Business or Hobby

[TradeRiver]

Curious as to how people are treating their maple syrup business at tax time. Business or hobby?

[unc23win]

My opinion is if you spend more than $500 a year on supplies and operation costs (I think hobbies can be claimed up to $500) you should treat it as a business. An agricultural business /farm which produces a crop for profit. To each his or her own, but I think I it's worth claiming. I realize that if it's a hobby you probably don't mind spending a little money, but if you claim all your expenses chances are you'll get some back (which you can and most likely will spend on more supplies) that's how it goes.

[johnpma]

I think that if you expense out some of the costs associated with the hobby that you will also need to show some revenue as well. I'm not completely up on the laws regarding small scale farmin

[doocat]

When you start spending more then you make it's a business!!!!! Just a thought.

[jmayerl]

My opinion is if you spend more than $500 a year on supplies and operation costs (I think hobbies can be claimed up to $500) you should treat it as a business.

What about the guys that spend $50,000 on a new bass boat to fish a few weekends a month and maybe win $100 a year in a local bass club tournament? My point is that there is a huge difference between a hobby and a business, seems like many people in maple blur the lines.

[johnpma]

Found this on the IRS website:

"You are in the business of farming if you cultivate, operate, or manage a farm for profit, either as owner or tenant. A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. It also includes plantations, ranches, ranges, and orchards"

[unc23win]

What about the guys that spend $50,000 on a new bass boat to fish a few weekends a month and maybe win $100 a year in a local bass club tournament? My point is that there is a huge difference between a hobby and a business, seems like many people in maple blur the lines.

Do they claim the $100? I had 2 points 1. Was that if you spend over $500 if you want to claim it it can't be a hobby. 2. Was that there are benefits tax wise if you claim expenses and income from syrup you will get something back. If you don't claim it you can't get anything back.

[wnybassman]

I had two seasons (2005 and 2006) where I had to claim my winnings from tournament bass fishing. I believe it was because both times I won more than $600 and the organization sent me a W2. Of course it was easily negated with deductions :)

[Moser's Maple]

I guess I view this as if you offer a good or service to a paying customer then you are considered a business. If it was a hobby then you would be giving away the end product and if you accept a donation for said product then that's up to you.
Now if you sell your products then ultimately it's up to you and your business model if you turn a profit and are a successful business.

[PerryFamily]

I absolutely treat as a business
I depreciate my big equipment expenses and write off in full the rest of it
I claim any income that will also claim it ( Bulk, stores, restaurants.....)
Cash goes in my pocket, checks written to me personally are treated as cash

[sap retreiver]

Like my father in law said "I wish I could write off my golfing expenses."

[TradeRiver]

What about the guys that spend $50,000 on a new bass boat to fish a few weekends a month and maybe win $100 a year in a local bass club tournament? My point is that there is a huge difference between a hobby and a business, seems like many people in maple blur the lines.

Agriculture is treated differently than bass fishing by the IRS. According to the tax professionals I have spoken to in the last few days you have 3-5 years to show a profit - after that you may have found your new hobby. You can still write off expenses when it is considered a hobby up to the amount of revenue. Basically, you can clear out any profit with deductions. If it is operated as a business you can carry over losses and potentially take the business loss against your non-farm income. Everyone has a different tax situation - I would suggest talking to a professional if you have any questions. It really helped me!

[TradeRiver]

When you start spending more then you make it's a business!!!!! Just a thought.

Actually the IRS would say that is a hobby.

[sugarman3]

Neither.it's an addiction!!!!!!!!!!!!!!!

[johnpma]

Neither.it's an addiction!!!!!!!!!!!!!!! Seems to be :) And we could all be addicted to worse things :) The hard part I have as a hobby guy is when somebody says "I'd like to buy some from you" I usually just give them a bottle, and can't bring myself to sell it even though I feel it is very tasty, and pretty decent quality.....guess that is what makes me a hobbyist :)

[Woodsymiles]

For those that have gone the business tax way, did you form an LLC business? My sugar bush is on my property I live at and will looking to set up a maple business with tax ID and such. Not sure how homeowners insurance will coincide with a business on property and if an LLC will balance that out. A lot to consider.

[David in MI]

From the IRS website:

"Business or Hobby? Answer Has Implications for Deductions
FS-2007-18, April 2007
The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is a business or a hobby, an activity not engaged in for profit.
In order to educate taxpayers regarding their filing obligations, this fact sheet, the eleventh in a series, explains the rules for determining if an activity qualifies as a business and what limitations apply if the activity is not a business. Incorrect deduction of hobby expenses account for a portion of the overstated adjustments, deductions, exemptions and credits that add up to $30 billion per year in unpaid taxes, according to IRS estimates.
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.
In order to make this determination, taxpayers should consider the following factors:
Does the time and effort put into the activity indicate an intention to make a profit?
Does the taxpayer depend on income from the activity?
If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
Has the taxpayer changed methods of operation to improve profitability?
Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
Has the taxpayer made a profit in similar activities in the past?
Does the activity make a profit in some years?
Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?
The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.
If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.
Deductions for hobby activities are claimed as itemized deductions on Schedule A (Form 1040). These deductions must be taken in the following order and only to the extent stated in each of three categories:
Deductions that a taxpayer may take for personal as well as business activities, such as home mortgage interest and taxes, may be taken in full.
Deductions that don’t result in an adjustment to basis, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
Business deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.
Link:
Further information is available in IRS Publication 535, Business Expenses"

[johnpma]

I find the IRS guidelines kind of ironic.......what if you have acreage and you are growing hundred of Christmas trees on your tree farm......you know you can't grow Christmas trees in 3 years:o They are going to tell you that it's a hobby because you have no revenue?

