This comeing up tax year I want to change the farm into a partnership or limited liability corp.I was wondering what you all call your place when it comes to tax time?My record keeping was pretty bad this year but from what i can tell the hogs,chickens and turkeys made money everything else was a wash.I am looking into adding more hogs and turkeys this spring but I do not want to end up paying taxes on them,so I was thinking of sheep to off set the profit.I was told a L.L.C. was the way to go,but once again I am so confused. Any input would be great. Thank

-- renee oneill{md.} (oneillsr@home.com), January 30, 2001

Answers

No real imput-but a question. Do you have to set things up as the llc or partnership to have any tax advantages?

One thing we deal with is a very low income-we hope to boost it with some of our farmstead projects. I plan to sell eggs-and even some started pullets this year, and milk and of course the sheep and cattle as we expand. Hopefuly it will help with the income-but at least help with the feed/hay expenses. How do we set that all up- when our taxes are nonexistent anyway-do we bother? Maybe some day we will have more income-maybe we ust need to keep good records so we learn how to do it.

Not griping...just wondering what our situation calls for-and I am not going to consult an accountant-I am after all into self sufficiency! :) Besides the accountant we can afford-well he thinks we are stark raving mad for living the way we do. (my father, God bless him.)

Sarah

-- Sarah (heartsongacres@juno.com), January 30, 2001.

Renee, there a some very clear cut answers for you in any IRS book on filing your schedule F. You must be running this as a business, and not a hobby, which mean, a seperate checking account, receipts, and you can't claim anything that is used for home use. Though you are to run your business in the efforts to make a profit, you really aren't expected to profit for 7 years, than if your debits drastically increase with not profits, you are more than likely to be audited. We deduct the price of stock, feed, hay, equipment, electricty for the barn, the barn and large purchases like bucks, my truck are depreciated over time, medications, membership fees, registration, show entries, milage, advertising, publications, clothes, shipping, seed, fertilizer, anything at all I use for the dairy barn down to the papertowles, and the biggy for me is the cost of hired help (contract labor), which can even be your children. Things I declare as income are milk sales, animal sales, which are seperate from animals that are purchased for resale, semen, breedings, colostrum, vet services. Have yourself a look at the Schedule F, it is very easy to follow. The partnership is not a good idea, since you want this to be in your name, and you want to be able to check the boxes that you do the work yourself, and keep records in cash. I do own animals in partnership, it just isn't anything I declare. Vicki

-- Vicki McGaugh TX (vickilonesomedoe@hotmail.com), January 30, 2001.

renee,

Get some real advice before you start to make major changes, talk to a CPA. ESPECIALLY IF YOU HAVE NOT YET LEARNED TO KEEP VERY GOOD RECORDS.

If your farm operations are not profitable overall for I think it is two out of five years the IRS will want to reclassify it as a hobby. So think about doing five years of amended tax returns.

Your farm losses are deductable against any "off farm" income now, without making any changes in your business structure.

Read free publications from the IRS: Pub. #17, Pub # 334, and the farmers tax guide for starters.

-- Ed Copp (OH) (edcopp@yahoo.com), January 30, 2001.

There are some very specific and unique IRS rules for record keeping and filing for commercial agriculture. Farming is treated differently than any other business. I strongly advise getting professional counseling. We are running our Nubian goat herd as a regular business, not a farm. We are doing so under our boarding kennel business license and name.

-- Skip Walton (sundaycreek@gnrac.net), January 30, 2001.

LLCs law varies from state to state..the IRS does not have much to say about them at all since the income from an LLC business is considered as personal taxes anyway. Your individual state may or may not recognize an LLC, and since each state has somewhat different regulations regarding them, I would recommend that you consult a CPA in your area. My LLC company here in Alabama offers me some, but not all protection of my personal assets in the event of somebody suing my company. Alabama regs do not require any corporation records for an LLC or any additional members at all.The only advantage here is that there is a better (but not as good as a full corporation) protection of personal assets, and of course, you do not get taxed twice as a corporation does. A good free source of information regarding LLCs, Partnerships,Sole proprietary, and corporate structuring would be the Small Business Administration. The feds have many offices of the SBA located at universities, so you may want to call around. The advice is free, and they will not only explain all of this to you, but will provide you with a ton of reference materials, especially regarding your own states' requirements.Also, some counties within each state have fees for operating a business, so you might want to check that out as well. God bless.

-- Lesley (martchas@bellsouth.net), January 30, 2001.

I recently attended a conference that gave alot of information, tax wise. Please do consult a professional. Ask about an S Business. From my understnding, it offers the protections of a corporation and a LLC without the dangers of a home business. (Law suits ect..) Basically, it protects your personal assets against your business. Also, we were told if you show a loss for three years in row, it is an automatic audit.

-- Terri Perry (teperry@stargate.net), January 31, 2001.

Well, let's see. I am now going into my eighth year of reporting a loss on Schedule F and the IRS hasn't called yet. I believe you only have to be making a honest effort at making a profit. I would welcome an audit if the auditor could tell me how the average farmer can make a profit.

-- Ken S. in WC TN (scharabo@aol.com), February 01, 2001.