the hobby income at sale than to deal with it all. While I've had thoughts of trying to make it a side business, it's just a hobby at this point.

 

[LD1]

It is a load of crap, IMO. Hobby income isn't subject to SE taxes, but adding it to your income adds up, especially if you're working a W2 job as well.

There isn't a hard and fast set of rules about it, I think it's all about intention. What they try to stop, IMO, is someone using what is really a hobby to deduct a massive about of hobby expenses and using a tiny bit of revenue to justify it.

I sell some woodworking items here and there, just small things. It's easier to just claim the hobby income at sale than to deal with it all. While I've had thoughts of trying to make it a side business, it's just a hobby at this point.

Then hobby income shouldn't be taxed....plain and simple.

If it's such a small amount in relation to the deductions.....

Irs wants their cake and eat it too. Shouldn't work that way.

If I spend $10000 on what they deem a hobby....and sell a few hundred bucks of stuff to continue supporting my hobby.....I ain't paying taxes on it. It's like they wanna pick and choose what they apply deductions to or what income to tax. If you wanna be that pick and tax someone's minor hobby income and force them to claim it.....then deal with the consequences of them showing the loss.

I'll play their game and write off all my tax preparer will allow. Cell phone for business, home office, hobby shop, etc etc

 

[lincmercguy]

Then hobby income shouldn't be taxed....plain and simple.

Agreed. It would be easy to stick a dollar limit on it. Make it something like under $7500 and it's an untaxed hobby. Above that and it's a business with all of the normal deductions.

But there is zero interest in making the tax code simpler.

 

[ultrarunner]

It's been more than 6 months (Oct 23) and no sign of resolution...

Every letter that arrives I answer but the collection letters just escalate.

My first reply I sent Certified Return receipt is from my CPA as CPA screwed up and I caught it that night but CPA had already e-filed… so the next day CPA filed amended return showing my payment.

Since then by me more letters sent, phone calls made, info faxed as requested plus front and back of cancelled checks with K1 sent priority mail this week, etc...

I've never had any issues before and do everything by the book.

If and when resolved does the tax office send a letter that all is good?

I'm half expecting money from my bank or paycheck to be taken based on the 17k I am claimed to owe... sad but it seems a in person appointment isn't available unless taxpayer called in.

Meanwhile I keep checking my account before I write a check.

 

[Gem99ultra]

It's been more than 6 months (Oct 23) and no sign of resolution...

Every letter that arrives I answer but the collection letters just escalate.

My first reply I sent Certified Return receipt is from my CPA as CPA screwed up and I caught it that night but CPA had already e-filed… so the next day CPA filed amended return showing my payment.

Since then by me more letters sent, phone calls made, info faxed as requested plus front and back of cancelled checks with K1 sent priority mail this week, etc...

I've never had any issues before and do everything by the book.

If and when resolved does the tax office send a letter that all is good?

I'm half expecting money from my bank or paycheck to be taken based on the 17k I am claimed to owe... sad but it seems a in person appointment isn't available unless taxpayer called in.

Meanwhile I keep checking my account before I write a check.

I had a similar situation this year as well. I failed to claim ~$1500 of tax I had paid on some income. I had filed electronically so there was no retrieval. Immediately I filed an Amended Return. IRS site stated that it would be up to 20 WEEKS before it would be reviewed. :-(