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 Worst.Housekeeper.EVER.
   
Location: Missouri | Help!
Our accountant says we need to show income before claiming any farm/horse expenses.
I have horses at our home, but we also own land that we are hoping to build on this year.
Currently, approx. half of the land is free-leased to a neighbor who runs cows on it. The other half is used for hay (we maintain the pasture, another neighbor cuts and bales round bales, he keeps the hay and we trade him about half of the value for horse hay.)
I know next to nothing about cows, but I've thought about buying a couple and letting the neighbor keep them with his. Is that fair? And, how many would I need to buy? (he buys young calves and feeds them out.)
Any other ideas with our current situation?
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 Expert
Posts: 5293
| Don't forget that you also have to show a profit 2 of 7 years as well. SO whatever farm income you plan on claiming that should generate a profit as well. |
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Worst.Housekeeper.EVER.
Location: Missouri | FLITASTIC - 2014-06-05 8:37 AM Don't forget that you also have to show a profit 2 of 7 years as well. SO whatever farm income you plan on claiming that should generate a profit as well.
These are probably stupid questions, but I don't completely understand.
Do you wait the seven years before claiming anything? Or, do you present a business plan that details how you plan to make profit and make claims during that time? Not sure how that works...
Also,
Are winnings profit?
Can you show that by training, you intend to improve/win more?
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 Elite Veteran
Posts: 1119
| just4fun - 2014-06-05 8:46 AM FLITASTIC - 2014-06-05 8:37 AM Don't forget that you also have to show a profit 2 of 7 years as well. SO whatever farm income you plan on claiming that should generate a profit as well. These are probably stupid questions, but I don't completely understand.
Do you wait the seven years before claiming anything? Or, do you present a business plan that details how you plan to make profit and make claims during that time? Not sure how that works...
Also,
Are winnings profit?
Can you show that by training, you intend to improve/win more?
I think this is warning that you can't claim a loss indefinitely, the government views that as a hobby. So winnings, income from training, etc will all have to be more than your expenses (profit) at least 2 years out of a 7 year period on your taxes. So, if you show a loss for several years in a row, you better have a profit by years 6 and 7. I've also heard that horse/farms are more likely to be audited, so make sure you keep detailed records and can prove expenses/income for everything you claim.
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 The Comeback Kid
Posts: 1564
Location: lost in missouri | Sounds to me like you have a hobby and not a business, just what the IRS is looking to audit. IRS looks at equine business's very hard as they know they are an expensive hobby and ripe for tax abuse. |
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Worst.Housekeeper.EVER.
Location: Missouri | I understand the need to make a profit. I was hoping for suggestions as to how to do that with our current situation.
We can sell the hay to the neighbor and buy our horse hay (depending on year, maybe a small profit)
I could buy cows and run them with the other neighbor's cattle (not sure how many I need to make profit?)
I could charge lease...but I don't want to do that.
I have intentions to sell one horse, but not long term plans for selling others. I could, though...
Just hoping for some insight...our accoutant doesn't seem super interested in saving us money.
I have no problem keeping records, schedule C, F, or whatever else we need...
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Worst.Housekeeper.EVER.
Location: Missouri | redracinmo - 2014-06-05 9:33 AM Sounds to me like you have a hobby and not a business, just what the IRS is looking to audit. IRS looks at equine business's very hard as they know they are an expensive hobby and ripe for tax abuse.
Currently, yes. But, I'd like to change that! |
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Expert
Posts: 5293
| I have had a "Rodeo performer horse trainer" business for years. I am able to deduct feed, vet, shoeing, travel, entry fees, equipment, etc. But I also have to pay taxes on every dollar I win. I keep a calendar where I record mileage, entry fees, how much I win, vet expenses, hay, etc. Two out of every 7 years you need a profit, does not have to be years 6,7. |
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 Go Your Own Way
Posts: 4947
Location: SE KS | just a word of caution - if I was running cattle on your pasture, and paying you rent, I would not want to lease your pasture if I have to share
the grass that I am paying for with someone elses cattle. Or you will have to lower your leasing rate to me on grass grazed. what do you charge the producer that is grazing on your land now? Depending on how many acres you have - your grass/acres has a carrying capacity of so many head. If that carrying capacity has been reached in good stweardship of taking care of your grass you shouldn't graze anymore cattle on it.
YOu need to take care of your grass. How long is your lease - oh wait - why are your "free-leasing" your pasture - ?????????? |
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Go Your Own Way
Posts: 4947
Location: SE KS | just4fun - 2014-06-05 9:38 AM I understand the need to make a profit. I was hoping for suggestions as to how to do that with our current situation.
