# Tax write-offs for small farms



## StockDogLovr (Apr 13, 2009)

I keep a small flock of sheep which I use for herding practice, but I breed and sell as well to keep the flock fresh and raise a bit of money for feed. My husband insists that this constitutes a "farm" and expenses can be tax write-offs (as well as sales being income). Since my expenses always exceed my sales, I'm always "in the red."

Do any of you know of any publications about small farming as a business? Anything to add on the subject?

Thanks!


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## thequeensblessing (Mar 30, 2003)

I know that just as with other businesses, you won't be able to always claim a loss. You'll have to show a profit sooner rather than later, or you're inviting an audit. They don't want folks using the Ag tax system to get out of paying taxes, and they don't want homesteaders to be able to write off all their livestock expenes. It has to be a legitimate farm venture. Now, that said, I just use taxact online. It prompts you every step of the way for expenses, etc. There are some things you can do that will help you in your efforts to have the irs recognize you as a "farm". How many acres do you have? Do you get an agricultural property tax exemption? Do you purchase feed, seed, etc. tax exempt? Do you have farm liability insurance?


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## LibertyWool (Oct 23, 2008)

I would recommend you read IRS Publication 225, Farmerâs Tax Guide. If you can show a profit 3 out of 5 years, the IRS will presume your activity is carried on for profit (per that document). That doesn't mean that if you don't show a profit that often, you are not carrying out the venture for profit. 

Even if you determine that you don't qualify as for profit under the IRS rules, you should still be able to offset any livestock sales with the expenses from your "hobby" activity. So if you have $2000 in sales, you can subtract $2000 worth of expenses making your tax liability $0 for that income (that is assuming you have more expenses than sales).


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## spinandslide (Jun 6, 2008)

Find a GOOD accountant who specializes in ag..


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## equinecpa (Mar 21, 2011)

I just might know a decent CPA that focuses on farms. :lonergr: 

Here's a link to some articles on my web page -the first one covers the factors that will help you to decide whether you're operating a hobby or a business - they are geared to horses but you really can substitute sheep wherever it says horse...As libertywool said Publication 225 has a wealth of info if you want an in depth read.


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## LibertyWool (Oct 23, 2008)

There are some specific rules for horses that are different from other farming activities. Without going back and re-reading the IRS rules, I think for horses the profit test is 2 years out of 7 instead of 3 out of 5 for other activities. So if you have any doubts do check the rules or with an accountant as people have said. But good information....


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## equinecpa (Mar 21, 2011)

LibertyWool said:


> There are some specific rules for horses that are different from other farming activities. Without going back and re-reading the IRS rules, I think for horses the profit test is 2 years out of 7 instead of 3 out of 5 for other activities. So if you have any doubts do check the rules or with an accountant as people have said. But good information....


This the safe harbor rule: " It allows a presumption that the taxpayer is engaged in for profit if in 3 of 5 consecutive years (2 of 7 in the case of breeding, training, showing or racing of horses), the activity is profitable"

What this means is if you realize a profit 3 of 5 years you WILL be considered a business *but it does not* mean that if you don't realize a profit in 3 of 5 years that you WON'T be considered a business -other mitigating factors will determine that.


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## sheepish (Dec 9, 2006)

I don't know if the US tax laws are different, but here in Canada you have to show that you intend to make a profit. If you are operating at a loss because you are building a flock, for example, may be used as a mitigating factor to the extent of the value added to your farm each year. Disasters also will mitigate.

But just having a few animals because you like them around, does not allow you to call yourself a farm for tax purposes if you constantly lose money. Here there is a difference between what the income tax requirements and the property tax requirements. Our property tax requires sales at a certain level, whether or not there is a loss of income.


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