Posted by James22 on April 05, 2008 at 19:53:23 from (207.179.239.254):
In Reply to: Tax Time posted by JRT on April 04, 2008 at 21:39:16:
I don't agree with your tax lady. If you aren't doing anything foolish and actually working towards a profit; ie, such as not buying a $200,000 combine to do 50 acres, the IRS may audit, but with a good tax accountant there should be no problem. The IRS "requirement" for someone to show at least one year's profit for each 5 years crop farming, or one in 7 years with breeding stock isn't a law, just IRS's "rule of thumb". The key is that you must be attempting to make a profit. Personally I haven't shown a profit for over 12 years in the actual farming endeavor, however do realize this doesn't include the income off the leased-out ground which the accountant considers a separate enterprise. Although I'm coming real close, since about everything is depreciated and recent farm prices and yields have really been outstanding. What does draw the IRS's attention are high income individuals which purchase a few acres and have some "breeding stock" (usually horses) and then show huge depreciations to offset their high off-farm income. A couple year's of this type action will draw the IRS attention like bee's to honey. Another red light for the IRS are household expense deductions for a "home office". I know this is danger zone and don't consider the hassle worth it for these "penny-ante" deductions. One area that you need to pay attention. Since I have a long loss record, the accountant had a question about actual worth of the equipment owned/purchased. It would be real bad if an audit did come around and the equipment I owned/purchased was worth only a small fraction compared to what was written off. Note: the accountant I use has only been audited once in 30 years, and did win that audit case.
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