We can sell the hay to the neighbor and buy our horse hay (depending on year, maybe a small profit)
I could buy cows and run them with the other neighbor's cattle (not sure how many I need to make profit?) cattle are high right now, so you need to know when to buy them at what weight/and when to sell. a 500# animal is bringing almost $1000 right now -
I could charge lease...but I don't want to do that. why don't you want too that is cash in yourpocket - grass is a commodity.
I have intentions to sell one horse, but not long term plans for selling others. I could, though...
Just hoping for some insight...our accoutant doesn't seem super interested in saving us money. your accountant is also on the line by doing your taxes - and if audited could be held liable. You need to back up what you give your accountant. He is trying to save you money but he his held accountable also. To be pretty blunt about you sound pretty hobby to m e.
I have no problem keeping records, schedule C, F, or whatever else we need...
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Worst.Housekeeper.EVER.
Location: Missouri | Dinero10 - 2014-06-05 10:13 AM just a word of caution - if I was running cattle on your pasture, and paying you rent, I would not want to lease your pasture if I have to share
the grass that I am paying for with someone elses cattle. Or you will have to lower your leasing rate to me on grass grazed. what do you charge the producer that is grazing on your land now? Depending on how many acres you have - your grass/acres has a carrying capacity of so many head. If that carrying capacity has been reached in good stweardship of taking care of your grass you shouldn't graze anymore cattle on it.
YOu need to take care of your grass. How long is your lease - oh wait - why are your "free-leasing" your pasture - ??????????
Because we don't live there and weren't using it.
We've been slowly getting the pasture back in shape, it was seriously overgrown and weedy. We've got half looking great (the part we hay), the half we "free-leased" is a little rougher terrain, more overgrown, and it just seemed logical. He has taken good care of it and improved the grass significantly. |
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Regular
Posts: 91
| From talking with my accountant the profit on 2 out of 7 years deal is somewhat of a misconception. He said that precedence has been established to where you only need to show the intent to make a profit. If you think about it logically it makes sense.....the government can't tell you that you can't have a business just because you are not good at it. I do agree though that the horse deal is a pretty subject to audit, and actual profits will help your case.
ETA: I would definitely consider charging something (even if it is at a reduced rate) for your grass.
Edited by Haulin@$$ 2014-06-05 10:48 AM
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Worst.Housekeeper.EVER.
Location: Missouri | Dinero10 - 2014-06-05 10:24 AM just4fun - 2014-06-05 9:38 AM I understand the need to make a profit. I was hoping for suggestions as to how to do that with our current situation.
We can sell the hay to the neighbor and buy our horse hay (depending on year, maybe a small profit)
I could buy cows and run them with the other neighbor's cattle (not sure how many I need to make profit?) cattle are high right now, so you need to know when to buy them at what weight/and when to sell. a 500# animal is bringing almost $1000 right now -
I could charge lease...but I don't want to do that. why don't you want too that is cash in yourpocket - grass is a commodity.
I have intentions to sell one horse, but not long term plans for selling others. I could, though...
Just hoping for some insight...our accoutant doesn't seem super interested in saving us money. your accountant is also on the line by doing your taxes - and if audited could be held liable. You need to back up what you give your accountant. He is trying to save you money but he his held accountable also. To be pretty blunt about you sound pretty hobby to m e.
I have no problem keeping records, schedule C, F, or whatever else we need...
Thank you for sharing your opinion.
Right now, we could easily get 80-100 large round bales a year from the part that is used for hay. As mentioned, the neighbor takes all of it and we trade about half of the (local) value for his bermuda square bales.
Once we move there, the production will obviously be less, but I won't be feeding as much hay either.
As far as charging for the grazing... it costs $400+ to spray for weeds once/year on just that part. He pays for it. I don't think we would profit much for charging him??? But, I will check into the going rates per acre.
Thanks again!
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 Extreme Veteran
Posts: 357
Location: Florida | What the IRS wants you to prove when you claim farming expenses is that you are in it to make a profit. Yes, there are times when you don't due to circumstances outside your control. But you should be making money on your farming activities and then you write off the expenses related to making money. You can't just write off expenses that can fall under the farm expense category to save on taxes. Those expenses are meant to be written off because they are business expenses for a farming business. If you can't provide your accountant with the ways you will be making money, then you probably aren't really trying to make money and therefore not operating a farming business. |
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The Comeback Kid
Posts: 1564
Location: lost in missouri | I think it is unfair to say your accountant isnt into helping you all save money. What I think is fair is he is trying to keep you all out of an audit and himself out of the ringer. The money you may save on your taxes will be nothing if you ever get in an audit and have to pay back taxes and penalties. |
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 Coyote Country Queen
Posts: 5666
| I would discuss it further with your accountant, and then take his advice. Like others have said, the IRS is on the lookout for people that have a hobby and are trying to write off expenses. If your ground is not generating any income then it doesn't sound like it qualifies as "farm ground". And I don't necessarily mean showing a profit, but for example you are giving a free-lease to someone then you aren't really intending to show any income from the ground. If you want to show income on the ground, pay for the spraying and then have the cattle owner reimburse you. But honestly, if you're not charging a pasture rent then you still aren't trying to generate a profit. As far as the horses go, I think they are looking even closer for those trying to pass a hobby off as a business. |
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 Forever Young
Posts: 6768
Location: relocated to Texas | just4fun - 2014-06-06 9:50 AM
Dinero10 - 2014-06-05 10:24 AM just4fun - 2014-06-05 9:38 AM I understand the need to make a profit. I was hoping for suggestions as to how to do that with our current situation.
