Reporting Hobby Income?

[SeanD]

I have always skipped the question about hobby income on my tax forms because I thought that although I have income coming in, my expenses were always greater and therefore have no positive income to report. From the beginning seven years ago, I've kept a simple ledger of income and expenses - really just to see if the hobby can sustain itself. So far it hasn't, but that's not why I make syrup. Building a sugarhouse and buying a real evaporator put the biggest hit on the expenses side in the last couple of years. So, I'm thousands in the hole right now and realistically will be for years.

Am I supposed to be reporting this anyway? Is it worth while to report these losses on my taxes?

Sean

[Dill]

1040F, you have a tax deductible hobby take advantage of it. You can deduct the loss against your real income. My wife likes the farm even more this time of year.
Oh but I have no idea about the state. I only have to file with the feds.

[Thompson's Tree Farm]

Keep in mind that a hobby that loses money every year will be viewed as exactly that, a hobby. If you are legitimately building a business with the intention of making money, the expenses are deductible and the IRS will view it that way in an audit, If you are using your hobby as a tax write off and continue to do so without ever showing a profit, you had better hope that you are never audited. I am not a tax consultant nor an attorney so take that into account when reading my post. Remember the IRS is trying to do 2 things here. Tax legitimate profits and prevent using illegitimate deductions that distort your income.

[red maples]

If you do claim it on your taxes ( I am no accountant) but from what mine has said you can claim the building for so many years and the equipment for so many years. everything I make goes right back into it anyway with more equipment etc as I add on. eventually I would like to make a little from an hopefully exect to in about 4-5 years HOPEFULLY. Part of the problem I have is I am a stay at home dad and for right now I am not paying any taxes so if I show a profit even though I will pay little in actual fed sax I will still have to pas social security and stuff although its based on what I make!!! so they get you no matter what!!! and like Thompson's said if you claim a loss for too many years you may get a red flag for that as well.

[SeanD]

All really good to know. Thanks. I think I'll look into it more.

If I take the shack and the evaporator out of the equation, I'm on the plus side each year. In the equation, at the rate I'm going I'd pay off the shack and the evaporator in about 4 or 5 years. Then again, 4 or 5 years ago I was saying I'm only going to tap a few trees to have a little fun in the back yard. Who knows where this is going to go?

I built my sugarhouse in '09 and '10 and bought my evaporator in '10. Did I miss my chance to claim those?

Sean

[markcasper]

Sean, You should be claiming your losses. Actually its not a loss it is a capital investment. If you can show 1,000 dollars gross profit , you qualify as a "farm". You can then file a farm sheet and often there is advantages to doing it this way instead of just a regular business. I am not an accountant, but I hire an accountant to do mine so I do have some knowledge of what can be claimed, not claimed, etc.... While it does not look good to be in the red year after year, everything does cost more and more every year to stay in business while the profits never seem to keep pace. Throw in a bad year here, equipment failures here, storm damage there and its not all uncommon to show anything but a measly profit. Just have all your slips and receipts to prove yourself if an audit were to ever occur. There is talk and chatter in Congress of eliminating deducting anything for a farm business if its only part-time or seasonal. In other words....if you work in town and have a farm as a sideline......goodbye tax breaks. What actually happens? only the future knows.

What really makes me sick is our congress people, well over half of them are exempted from paying ANY tax, in the mean time they throw the book on the small people!

[PapaSmiff]

Sean,
Remember that a Shack and Evaporator is depreciated over many years (although I'm not sure exactly how many). So it should not be too late to claim it. But check with someone else more knowlegable than I am.

[vtmapleman]

I would encourage anyone who is going over the treshold for hobby income/expense to talk with a tax accountant. ie. there are times when you can fully depr a asset in one year - called section 179 asset. For those folks who have other income such as wages, etc this is a big advantage. Realestate, buildings, and such are depreciated over a much longer period of time - 20 years plus. Most everything else is in the 6 year range. Also, to file as a farmer I believe you must make at least 1/3 of you income from farming....again it more than worth it in talking with a tax accountant...the cose of such would be a business expense............again I am talking about federal tax....state income tax may be much different. ie. in VT a business loss is not deductible on your state income tax form. Good Luck

[SeanD]

Yeah, I'd definitely talk with a pro before I did anything. This is all good background knowledge to at least help me begin to understand the conversation. I need to figure out what the specific thresholds are before I get too involved with calling myself a farm or getting my residential rate changed to ag. I'll study up more about the hobby income stuff first and see where that goes.

Thanks!

