- Mar 29, 2009
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Where I live we can claim mixed farming. Any sales that equal $2500 for the size of our land.
backyard flock....taxable deduction as a farm????
- Thread starter ThreeGlovers
- Start date
it sounds like it would be better to go as a buisness then a farm on such a small scale. if you go to you city municiple (sp?) building they can tell you everything you need to get a buisness id , tax exempt number and all that good stuff.its a very easy process but they usualt charge a fee, here its olny $60. i did this many years ago as i started a small hobby buisness selling homemade soaps,candles, jewlry and other cool stuff. you can claim the portion of property you coop ocupies , even better if the chicks free range , then you could claim your whole yard, utilities used to take care of them(tho you have to figure out roughly how much they use.) gas to and from picking up feed the cost of fee and treats. shipping if you ship chicks. the cost of hatching eggs if you buy them plus there shipping cost. you have to keep track of althat but it cold be worth it if you bring in more then your state alowes for untaxed profit. here it used to be you did not have to clame the income if it was less then $400 a year, over that you would have to claim it but you could also get dedutions from running your buisness. they dont care about your profit as long as it stays abouve the taxable amout and you pay your taxes on it.
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One thing I do know is that there is a move underfoot in Washington to implant microchips in all livestock, even home-raised livestock. I think there might be exceptions for very tiny herds/flocks. Be aware of that before involving any branch of the govt in your private affairs. Fines for non-complicance are likely to be steep and onerous. Talk to ranchers in the American west about enforced partnering with the feds and how much they like it.
Backyard gardens are not out of reach or consideration either as outlined in Codex Ailmentarius.
One thing I do know is that there is a move underfoot in Washington to implant microchips in all livestock, even home-raised livestock. I think there might be exceptions for very tiny herds/flocks. Be aware of that before involving any branch of the govt in your private affairs. Fines for non-complicance are likely to be steep and onerous. Talk to ranchers in the American west about enforced partnering with the feds and how much they like it.
Backyard gardens are not out of reach or consideration either as outlined in Codex Ailmentarius.
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Which taxes you are talking about, income tax, property tax, sales tax? Whenever this topic comes up there is always a variety of replies that mix the many details of various taxes in different areas.
Federal and state income taxes:
Hobby expenses are tax deductible if you also have hobby income. You are expected to declare your net hobby profit and pay taxes on it. You can't post a loss and reduce your tax liability from other income sources. This only favors the IRS. You get to pay if you make a profit, you can't use a loss to reduce your taxes.
If you run it as a business and try to make a profit (no matter how small your operation is), then it is a business. You can post a loss on your business and have it reduce your tax liability on income from other sources, but you can't necessarily do it year after year. You are expected to try to make it profitable.
The details are here on page 26:
http://www.irs.gov/pub/irs-pdf/p225.pdf
State sales tax: It varies by state. If you are in business to make a profit, many purchases, such as feed and certain supplies, can be exempt from states sales tax.
Property taxes: It varies by state. Land can be assessed as agricultural, at a lower rate, if it is used for agricutural purposes. Many states also give property tax credits if you meet requirements of a certain amount of land in production or a certain amount of gross receipts.
You don't necessarily need a business license to be a business. To start a business as a sole proprietor, you do just that, you do business, keep the appropriate records, and pay the appropriate taxes. That's it. You're a business. Business licensing is a general term for permits required for certain types of business, i.e., you may need an Egg Handling Permit from the state if you wish to produce and process eggs for sale away from your premises. That is a form of business licensing. Some municipalities may want to hit you with a fee for a business permit, but that permit is not necessarily what makes your activity a business, it's a formality of doing business.
Which taxes you are talking about, income tax, property tax, sales tax? Whenever this topic comes up there is always a variety of replies that mix the many details of various taxes in different areas.
Federal and state income taxes:
Hobby expenses are tax deductible if you also have hobby income. You are expected to declare your net hobby profit and pay taxes on it. You can't post a loss and reduce your tax liability from other income sources. This only favors the IRS. You get to pay if you make a profit, you can't use a loss to reduce your taxes.
If you run it as a business and try to make a profit (no matter how small your operation is), then it is a business. You can post a loss on your business and have it reduce your tax liability on income from other sources, but you can't necessarily do it year after year. You are expected to try to make it profitable.
The details are here on page 26:
http://www.irs.gov/pub/irs-pdf/p225.pdf
State sales tax: It varies by state. If you are in business to make a profit, many purchases, such as feed and certain supplies, can be exempt from states sales tax.