We can sell the hay to the neighbor and buy our horse hay (depending on year, maybe a small profit)
I could buy cows and run them with the other neighbor's cattle (not sure how many I need to make profit?) cattle are high right now, so you need to know when to buy them at what weight/and when to sell. a 500# animal is bringing almost $1000 right now -
I could charge lease...but I don't want to do that. why don't you want too that is cash in yourpocket - grass is a commodity.
I have intentions to sell one horse, but not long term plans for selling others. I could, though...
Just hoping for some insight...our accoutant doesn't seem super interested in saving us money. your accountant is also on the line by doing your taxes - and if audited could be held liable. You need to back up what you give your accountant. He is trying to save you money but he his held accountable also. To be pretty blunt about you sound pretty hobby to m e.
I have no problem keeping records, schedule C, F, or whatever else we need...
Thank you for sharing your opinion.
Right now, we could easily get 80-100 large round bales a year from the part that is used for hay. As mentioned, the neighbor takes all of it and we trade about half of the (local) value for his bermuda square bales.
Once we move there, the production will obviously be less, but I won't be feeding as much hay either.
As far as charging for the grazing... it costs $400+ to spray for weeds once/year on just that part. He pays for it. I don't think we would profit much for charging him??? But, I will check into the going rates per acre.
Thanks again!
Type up a lease agreement showing payment of $400 for the pasture. In reality, he is paying you in maintenance, just show it as income. |
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Worst.Housekeeper.EVER.
Location: Missouri | Seems like some have misunderstood my intent. I am not attempting to commit fraud, nor asking anyone to help me figure out how to file a questionable return.
I was simply asking how to make my situation profitable. It can be done, I think it's a matter of paperwork, like the previous poster suggested. We have set things up the way the are out of convenience. It also saved us considerable money to not have to buy horse hay and not have to maintain pasture we weren't using. However, since we will soon be living there, it makes sense that we could use the land to our own advantage.
Thanks for those who offered constructive advice.
Also, we own a business so I understand a little about the system and the accountant's perspective. I also understand that we aren't paying him to work out our personal finances. I was not trying to be condescending towards him. He does well with what he is paid to do.
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Coyote Country Queen
Posts: 5666
| just4fun - 2014-06-05 3:01 PM
Seems like some have misunderstood my intent. I am not attempting to commit fraud, nor asking anyone to help me figure out how to file a questionable return.
I was simply asking how to make my situation profitable. It can be done, I think it's a matter of paperwork, like the previous poster suggested. We have set things up the way the are out of convenience. It also saved us considerable money to not have to buy horse hay and not have to maintain pasture we weren't using. However, since we will soon be living there, it makes sense that we could use the land to our own advantage.
Thanks for those who offered constructive advice.
Also, we own a business so I understand a little about the system and the accountant's perspective. I also understand that we aren't paying him to work out our personal finances. I was not trying to be condescending towards him. He does well with what he is paid to do.
I didn't take it as you intending to commit fraud. But when it comes to filing for farm/equine I would err on the side of caution, and that's why I suggested what I did. Personally, I'm terrified of being audited! I make sure to always have a paper trail, keep accurate records, etc. All of the articles that I've read about it say that you have to prove your business as being legitimate and if you don't have all of this they will consider your operation a hobby.
Edited to add - You might consult with a different account if yours is not familiar with farm/equine/cattle.
Also, as far as cattle go, prices are high right now. Really high. Bucket calves are bringing in the $500+ range, and last weeks local sale had 450lb steers selling for around $1,200. You can buy a lighter weight feeder steer and feed it up, but your best bet would be to consult with the cattle man free-leasing your pasture to see what his program is.
Edited by Jenbabe 2014-06-05 3:25 PM
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 Husband Spoiler
Posts: 4151
Location: North Dakota | just4fun - 2014-06-05 3:01 PM Seems like some have misunderstood my intent. I am not attempting to commit fraud, nor asking anyone to help me figure out how to file a questionable return.
