Has anyone taken their hobby/family farm into a business? I'm thinking of doing that so that I can deduct the cost of feed and housing/fencing expenses, but I'm a little leery of the gov't knowing even more about what I'm doing. We have not sold anything yet but are thinking about doing the local farmers' market.
If so, did you get an EIN? What types of categories do you track?
The tracking and reporting is not as bad as you might think, depending on your state. I have a state grower's permit, which in my state exempts me from paying sales taxes (though not income taxes) on everything I sell from the farm.
As far as what I track, the answer is anything and everything that relates to what I sell. You can't count chicken feed as an expense if you don't sell chickens/chicken eggs, but if you do, you can.
At the end of the year it all gets summarized into a profit and loss statement just like any other business. You don't have to itemize to the level of $3.99 for egg cartons and $549 for chicken feed; they just get condensed down into COGS, but you DO have to keep your receipts in case you get audited.
And fyi, the IRS only requires you to show a profit in one out of three years to keep your farm labeled as a business and not a hobby. I'll be happy to answer any other questions you might have.
Oh, and another good thing about being an official farmer is that you can apply for grants from the USDA and similar entities. I'm applying for a grant to build a hoophouse this fall.
Mother to one dd .
we just transitioned our farm from sole proprietorship to LLC this spring but we started our farm in 2009.
whatever you do, treat it like a business. whether it's a separate corporation or sole proprietorship or whatever. separate bank accounts, use something like quickbooks, everything! (there's a great guide to quickbooks for a farm too since the accounting can get really confusing but alas, i forget what it's called)
for a sole proprietorship we didn't need an EIN, it still falls under your social security number, or it can. you CAN get an EIN. (i thought)
Track everything. even if it's a .50 bolt or whatever that you needed to finish your chicken house. you'll have to fill out a schedule F when you do taxes and I tihnk it just wants numbers basically from your P&L statement. (my hubby is the tax guru for us and our farm but we finally got ourselves an accountant with switching to an LLC. it was time anyhow)
depending on what you sell, you may be required to obtain various permits or licences as well. We decided that it would be better to just follow the rules and do everything above the board from the start. permits, licences, taxes, employees, etc. we started small with what our personal cash could handle and have just built up from there. not everything is always profitable and at certain times of the year we personally might subsidize our farm and then the farm will pay us back as cash flow works better. I don't work much so sometimes the farm has subsidized us too. as long as you do your best to keep your books straight and not look fishy (to the IRS) you'll probably be fine.
Especially since we are putting ourselves out on the internet and face to face at the farmer's markets, I've got no idea who will see what we do so we just follow the rules and do it "right" to keep ourselves safe that way.
and buy as much liability insurance as we can possibly afford.
Farming mama to DD1 (10/18/07), DD2 (10/3/09) who are always DS born 8.21.14 and wife to loving hubby (6/23/2007).