Tax deductions - can we take some?

Discussion in 'Managing Your Flock' started by kathleengp, Jun 10, 2010.

  1. kathleengp

    kathleengp Songster

    Sep 6, 2009
    I was wondering what constitutes a business in order to make some of the chicken expenses deductible. Right now I only sell (or give away) 2-3 dozen eggs a week. I have a lot of pullets coming up to point of lay,so by fall it will be 3-4 times that. I also have raised baby chicks and sold them on craigslist when they are old enough to go right into the that enough to make this a business? What would I need to do to turn my little operation into something deductible?

    I have run a daycare business at home and done consultations by phone and email at home for a homeschool supply company's customers who call for help. Both times I was able to deduct quite a bit of expenses even though I never had a tax id number or official business name.

    It just got me wondering....
  2. LarryPQ

    LarryPQ Easter Hatch!!

    Jul 17, 2009
    If you don't have a business license or tax id--then I assume you have not been paying state sales/use taxes. Then, the IRS will immediately assume you are not claiming all your income taxes and want to investigate further.... in short, if you are not reporting all your info to the correct authorities, you are setting yourself up for an audit.

    Best to get your ducks in a row and THEN claim the deductions.
  3. patandchickens

    patandchickens Flock Mistress

    Apr 20, 2007
    Ontario, Canada
    REmember that the IRS tends to look extra hard at people claiming deductions for piddle-little 'businesses', especially if they are related to something that most people do just as a hobby (e.g. keeping animals).

    So, claiming that your chickens are a business is going to increase your chances of an audit. (Just sayin'.)

    That said, in principle for the IRS to swallow it as being a business it has to be operated in a businesslike way (full records, careful accounting, demonstration that you are trying to make it as profitable as possible, demonstration that you are trying to advance your knowledge of how to run it profitably, etc), with 'a reasonable expectation' of making profit, and in the absence of extenuating circumstances they want to see you ACTUALLY make a profit 3 years out of 5 or so. Also, the more "hobby-like" an activity is -- and keeping a few animals is pretty hobby-like, in the eyes of the IRS -- the more sharply they will tend to look at whether it is REALLY functioning as a business in your life or whether it is merely a hobby that you sometimes make money on.

    Even if it IS just a hobby that you sometimes make money on, though, you can still (or anyhow it used to be this way) deduct expenses against profits, but only up to the amount of profit you make. That is, if you make a total of $400 income from the chickens this year, you could deduct up to $400 of (documentable) expenses against that... just not MORE than $400. Whereas if it is a legit business, there is no limit to expense deductions.

    Good luck, have fun,

  4. kathleengp

    kathleengp Songster

    Sep 6, 2009
    Good advice - thank you very much! Sounds like more trouble than it's worth - or maybe for the "someday" file if/when I ever do decode to make an actual for-profit business out of this.

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