Taxes and Claiming Loss?

[Dave]

My guy says that you have to be able to show that you were attempting to make a profit. There was a story in the regional ag paper a few year back. The IRS and some guy ended up in court. This would be farmer had deducted a lot of money over several years as farm expense but never sold anything. The IRS won the case because they showed that he never attempted to make a profit.

 

[Bigfoot]

I'm not spoiling for an argument here, but there is no limit to the number of years you can show a loss. If you have steps and measures in place to run your farm like a business, then it is treated like any other business. If you manage it like a hobby, then it very well may be treated like a hobby.

 

[Caustic Burno]

I'm not spoiling for an argument here, but there is no limit to the number of years you can show a loss. If you have steps and measures in place to run your farm like a business, then it is treated like any other business. If you manage it like a hobby, then it very well may be treated like a hobby.

You are 100% correct just need a better than a hundred dollar CPA.
As long as you are selling products and trying to make a profit your good along with depreciations.

 

[Bigfoot]

I'm not spoiling for an argument here, but there is no limit to the number of years you can show a loss. If you have steps and measures in place to run your farm like a business, then it is treated like any other business. If you manage it like a hobby, then it very well may be treated like a hobby.

You are 100% correct just need a better than a hundred dollar CPA.
As long as you are selling products and trying to make a profit your good along with depreciations.

Having a separate checking account, having a business plan, attending seminars/continuing ed are all indications you are trying to make money. I would not try with horses, dogs, etc. cattle is a different story.

 

[BK9954]

I'm not spoiling for an argument here, but there is no limit to the number of years you can show a loss. If you have steps and measures in place to run your farm like a business, then it is treated like any other business. If you manage it like a hobby, then it very well may be treated like a hobby.

I sell every year, thats for sure. My operation is not huge. Biggest it will ever be unless I lease property or get a REALLY cheap feed source is about 20 producing cows. Thats on a good year. But certainly not a hobby. Too much money tied up and invested in it. Good thing is the property is completely paid for and AG exempt. When I get out of working 60-70 hour work weeks leasing propert could be an option. My grandather did, ran about 250 registered red brangus. Made money off of bulls.

 

[True Grit Farms]

I'll second the suggestion to get an ag-focused CPA. Even better if they're also a tax attorney.

Best advice so far, and I don't like attorneys but a tax attorney is mandatory. IMO
Because there's a thing called Attorney - Client Privilege, and you can ask any questions and receive answers.

 

[M.Magis]

The lady that I've had do mine the last 5-6 years, who owns a Jackson-Hewitt office, has told me on numerous occasions just what Dave, Bigfoot, and CB said. I can show a loss every year but I MUST show some sort of income in order to itemize farm expenses.

 

[Dave]

I'm not spoiling for an argument here, but there is no limit to the number of years you can show a loss. If you have steps and measures in place to run your farm like a business, then it is treated like any other business. If you manage it like a hobby, then it very well may be treated like a hobby.

My guy who is a CPA told me he has a dairy he works with that hasn't shown a profit in 30 years. Don't ask me how they can afford to eat or stay in business, just repeating what he told me.

 

[WalnutCrest]

I'm not spoiling for an argument here, but there is no limit to the number of years you can show a loss. If you have steps and measures in place to run your farm like a business, then it is treated like any other business. If you manage it like a hobby, then it very well may be treated like a hobby.

My guy who is a CPA told me he has a dairy he works with that hasn't shown a profit in 30 years. Don't ask me how they can afford to eat or stay in business, just repeating what he told me.

That's depressing.

No profit in three decades?

 

[shaz]

For what it's worth, a co-worker told me he will never make a profit due to mortgage interest and his CPA said that wasn't a problem.

 

[M.Magis]

That's depressing.

No profit in three decades?

I would assume it's a business, therefor it's the business not showing a profit. The only reason a business has to show a profit is if they're indebted to someone expecting a return on their investment, such as investors or a lender/bank. That doesn't mean they aren't being paid. It means they know how to operate a business.

 

[jkwilson]

I'm not spoiling for an argument here, but there is no limit to the number of years you can show a loss. If you have steps and measures in place to run your farm like a business, then it is treated like any other business. If you manage it like a hobby, then it very well may be treated like a hobby.

Yep.

The IRS has a policy that if you show a profit every so often (1 out of 5 years I think) then you are presumed to be operating as a business. What that means is that they have to prove you aren't operating as a business in order to disallow deductions.

If you don't show a profit once out of 5 years, then you MIGHT be presumed to not be operating as a business, and you MIGHT have to prove that you are operating as a business before you can claim losses in excess of your income subject to the 2% AGI floor.

