Business or Hobby

[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!