Do you report egg/poultry sales as income on your taxes?

[Talihofarms]

Income is a tricky term.
Expenses are also. The structure of your venture determines how much and if you can deduct certain entries..
C corp, S corp, LLC, Hobby only, all have their application.
A sound business plan and competent tax planners are required to CYA.
The IRS has difficulty monitoring cash or barter systems.
It is difficult to prosecute on the grounds of tax evasion without tangible transactions to base a legitimate claim . ( Paper Trail)

I have heard of some farmers who deal strictly with cash only transactions.
The ones I have known have yet to be audited.



just my .02

 

[mdbtalon]

Income is a tricky term.
Expenses are also. The structure of your venture determines how much and if you can deduct certain entries..
C corp, S corp, LLC, Hobby only, all have their application.
A sound business plan and competent tax planners are required to CYA.
The IRS has difficulty monitoring cash or barter systems.
It is difficult to prosecute on the grounds of tax evasion without tangible transactions to base a legitimate claim . ( Paper Trail)

I have heard of some farmers who deal strictly with cash only transactions.
The ones I have known have yet to be audited.



just my .02

I agree on this, but would add that they key is how you report things.

If you sell a couple thousand dollars in eggs each year and set yourself up as a S corp for example and claim your income and deductions and continually lose money or break even you can bet you are likely to get audited and you can be assured they often find something even if you tried your best..... you will likely lose (often because it is easier and cheaper to accept their findings than it it is to fight it). Have had many clients in this situation (not with eggs specifically, but with small businesses). Especially with small businesses that have a high likelihood of cash transactions the IRS will look very closely at your taxes.

If you report that same income as "hobby" income you will probably end up all right with IRS, but in the vast majority of cases will not be able to deduct all your expenses.

If you are not set up as a small business and report nothing for the $2,000 egg income each year then in all likelihood nobody will be any wiser, and even in the extremely rare case the IRS finds out about your small enterprise the resulting fines are not severe unless they can show you were really trying to evade taxes rather than just not understanding the complex system . Will end up paying some back taxes and minor penalties.

 

[Runawaylobster]

Just to increase the complexity here.... I believe that if you are selling eggs etc: at retail and you then report the income you are also required to collect sales tax unless the buyer is reselling your product.

I do file a schedule F for my Lychee Orchard and sell to fruit packing houses so it doesn't apply but I have often wondered what would happen if I added retail eggs/chicks to my bottom line.

and then just something more to make you think about.... If you file a schedule F you are elegible to file for the agricultural property tax exemption (at least in florida you can which is pretty much all i know about) which may be very important to you.

 

[WalkingOnSunshine]

Just to increase the complexity here.... I believe that if you are selling eggs etc: at retail and you then report the income you are also required to collect sales tax unless the buyer is reselling your product.

I do file a schedule F for my Lychee Orchard and sell to fruit packing houses so it doesn't apply but I have often wondered what would happen if I added retail eggs/chicks to my bottom line.

and then just something more to make you think about.... If you file a schedule F you are elegible to file for the agricultural property tax exemption (at least in florida you can which is pretty much all i know about) which may be very important to you.

You don't have to collect sales tax because eggs aren't taxable food items, at least not in Ohio. Even grocery stores don't have to collect tax on most of the food items they sell. Check your receipt.

We have an actual registered business with the state of Ohio. We report farm income/loss just as a big farm would. We don't make enough most years to incur a tax debt, but when we report a loss, it reduces our household tax debt. Reporting to the IRS can be a GOOD thing. Just food for thought.

 

[Runawaylobster]

You don't have to collect sales tax because eggs aren't taxable food items, at least not in Ohio. Even grocery stores don't have to collect tax on most of the food items they sell. Check your receipt.

We have an actual registered business with the state of Ohio. We report farm income/loss just as a big farm would. We don't make enough most years to incur a tax debt, but when we report a loss, it reduces our household tax debt. Reporting to the IRS can be a GOOD thing. Just food for thought.

thanks , you are right i never thought about the food part. but what If you are selling chicks. I'm working on this as a project and have not yet decided whether to move forward as a business or not, or whether just to hatch my chicks for fun.


one awful thing i run into is that if you do reduce your household income due to business losses it reflects on your ability to refinance your mortgage and all lenders look at least 2 years of your tax returns. I have a great job, but due to my side enterprises my DTI ratio is poor and I can't refinance now because of it...... and I'm paying 12% mtg pmts Grrrrr.......

 

[Peep_Show]

It depends on how you want to classify your egg business. If the profit is under $500, consider it a hobby and don't report it. If you want to call it a business, then you can claim your expenses from your profits BUT expect Uncle Sam to hoist a few IRS auditing red flags in your direction AND that you will be subject to having to file for business licenses and permits and sales tax waivers and all sorts of paperwork that becomes more hassle than it is worth....plus you may have to answer to an Agricultural Inspector or two as you are selling foodstuffs.

I don't know how big your enterprise, so only you can decide whether the risks and logistics are worth the declaration. Good luck!