[Sunday Rock Maple]

The hobby or business question isn't always clear to those running them, but what's real clear is that the space between them is called misery.

[3GoatHill]

Found this on the IRS website:

"You are in the business of farming if you cultivate, operate, or manage a farm for profit, either as owner or tenant. A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. It also includes plantations, ranches, ranges, and orchards"

What in the world is a truck farm?

[johnpma]

What in the world is a truck farm? IRS lingo :)

[Michael Greer]

"Truck farm" is another name for market garden, where the grower hauls produce or fruit to market and sells directly to consumers.

[motowbrowne]

"Truck farm" is another name for market garden, where the grower hauls produce or fruit to market and sells directly to consumers.

Exactly. It's a very common term, well past the scope of the IRS.

Regarding the profitability of an ag enterprise, basically you can claim a loss on your schedule F (and use it to offset other income) for as many years as you want. However, the IRS, at their discretion, may challenge whether you are actually engaged in business, or simply trying to write off losses from a hobby. Christmas tree farming is a perfect example. No way you can turn a profit in 3 years. Still a business, though, or it could be anyway. They will use several factors in making a determination. Namely, whether you are acting like a business, or not. If you have a credible operation that's actually doing what they say it is (as opposed to planting 25 Christmas trees and then writing off a $75,000 pickup) and you have a business plan that details when you expect to become profitable, then you should be fine. There's lots of farms in this country that don't make a profit 3 out of every five years. Unless you're really stretching the limits, I don't think you've got anything to worry about.


Edited to add: I'm not a tax professional. I got that info from research on starting my LLC and from speaking with my tax professional. Jason is right on about speaking with a professional if you intend to make this a business, whether LLC, sole proprietorship, or corporation. It's not rocket science, but avoiding problems with the revenue agents down the road is a good idea.

[johnpma]

Exactly. It's a very common term, well past the scope of the IRS.

Regarding the profitability of an ag enterprise, basically you can claim a loss on your schedule F (and use it to offset other income) for as many years as you want. However, the IRS, at their discretion, may challenge whether you are actually engaged in business, or simply trying to write off losses from a hobby. Christmas tree farming is a perfect example. No way you can turn a profit in 3 years. Still a business, though, or it could be anyway. They will use several factors in making a determination. Namely, whether you are acting like a business, or not. If you have a credible operation that's actually doing what they say it is (as opposed to planting 25 Christmas trees and then writing off a $75,000 pickup) and you have a business plan that details when you expect to become profitable, then you should be fine. There's lots of farms in this country that don't make a profit 3 out of every five years. Unless you're really stretching the limits, I don't think you've got anything to worry about.


Edited to add: I'm not a tax professional. I got that info from research on starting my LLC and from speaking with my tax professional. Jason is right on about speaking with a professional if you intend to make this a business, whether LLC, sole proprietorship, or corporation. It's not rocket science, but avoiding problems with the revenue agents down the road is a good idea. Apple Orchard another example.......IRS is why my great grand father stopped dairy farming in the late 70s

[bowtie]

As stated before if you are honest in what you are doing, keep good records, and receipts, you should not have a problem.we not sell syrup, but also eggs from our free range chickens, garden produce and I have been planting fruit trees for several years. We actual don't write off everything we could and probably never will. I don't try to write expenses that are not "real", I don't mind paying my FAIR share of taxes but don't want to pay for others who don't. The govt allows people engaged in an ag business to certain tax breaks and this allows us a chance at profitability, when it otherwise would close to impossible. My friend jokes with me that for every dollar I get back on my taxes I spend 20 to do it. We would probably have tens of thousands more dollars in the bank if we did not pursue these hobbies, but In my mind, would much less rich.

[Helicopter Seeds]

Without copying info from IRS, I make note that Farm income or loss is an entirely separate area than Business income or loss. Maple syrup is specifically identified as a farm product.
Then for interpreting, if you get any revenue, you are obligated to report it. As such, you are allowed to deduct expenses that were towards that revenue. For me, this is a startup- I sold a small amount, and working on brand recognition. some of the investments will carry forward.

[Spanielslovesappin]

Not trying to stir a pot but in one breath someone says they take deductions on the business though not all that they could and in the next refer to these business as hobbies!?!?

This is a public searchable forum...

In my mind if its a business you should take all of your deductions as to not do so add potential confusion to the hobby vs business issue the argument being if its a business why would you not deduct? Obviously you can get into the grey area of assets that have use for the business and also personal use though then you can just deduct or depreciate an appropriate percentage.

As we all know everyones tax situation is different and should be discussed with your tax professional!