Posted by paul on May 22, 2012 at 22:25:21 from (66.44.132.109):
In Reply to: Tax Questions posted by Fullers Farmalls on May 22, 2012 at 19:12:49:
You need to be farming to try to make a profit, then you claim your income and expenses on a schedule F at the end of the year.
If you lose money for 5 years at farming, they likely will come looking to see what is up, nd say you ain't farming, you have a hobby & you are using the hobby to dodge taxes, and your deductions then will be disallowed.
If you have a business plan and could show a way you should expect to be a profitable farm aside from your regular job, them you will be back in good graces. Bad weather, sensible expansion, etc kept you from making a profit you'd normally expect and you can keep losing money and still be farmng.
So - yea it is a grey area......
If you are a farm, you have 3 types of deductions - long term - buildings, tile, fencing - probably deduct these a little bit for 20 years.
Mid term - tractor, machinery, etc. Deduct these over 7 years.
Short term - seed, fertilizer, fuel, general repairs. Deduct these all in one year.
There are ways to speed up some of the mid & long term deductions.
You can buy (prepay) fuel and fert in spring, and again in December to be used the following year, to double up your short term deductions. Then not buy any fert the next year.
Also you can sell grain/ hay in Dec, or sell it in Jan - this changes the year you list the income.....
This lets you balnce out incomes and expenses. Many rules and games to this. You got to play along. Just a general overview.
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