Property taxes: It varies by state. Land can be assessed as agricultural, at a lower rate, if it is used for agricutural purposes. Many states also give property tax credits if you meet requirements of a certain amount of land in production or a certain amount of gross receipts.
You don't necessarily need a business license to be a business. To start a business as a sole proprietor, you do just that, you do business, keep the appropriate records, and pay the appropriate taxes. That's it. You're a business. Business licensing is a general term for permits required for certain types of business, i.e., you may need an Egg Handling Permit from the state if you wish to produce and process eggs for sale away from your premises. That is a form of business licensing. Some municipalities may want to hit you with a fee for a business permit, but that permit is not necessarily what makes your activity a business, it's a formality of doing business.
I'll use my farm as an example:
I purchased a farm that includes the house and two barns on five acres.
I decided to start an egg business with 2500 hens in one of the barns.
I contacted the local organic co-op and made arrangements to become a member / producer.
I bought 2500 hens and put them into production.
I gross $85,000 in egg sales with a certain amount of expenses to include the cost of the buildings, equipment, feed, parts, repairs, supplies, etc. that I report on my income taxes. Since I just started this business in the middle of 2009 I was only half way through the hen's production year at the end of the tax year so I have a net loss of $30,000 for 2009 that I can use to reduce my tax liability from our other incomes. This is all done under my social security number. I don't need an EIN (Employer Identification Number) from the IRS because I didn't have any employees in 2009. In 2010 my son will be an employee. I had him fill out a W-4, keep time sheets on him, and pay him by the hour. Labor is a tax deductible business expense for me and since he is under 18 and will earn less than $5000 (or whatever the limit is for 2010), he will be exempt from paying taxes on that money also. All perfectly legal and well detailed in Pub 225.
Wisconsin doesn't issue sales tax exemption numbers, I fill out a form and give it to the vendors I deal with to get the tax exemption.
Since 3 acres are used in production they are assessed as agricultural and I pay very little in property taxes on them. I don't qualify for any agricultural or conservation property tax credits because I don't own enough land under Wisconsin law.
Whose permission did I need to do this? No one's.
How many permits do I have? None
How many federal or state business IDs do I have that say I am a business? None
As I said before, to do business as a sole proprietor, you do just that, you do business.
There is no reason that you cannot do the exact same thing with a flock of 25 hens. If you treat it as a business and expect to make a profit, then it's a business.
I purchased a farm that includes the house and two barns on five acres.
I decided to start an egg business with 2500 hens in one of the barns.
I contacted the local organic co-op and made arrangements to become a member / producer.
I bought 2500 hens and put them into production.
I gross $85,000 in egg sales with a certain amount of expenses to include the cost of the buildings, equipment, feed, parts, repairs, supplies, etc. that I report on my income taxes. Since I just started this business in the middle of 2009 I was only half way through the hen's production year at the end of the tax year so I have a net loss of $30,000 for 2009 that I can use to reduce my tax liability from our other incomes. This is all done under my social security number. I don't need an EIN (Employer Identification Number) from the IRS because I didn't have any employees in 2009. In 2010 my son will be an employee. I had him fill out a W-4, keep time sheets on him, and pay him by the hour. Labor is a tax deductible business expense for me and since he is under 18 and will earn less than $5000 (or whatever the limit is for 2010), he will be exempt from paying taxes on that money also. All perfectly legal and well detailed in Pub 225.
Wisconsin doesn't issue sales tax exemption numbers, I fill out a form and give it to the vendors I deal with to get the tax exemption.
Since 3 acres are used in production they are assessed as agricultural and I pay very little in property taxes on them. I don't qualify for any agricultural or conservation property tax credits because I don't own enough land under Wisconsin law.
Whose permission did I need to do this? No one's.
How many permits do I have? None
How many federal or state business IDs do I have that say I am a business? None
As I said before, to do business as a sole proprietor, you do just that, you do business.
There is no reason that you cannot do the exact same thing with a flock of 25 hens. If you treat it as a business and expect to make a profit, then it's a business.
I agree with the comment that you have to show a profit in at least 1 of every 5 years. Otherwise, what you have is a hobby.
If you want an easy way to keep track of your poultry-related income and expenses, check out Chicken Trackin' at www.ChickenTrackin.com. Works just like a checkbook register, and is easy to customize.
Kathy, Bellville TX
www.CountryChickens.com
If you want an easy way to keep track of your poultry-related income and expenses, check out Chicken Trackin' at www.ChickenTrackin.com. Works just like a checkbook register, and is easy to customize.