That doesn't mean that if you show a profit every year you are good, and it doesn't mean that if you show a loss for 10 straight years you are screwed. You absolutely have to be doing something that can be expected to be profitable and you have to do it in a way that shows you are trying to make a profit.

I highly recommend that everybody do their own taxes. If you aren't comfortable going alone, hire a CPA to do them too. If you don't understand the way things work, you can never make the best decisions and plans that can have major impact on your taxes, and you'll never understand it unless you try them yourself.

Depreciation is just one area most people are clueless about. One of my neighbors was bragging about buying tractors and depreciating them for several years and then selling them for close to or more than what he paid. He claimed he was getting paid to use the tractor. I told him he had to pay all or most of the depreciation back and he didn't believe me until his CPA backed me up.

 

[1982vett]

Been saving all my receipts but that's getting old. I'd rather my CPA start taking care of that

Say what? .... you are still going to have to keep up with the receipts so you can give them to your CPA. The more information you give him/her the easier it will be for them to give you good service. The more questions they have to come back to you with and the more time they spend sorting through your stuff just means they will billing you more hours.

Saving receipts and documentation of such is a fact of life in any business.

 

[Caustic Burno]

Been saving all my receipts but that's getting old. I'd rather my CPA start taking care of that

Say what? .... you are still going to have to keep up with the receipts so you can give them to your CPA. The more information you give him/her the easier it will be for them to give you good service. The more questions they have to come back to you with and the more time they spend sorting through your stuff just means they will billing you more hours.

Saving receipts and documentation of such is a fact of life in any business.

Got that right I already pay 800 bucks and it is worth every penny. I dang sure not adding more billable hours

 

[TCRanch]

Been saving all my receipts but that's getting old. I'd rather my CPA start taking care of that

Say what? .... you are still going to have to keep up with the receipts so you can give them to your CPA. The more information you give him/her the easier it will be for them to give you good service. The more questions they have to come back to you with and the more time they spend sorting through your stuff just means they will billing you more hours.

Saving receipts and documentation of such is a fact of life in any business.

X2. Seriously, what?!?

 

[littletom]

Wife puts everything in computer each month. Pulls little thing out of computer he plugs into his computer. They also do all the 1099 and w2's. We meet with him first of dec. each year to get a idea where things are. Then do taxes in jan. No way I would attempt on my own.

 

[BK9954]

Been saving all my receipts but that's getting old. I'd rather my CPA start taking care of that

Say what? .... you are still going to have to keep up with the receipts so you can give them to your CPA. The more information you give him/her the easier it will be for them to give you good service. The more questions they have to come back to you with and the more time they spend sorting through your stuff just means they will billing you more hours.

Saving receipts and documentation of such is a fact of life in any business.

This year I have been using the yearly invoice print outs from all of my feed stores, veteranarians, online vet supplies, sales at all of my auctions and purchases of hay from individuals and of course private purchase and sale of cattle. I dont save reciepts or claim mileage or truck cost etc.. First 2 years boxes of reciepts. . Will my CPA not digitize or save any of this in my file, or its still up to me?

 

[Workinonit Farm]

GET A CPA...
about the cheapest smartest money you can spend.

:nod: :nod: :nod:

Have had a 'professional' doing our taxes for years.

 

[M-5]

I keep every receipt , I even ask for them at fast food joints. I claim everything and document everything. Been doing expense reports every month at my day job for a long time so getting receipts is just a way of life . I stick them all in the center console and each month I separate put all claimable ones in an accordion file .

 

[Caustic Burno]

Been saving all my receipts but that's getting old. I'd rather my CPA start taking care of that

Say what? .... you are still going to have to keep up with the receipts so you can give them to your CPA. The more information you give him/her the easier it will be for them to give you good service. The more questions they have to come back to you with and the more time they spend sorting through your stuff just means they will billing you more hours.

Saving receipts and documentation of such is a fact of life in any business.

This year I have been using the yearly invoice print outs from all of my feed stores, veteranarians, online vet supplies, sales at all of my auctions and purchases of hay from individuals and of course private purchase and sale of cattle. I dont save reciepts or claim mileage or truck cost etc.. First 2 years boxes of reciepts. . Will my CPA not digitize or save any of this in my file, or its still up to me?

I have ever receipt for the last forty years if you get called in on an audit it's your a$$ on the line not the CPA.
If you ever have the IRS climb up your ass your deduction better have a receipt. It is your responsibility no one else's. Secondly if you depreciate equip and sell it you better claim the profits that is a red flag