Tax Questions

We just started farming (my dad and I). I'm 21 live in his house
during summer, school the other 9 months. His land but my
equipment. What all would be needed in order to claim our cost/revenues
on taxes? This came up after I was asked if my hydraulic cylinder and some other stuff was tax deferred at
TSC the other day. I'm in PA. We have some land not a lot. Probably
about 3 acres total that we "farm." It's not a lot but is it worth
claiming? Any and all advice is welcome. Thanks in advance. -Keith

I believe there is a form F for farming that has the correct categories.

It is also easy at the tractor supply stores. They have a tax exemption form for you to file with them. The registers will automatically exempt the correct items.

my understanding is in PA anyone is sales tax exempt that produces ag products. Has nothing to do with income.

The TSC purchase would involve state and county sales tax, the rules vary by state, where I live feed and vet supplies for commercial livestock are tax exempt if you declare and sign an exemption form yearly, pleasure horses pet pigs etc. don"t qualify but racehorses would or dogs if you are a breeder or run a kennel. Farm equipment and supplies such as disc blades, cylinders etc. are exempted the States portion of the tax, normal repair parts such as bearings, engine components etc. are taxed at the normal rate. As far as federal income tax, filing schedule ""F"", any expense related to producing a crop or livestock for sale is deductible against the revenue from the sale of the livestock or crops and any other earned income you or your wife, if married, have from a job. There are all kinds of partnership arrangements recognized by the IRS but if you and your Dad each file a seperate schedule ""F"" for the farm activities on the same farm it is perfectly legit as long as each person paid expenses, shared in the proceeds and actively worked the farm. If you go to irs.gov and download a copy of the federal form schedule ""F"" it is actually fairly self explanatory and will be a good guide to know what expenses to keep up with and use aa a tool to plan your business. Due to the boom/bust nature of most agricultural enterprises careful and thorough tax planning and record keeping cannot be emphasized enough.

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.

--->Paul

Pauls answer is exactly the way I started out and still operate today. Easy to understand once you have ran through it for a year or two.

The key to take away as Paul said, "farming for a profit, not to try to hide paying taxes"

Rick