Kathy, Bellville TX
www.CountryChickens.com
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There's more to it than that. You have to dig into the details of the pub in the link posted. There are general rules such as that, but there is more to the determination of business vs hobby. You could possibly post losses for five years or more and get away with it as long as you have run it in a businesslike manner and have made efforts to be profitable. The IRS looks at many things to make this determination. If they look at your operation and find that you run it as a business and economic forces have turned against you as a farmer, they are fine with that. If they find that you are using your hobby as a tax write off, then they are not fine with that and you will pay back taxes on all of the so-called "business" losses that you have claimed.
There's more to it than that. You have to dig into the details of the pub in the link posted. There are general rules such as that, but there is more to the determination of business vs hobby. You could possibly post losses for five years or more and get away with it as long as you have run it in a businesslike manner and have made efforts to be profitable. The IRS looks at many things to make this determination. If they look at your operation and find that you run it as a business and economic forces have turned against you as a farmer, they are fine with that. If they find that you are using your hobby as a tax write off, then they are not fine with that and you will pay back taxes on all of the so-called "business" losses that you have claimed.
Whoa! Something on BYC I actually know about!!
Listen to mac in abilene -- he's got it exactly right. The five year thing is a common rule of thumb, but as he says, you can sometimes deduct business losses for more than 4 years out of 5. Be sure to read the IRS link he posted.
The main thing is: if your chickens are a "hobby," you (technically) have to declare any income you earn from them, and can deduct your expenses up to the amount you make, but no more (in other words, you can't claim a loss). If your chickens are a "business," you still declare the income, but if it actually costs you more than you earn to keep them, you can take that as a loss (IF you meet all the IFs in the IRS regulations).
One note: you can't deduct the costs of your yard or a room in your house as business expenses unless you meet the "exclusive use" rule; that is, you can't also use the yard for the kids to play in, or for your pet dogs; you can't also use the room in your house to keep your personal financial records, or serve dinner. About the ONLY business use of your home that doesn't require exclusive use is if you run a day care.
They're also right that a not-very-profitable business is an audit magnet -- make sure you keep very careful records. And they're also right that if you pay someone to do your taxes, filing the forms necessary for a business will cost you extra.
Good luck!
The main thing is: if your chickens are a "hobby," you (technically) have to declare any income you earn from them, and can deduct your expenses up to the amount you make, but no more (in other words, you can't claim a loss). If your chickens are a "business," you still declare the income, but if it actually costs you more than you earn to keep them, you can take that as a loss (IF you meet all the IFs in the IRS regulations).
One note: you can't deduct the costs of your yard or a room in your house as business expenses unless you meet the "exclusive use" rule; that is, you can't also use the yard for the kids to play in, or for your pet dogs; you can't also use the room in your house to keep your personal financial records, or serve dinner. About the ONLY business use of your home that doesn't require exclusive use is if you run a day care.
They're also right that a not-very-profitable business is an audit magnet -- make sure you keep very careful records. And they're also right that if you pay someone to do your taxes, filing the forms necessary for a business will cost you extra.
Good luck!
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Toni, take a look here: http://bucks.extension.psu.edu/Agriculture/Tax_Information_for_Farmers.pdf
To qualify for a PA sales tax exemption as a farmer you must produce some agricultural product in the course of regular business.
PA doesn't issue exemption numbers to farmers. You fill out a form and provide it to the vendor.
What the clerks are really asking you when they ask if you're tax exempt, is whether or not you have a tax exemption form on file with the store.
Toni, take a look here: http://bucks.extension.psu.edu/Agriculture/Tax_Information_for_Farmers.pdf
To qualify for a PA sales tax exemption as a farmer you must produce some agricultural product in the course of regular business.
PA doesn't issue exemption numbers to farmers. You fill out a form and provide it to the vendor.
What the clerks are really asking you when they ask if you're tax exempt, is whether or not you have a tax exemption form on file with the store.
tonini3059: At TSC, they're wanting to know whether to charge you state (& local) sales tax. The procedure is going to vary from state to state -- I'd start by looking in the state government listings in the phone book. In Kansas, you'd start with the Revenue Dept. & they'd be able to refer you to the right people to inquire what's involved. In Kansas, you end up with a tax-exempt number, which you supply to vendors when you buy your business equipment, supplies, etc., so they won't collect sales tax from you or have to pay it to the state.
good luck!
good luck!
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