Sean

[maple flats]

Report the "farm" income and expenses! You hopefully don't ask your buddies for a very important medical question, don't ask us for a big tax question. Your tax pro is the one. If you do your own taxes you had better be totally up to date on tax changes.
Back in the 60's, just 3 years after I graduated college with a very high average (3.6 GPA), and 4 credits in accounting I did my taxes and then took the same info to an accountant. My result had me paying $300+ in taxes owed, the accountant came up with a $500+ refund. Things had changed that fast. I have never done my own since.
I claim the farm income and expenses. Profits keep fluxuating but generally trend up, with some losses. At one point I had a loss for 5 yrs running, but most of that was because investments were expenses in the same year. It will also be expensed on my 2011 and will likely show a loss. After that the profit will be there, but I am old enough that my other incomes will be lower. I have never been audited but if I am, all in in order because I had a pro do it and I hid nothing. You should do the same unless your sales are under the reporting threshold for the IRS.

[Lazarus]

We will claim the expenses from the "farm" (considered a hobby farm in Ohio as we don't make our living at it) for the first time this year, but we already claim expenses from another LLC business also run from the house. I can tell you that we have never, ever posted a profit on the latter in 12 years running. You do not need to have a profit every so and so years, that's a myth. But the audit question is a matter of "when" not "if", regardless of whether you post a profit. Some kinds of businesses also attract audits more than others. We do use an accounting firm - the most expensive in the city - and they are worth it. We passed a 2004 audit with flying colors, even got compliments from the IRS in that they had rarely seen a small business so well organized; however, the audit did cost $$$ to have our accounting firm host the auditor for the day. The IRS even came and visited the house to see the business up close and personal. They found no discrepancies BTW. Honestly I told them if the IRS could make a recommendation as to how to make this business profitable, I was all ears!

-Lazarus

225 taps
GBM 2x6
Continuous UV sap storage
Honda Foreman 500, YuTrax trailer
and 100 gal PCO tank super-hauler
Boiling outside in 2012 due to barn collapse
New sugarhouse planned for 2013

[twitch]

Im not a registered farm or business but I have spent some money building a sugar house and other things to do with maple production some in 2011 and some in 2012 I hope for this year to get registered as a farm or bissiness. Can i still right of my expensese for 2011 in this tax season. would love any advice on doing this

[red maples]

I believe you can depending on how much it is. I would discuss this with an accountant just to be sure how to handle it. When I did mine I was official business in 2010 although most of my investment was in 2009 honestly I don't remember how he handled it. If it simple work taxes with nothing else I can handle it, factor in the rest I am totaly ignorant to it!!! SO I wold rather pay the couple hundred for someone else to bear the headaches!!!

[red maples]

[QUOTE=Lazarus;174246]We will claim the expenses from the "farm" (considered a hobby farm in Ohio as we don't make our living at it) for the first time this year, but we already claim expenses from another LLC business also run from the house. I can tell you that we have never, ever posted a profit on the latter in 12 years running. You do not need to have a profit every so and so years, that's a myth. But the audit question is a matter of "when" not "if", regardless of whether you post a profit. Some kinds of businesses also attract audits more than others. We do use an accounting firm - the most expensive in the city - and they are worth it. We passed a 2004 audit with flying colors, even got compliments from the IRS in that they had rarely seen a small business so well organized; however, the audit did cost $$$ to have our accounting firm host the auditor for the day. The IRS even came and visited the house to see the business up close and personal. They found no discrepancies BTW. Honestly I told them if the IRS could make a recommendation as to how to make this business profitable, I was all ears!

That being said, If you have a large yearly income from your "job" ($150$200K+ Doctor, Lawyer etc) and you have a hobby loss every year depending on what your loss is, if its a few thousand they probably are going to balk at it, but it does put up a red flag to the IRS to possibly look into things.

[bowtie]

i am going to have my taxes done tomorrow. i save all my receipts for all my maple purchases, chicken feed, wood chips, and even the trees i plant. i sell my eggs and last year i sold a little syrup, the accountant told us that as long as we are trying to make a profit and show reasonable intent to,that it really does not matter if you do show one, esp when starting a new "business", i have been planting fruit trees for a few years now and it takes at least 5-7 years to see a return on them, same for x-mas trees. if you are not trying to write off huge expenses and are not showing that you have sold anything you are more than likely asking for problems, however if you are trying to be a legitimate small business you should be fine. like everyone else said you should talk to an accountant as every state has different tax laws. in ny if you "board a horse or sell a couple rabbits" you can file for farm exemption. i say that if the gov't allows this tax break we should use it to our avandtage, they certainly do.

[Sunday Rock Maple]

Our experience is the same as Maple Flats. We keep track of all income and expenses and then take it to a pro to add up and prepare --- highly reccomended!

[Three Maples]

I spoke to a farm acountant and was told that to most people a shugar operation is agracultural. But he claimed that to the IRS it is a manufacturing operation and that the biulding depreciation is over 39 years. The bigest point was that we connot just expense capital investments they need to be depreciated.