 

[mdbtalon]

You don't have to collect sales tax because eggs aren't taxable food items, at least not in Ohio. Even grocery stores don't have to collect tax on most of the food items they sell. Check your receipt.

We have an actual registered business with the state of Ohio. We report farm income/loss just as a big farm would. We don't make enough most years to incur a tax debt, but when we report a loss, it reduces our household tax debt. Reporting to the IRS can be a GOOD thing. Just food for thought.

The sales tax is going to vary significantly by location (state/county/city,etc). In many/most places there is a sales tax on food it is just normally lower than for other products and you would be expected to collect it. I know in some places they have exemptions aimed at situations like selling eggs out of your house where if you produce the items yourself (fruit/vegetables/eggs/etc), sell it yourself or in some cases farmers markets, and it is under a certain $ amount then you do not have to collect the sales tax. Again this will vary greatly by the location you are operating at.

I would not suggest it is never a good thing to report income, but keep in mind the IRS will not allow a small business like this to deduct a loss indefinitely year after year. They expect to see you with a profit within 2 to 3 years or be able to explain why not. Basically you have to prove that your "intent" is to make a profit at this enterprise otherwise they are going to reclassify your income as hobby income rather than an established business (which means normally you cannot even deduct all your expenses against your "income" and end up with a tax burden even if you lost money).

 

[WalkingOnSunshine]

The sales tax is going to vary significantly by location (state/county/city,etc). In many/most places there is a sales tax on food it is just normally lower than for other products and you would be expected to collect it. I know in some places they have exemptions aimed at situations like selling eggs out of your house where if you produce the items yourself (fruit/vegetables/eggs/etc), sell it yourself or in some cases farmers markets, and it is under a certain $ amount then you do not have to collect the sales tax. Again this will vary greatly by the location you are operating at.

I would not suggest it is never a good thing to report income, but keep in mind the IRS will not allow a small business like this to deduct a loss indefinitely year after year. They expect to see you with a profit within 2 to 3 years or be able to explain why not. Basically you have to prove that your "intent" is to make a profit at this enterprise otherwise they are going to reclassify your income as hobby income rather than an established business (which means normally you cannot even deduct all your expenses against your "income" and end up with a tax burden even if you lost money).

No, you're right. We can't show a loss for more than three years in a row. Which is OK, because normally we do make a profit. And it's more than $500/year. But if the crap does hit the fan, such as when we lost all our young pullets to a pack of coyotes in one night, we can recoup some of the losses on our taxes.

Thanks , you are right i never thought about the food part. but what If you are selling chicks. I'm working on this as a project and have not yet decided whether to move forward as a business or not, or whether just to hatch my chicks for fun.

I don't believe you have to charge sales tax on chicks here in Ohio. When I buy from an in-state hatchery, I don't pay sales tax. Can't remember if I payed tax from the out-of-state hatchery or not.

The other nice thing about being a business--I dont' pay sales tax on most items I use for the hens.

As was stated above, taxation rules are different in different states--not to mention outside of the US! So get a good tax consultant.

 

[CaraDD]

As far as the IRS is concerned the passing of cash is irrelevant to whether it is income. If you are selling eggs as a side business even if "bartering" and not taking cash then that is income that must be reported.

I am not suggesting the majority of people in that situation would report it, but clarifying that legally the fact that you barter rather than get cash does nothing other than complicate the tax situation should you choose to report it(because you have to come up with values for the bartered goods).

Interesting! As you said, I won't be reporting it, but it is good to know how deep into our lives the IRS/government expect to get.

 

[Bobaroni]

Talon is correct bartered goods must be claimed for the fair market value as other income on the 1040, or gross income on the schedule C, If filing a schedule F it would be claimed as products / livestock raised. There is some discussion about the traceability and accountability of cash transactions. The truth is this, the whole thing is based on a voluntary disclosure system and cash transactions would be hard, if not impossible to prove. I am not advocating dishonesty but whatever you feel is right. I have one client that has a cash only business. She married a somewhat well off gentleman a few years ago that is also one of my clients. She has never reported but a fraction of her cash income. Her husband came to me and said she wants to buy a car. I'm like so. Well she wants to pay cash. OK, whats wrong with that. He said the car is 200 grand. I said wait! I do her taxes Where did she get 200 grand? Then the whole wretched story came out. I told him not under any circumstances should she use that cash to buy a car. The woman had the cash in her house. No way a legitimate cash transaction for that amount with a reputable company escape major scrutiny in an audit. He was my main concern and he has had to start over a couple times. My advice to him was "It is just not worth the risk and you tell her to come in here and see me so we can get this straightened out." If someone pays you in cash and they get audited the government may require them to ammend their returns. If that happened then they can go back three years and issue 1099's to the people they did cash transactions with. If that happened to be you then you would be out the cost for ammending the return. lol, of course I wouldn't expect that on a few eggs but if you sold somebody a 1000 dollars worth of poultry or products for cash, it could happen.