Tax questions on for-profit/not-for-profit

[Kenneth Brown]

Kinda searching peoples thoughts before I talk to the cpa here. Last year we became farmer/ranchers. It is a small operation. I can see where I can make money in laymans terms but not as a for profit farm business. As an example I expect to buy 4 horses and resell them later in the year. I will have them in better shape and with more training than when i recieved them. I expect to pay $800 for all 4. Whenever I sell them I expect to get about $1500 for them. I expect to spend about $200 on feed and supllies while I have them. In laymans terms it looks like I made $500 profit on them. If I look at it as a for profit farm though I take into account the depreciations, vehicle use,blah blah. Doing it that way I would lose about $3000 on this venture. I am not out to make money from tax loss. I would rather not have to go through the trouble with an audit over a small amount of money, it just isn't worth it to me. What I am wondering is with such a small amount of gain in laymans terms should I be concerned about any profit? This is a business but only on a very small scale. I expect to make some kind of money one day but I doubt it will ever be a sustainable income. Should I file this as a hobby, even though I don't feel like it is? What do you think?

 

[Laddies]

Re: Tax questions on for-profit/not-for-profit

My accountant told me if you don't make a profit in 3 years ( I think that the right time) the IRS can declare the business a hobby and not let you declare a loss on it. Don't take this as gospel cause it's been several years ago and thing change yearly---Bob

 

[Kenneth Brown]

Re: Tax questions on for-profit/not-for-profit

Pretty much true. IRS publication 225 is on farming. It says that with livestock I have to show a profit 2 out of 7. With other ventures the rule is 3 out of 7.

 

[roscoe]

Re: Tax questions on for-profit/not-for-profit

Do you buy things wholesale, using a tax id number?<br /><br />The selling price will all be income, and taxable, unless you deduct the expenses, according to my cpa. If you are willing to pay the tax on the sales price, you can do that. Or atleast that is what the cpa told me to do when I first started.<br /><br />Then, 3 years later when the money got more serious and the tax liability was larger, I started keeping all the records and taking the deductions.<br /><br />As always, run it past your cpa.

 

[Laddies]

Re: Tax questions on for-profit/not-for-profit

They got us coming and going

 

[tomatolord]

Re: Tax questions on for-profit/not-for-profit

simple tax 101..<br /><br />however none of us are experts so get some legal advice, it is not too expensive for simple questions like this.<br /><br />You dont HAVE to declare all of your expenses! I know plenty of people that do that, just cut back on the expenses declared, you just can not carry over any losses during those years.<br /><br />In year 1-5 all losses<br />Year 6 and 7 you dont declare all of your expenses and make $5 profit or just make $5 profit each year. It is up to you.<br /><br />I know some people feel nervous in declaring ALL the deductions that they can, but the rules are relatively clear for small businesses.<br /><br />good luck

 

[KRS]

Re: Tax questions on for-profit/not-for-profit

Claim whatever you want so long as you can still sleep at night.<br /><br />Think of it this way... When a salaried employee gets their "net" pay plunked into their checking account every two weeks, there are several items (expenses) that are already removed such as health care, tax, etc. A business owner has some unavoidable expenses that come with the business and has every right to deduct those expenses.<br /><br />As for depreciation, only your farmhouse (if there is one) or a vehicle or equipment can be depreciated. The land and animals can't be.<br /><br />Consider making an appointment with a Small Business Developement Center, or SBDC. The SBDC's are organizations that assist business owners with such non-laymans tasks like: applying for a small business loan, preparing financial statements, etc. The SBDC can even set you up with a mentor that knows your type of business and can give valuable advice.. for free.<br /><br />Another is the BDFC, this is the funding arm of the Small Business Administration.... SBA doesn't have money to lend, it all comes from the BDFC. I would go with the SBDC first and hone those skills that can make you a better business owner.<br /><br />If it is an expense necessary to the production of the goods (trained horses), then deduct it!