I was simply asking how to make my situation profitable. It can be done, I think it's a matter of paperwork, like the previous poster suggested. We have set things up the way the are out of convenience. It also saved us considerable money to not have to buy horse hay and not have to maintain pasture we weren't using. However, since we will soon be living there, it makes sense that we could use the land to our own advantage.
Thanks for those who offered constructive advice.
Also, we own a business so I understand a little about the system and the accountant's perspective. I also understand that we aren't paying him to work out our personal finances. I was not trying to be condescending towards him. He does well with what he is paid to do.
Yeah paperwork and getting money coming in. You don't have to be "profitable" but you do need to have money coming in and have it set up as a business. So even if you charge land rent and turn around and spend that money on spray, etc. Those expenses can also be deducted. Most likely you are just a hobby but if you can find a way to make it into a business then more power to you. |
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Worst.Housekeeper.EVER.
Location: Missouri | Thanks for the words of caution, Jenbabe. I felt like you were being helpful :) |
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The Comeback Kid
Posts: 1564
Location: lost in missouri | I do not feel you are trying to be fishy, but just wanted to warn you of the IRS issues with equine/farms. I taught in an equine program and this is one subject we drilled and drilled and drilled on. We have some friends that are now homeless due to them trying to use their hobby as a business writeoff. Everyone needs to do what they can to keep their money in their pocket but one has to be safe in their practices when writing off equine/farm gains and losses. My family background is a family run business and farming. there is a lot of paperwork to keeping your a$$ out of trouble if you ever get in an audit. |
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I Need a Xanax!
Posts: 2774
| I don't have any advice but I'm learning from this thread so carry on yall.  We grow hay and have a few cows so we claim farm on our taxes but I do not include anything to do with the horses on my taxes. Great thread topic... |
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Elite Veteran
Posts: 962
| Just Bring It - 2014-06-05 3:30 PM
just4fun - 2014-06-05 3:01 PM Seems like some have misunderstood my intent. I am not attempting to commit fraud, nor asking anyone to help me figure out how to file a questionable return.
I was simply asking how to make my situation profitable. It can be done, I think it's a matter of paperwork, like the previous poster suggested. We have set things up the way the are out of convenience. It also saved us considerable money to not have to buy horse hay and not have to maintain pasture we weren't using. However, since we will soon be living there, it makes sense that we could use the land to our own advantage.
Thanks for those who offered constructive advice.
Also, we own a business so I understand a little about the system and the accountant's perspective. I also understand that we aren't paying him to work out our personal finances. I was not trying to be condescending towards him. He does well with what he is paid to do.
Yeah paperwork and getting money coming in. You don't have to be "profitable" but you do need to have money coming in and have it set up as a business. So even if you charge land rent and turn around and spend that money on spray, etc. Those expenses can also be deducted. Most likely you are just a hobby but if you can find a way to make it into a business then more power to you.
Ditto |
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The Resident Destroyer of Liberal Logic
Location: PNW | My first thought on reading your original post is: you don't run a BUSINESS. You have a hobby that occasionally brings in some extra money.
I'm not trying to be rude or harsh, but farming and ranching isn't the field to "let's just figure this out with trial and error". And even then, on a small scale - it is hard to make enough to turn a profit AND support your family.
My husband and I run about 100 cow/calf pairs every year, a good number of feeders, and then we also have several hundred sheep that we sell the lambs for meat every year. Animals have to be worked, wormed, castrated, vaccinated, shorn, tailed, etc. you need facilities for this. Facilities can be expensive. We just totally rebuilt our corral/working systems and I honestly don't want to know the exact total of what it cost. Vaccines, labor, and supplies are all also expensive.
If your pastures aren't enough to put weight on your animals (depends what you are growing and how well you are growing it), you will need to feed them AT LEAST once a day. And that means hay - which is another expense. And diesel for your truck or tractor to get that hay to them.
There's a lot more to it than just dropping animals in a field and calling it good. And since you've already stated that you don't know about raising animals other than horses..... That doesn't bode well - for you or your livestock.
Also, YOUR TIME is worth something. So factor that in. You don't get sick days, vacation days, or holidays off. Once you decide to ranch, that's it. You might be in the barns first thing on Christmas morning feeding early-born bummers, or out last thing on your birthday helping pull a calf.
If I were you, I'd enjoy the little bit of extra income that your land provides, ask to be paid in cash, and don't quit your day job.
Edited by svincent 2014-06-06 12:06 PM
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The Resident Destroyer of Liberal Logic
Location: PNW | As for the horses, I would be VERY careful trying to claim them.
We claim our feed/vet/care expenses because all of my barrel horses also double duty as ranch horses. But I definitely wouldn't claim fuel to races, training, fees, etc. those have NOTHING to do with ranching and you can bet the IRS would call you on it. |
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OT: taxes & farm income