Jim62 wrote:I asked my tax person about this, and she said as long as you're using legal, provable deductions, you got nothing to worry about. If they do get to checking on it, there's a lot of stuff that they consider to determine real profit or loss. Depreciation is one of them. Many years, I showed some profit as far as income vs. expenses, but depreciation put me in the loss column. Another thing is whether your property is appreciating in value due to the money you're spending on it.
Worst case scenario, you could be demoted to "hobby farm" status if they decide that you're really not trying to make money. You disprove that by operating in a business-like manner, keeping good records, etc.. As a hobby farm , you would be able to deduct expenses only to the extent of your income, so the result would be a wash as far as profit or loss.
I understand that they are tightening down some on farms and ranches, but word on the street is that they are looking at the BIG operators, not the guy that has 15 or 20 head of cows. They'd be wasting their time to audit a small operator where the most they could expect to gain would be a couple hundred bucks. I figure the audit people look over the possible victim's returns, and deal with those that appear to have good potential for them to make some big bucks.
Tom, I was thinking the same thing. It seems that in previous years I had all my stuff together by now. This year, I have only one interest statement so far.......Go figger....
novatech wrote:Just got audited a couple of months ago. They want to see that you use a good record keeping system. He new nothing about agriculture or cattle. I took him out to the pastures and explained how and why I did what I did for future profit. (The spotter bull happened to be mounting a cow while we were there. That was a lot of fun explaining that one. ) He asked a question almost in passing. How often do you come out to the cattle? I replied that I will spend at least an hour per day at each pasture (3). And a lot more time when making hay or working the cattle. This is a key question from them. You must spent at least 500 hours per year in actual work relating to the business. Be very careful about all responses you give to questions. They may have a reason behind them that you are not aware of.
Brandonm22 wrote:Things are really going to change NEXT YEAR and the year after that as I understand the ongoing tax debate. Obama and the Dems want to take the tax issue off the table so most Americans will no longer pay any income taxes. In their vision, as I understand it if you make ~$30,000 or less you pay no income taxes taxes; but get a big honking earned income tax credit of ~$3400 based on your number of dependents (thank you tax payers), $30,000 to $50,000 pay no income taxes but get a check back of ~$1000. $50,000 to $60,000 either pay no income taxes or what they pay is cancelled out by the $1000. ~$60,000 to 99,000 pay about what they pay now. The rich are going to get hammered. During the campaign "the rich" were over $250,000. During recent speeches, "the rich" has become 'over $200,000', 'over $150,000', and/or 'over $100,000'. Depending on where they ultimately set that line expect a 4-6% increase effective for either 2009, 2010, or 2011. There is also a strong possibility that they will take the ceiling off of FICA taxes and raise the capital gains rate and the rate that they tax dividend income. We really need to follow what exactly comes out of Washington closely and adjust your tax strategies accordingly.
novatech wrote:Kind of sounds like a penalty for working hard or smart. Bring every one down to a single class society. Everyone but the politicians of course.
cowsrus wrote:Jim glad you made the comment about depreciation. We usually cash flow money sold more than we spent but when our taxes get done and they factor in depreciation we lose. One thing that really opened my eyes is my neighbor one day asking me if we made a budget to try and plan to make money. Started doing that last year and went with a more elaborate spreadsheet this year. As you enter expense it keeps track if you above of below budget for that category. Really makes you think about it even more.
Thanks for your reply.
I would be interested in hearing more about your spreadsheet that keeps track of expenses, is this one you developed or is it available commercially?
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