What if you make money?

[houstonscott]

Ok, so I retire and go out on 55 acres. Put some cattle on the place, raise some beef, produce some hay for sale. Do I just claim it as income or do I start a business. Not sure where the break point is, could I write off equipment costs if I make it a business. What do I do? Is that a subchapter S. I always here about? Don't need to make money but what happens when I sell a cow for beef? Never done this before, always had a job that payed a wage. Just want to have fun but it might make money at times.

HS

 

[randy41]

you are required to report all your income. if your farm is a business (as decided at this point by you) then you deduct farm expenses on schedule F. if you decide your farm is a hobby then you report the income but take your hobby expenses to the extent of income as misc itemized subject to 2%.
if you are looking to make money from your farm then it sounds like a business.

 

[fish6942]

Some might say that if it's not a significant $ amount then just keep it under the table to make it simple (but possibly illegal). But, if your financial situation would benefit from some deductions they you may want to go legit to take advantage of those opportunities. Some might also say that all income should be claimed.

 

[Farmwithjunk]

Ok, so I retire and go out on 55 acres. Put some cattle on the place, raise some beef, produce some hay for sale. Do I just claim it as income or do I start a business. Not sure where the break point is, could I write off equipment costs if I make it a business. What do I do? Is that a subchapter S. I always here about? Don't need to make money but what happens when I sell a cow for beef? Never done this before, always had a job that payed a wage. Just want to have fun but it might make money at times.

HS

Enough questions that I'm betting you aren't a tax consultant?

So....

Get a decent accountant that (hopefully) specializes in ag. If you'll notice, there will be a zillion different suggestions here. They may ALL be right! Then again..... With a LOCAL tax man, you get advice more specific to your state/county along with fed. And you get a CONSISTANT opinion with one person leading the parade. Just get a very GOOD accountant. In time, you can take over some of the day to day/week to week stuff to hopefully lower cost, but getting off to a strong start is kinda important. You know the drill.....it takes money to make money.

Back when I got started farming, I lucked on to a guy who wanted some part time tax/accounting work. He'd just retired and wanted something to do. Over the next 10 years, he gradually shifted more from accountant to mentor.

It's also very handy to have another set of eyes, a more objective set, looking over "how ya done things".

 

[TripleR]

Enough questions that I'm betting you aren't a tax consultant?

So....

Get a decent accountant that (hopefully) specializes in ag. If you'll notice, there will be a zillion different suggestions here. They may ALL be right! Then again..... With a LOCAL tax man, you get advice more specific to your state/county along with fed. And you get a CONSISTANT opinion with one person leading the parade. Just get a very GOOD accountant. In time, you can take over some of the day to day/week to week stuff to hopefully lower cost, but getting off to a strong start is kinda important. You know the drill.....it takes money to make money.

Back when I got started farming, I lucked on to a guy who wanted some part time tax/accounting work. He'd just retired and wanted something to do. Over the next 10 years, he gradually shifted more from accountant to mentor.

It's also very handy to have another set of eyes, a more objective set, looking over "how ya done things".

Excellent advice; money well spent.

 

[nybirdman]

I have done just what you are talking about..not with cattle tho.Again go to an acccountant...set as a business,can depreciate buildings,equiptment,taxes ect.Should only have to pay taxes on "profit",not all monies taken in.

 

[KTurner]

Should only have to pay taxes on "profit",not all monies taken in.

This doesn't quite sound right. If that were the case, the tax man should only tax my paycheck that is "profit", not the portion of the paycheck that goes to feed/shelter/cloth me and my family. And we all know that's not the case

An S-corp is a way of setting up the business. It's basically it's own entity, as opposed to being "part of you". You'd probably be the sole shareholder and all of the profit/loss would be reported on your taxes on a schedule K, if I remember right. It also gives you some personal protection - if the business is separate, they come after the business instead of you. If you don't incorporate, all of the business stuff is lumped in with your personal taxes (and they can come after your personal assets).

More at S corporation - Wikipedia, the free encyclopedia

As others have said.. talk to a professional. The way things are, I'd be surprised if it's worth your headache/time/money to deal with the paperwork/bureaucracy/regulations/etc for the occasional sale.

Just for one personal example, even if you've 'idled' your business and not sold a thing for months, you still have to file your monthly sales tax information saying "$0 in sales" or you will have to pay fines and interest for any months you forget.

Keith

 

[Soundguy]

probably file a schedule F and apply for ag tax on the land too.. maybee a tax number for feed and equipment and such.

soundguy

 

[chriscos]

Schedule F Tax Tips for Farmers

You probably don't want to go through the hassle of Chapter S or an LLC if you are just goofing around. You don't *need* to for tax purposes if you are running a small operation. They are usually done for liability and other purposes.

 

[JakeBrake]

The basic version of Turbotax will step you through the process. Just answer the questions as it asks them. Almost all questions will offer detailed explanations if you don't know the answers.

IRS requirements for many years have been that a farm must show a profit in 3 out of 5 years to be classified as a business. In other words you can deduct all your expenses, including depreciation for the first two years without much chance the IRS will question anything within reason. After that you will have to show a profit or you will become a hobby farm and can deduct expenses only to offset any any income you may have and you may have to reclaim your depreciation.