Tax time and farms??

Miniature Horse Talk Forums

Help Support Miniature Horse Talk Forums:

zoey829

Well-Known Member
Joined
May 5, 2007
Messages
2,262
Reaction score
6
We just got back from the account and he said after 4 yrs we can not show a loss with the farm because then it becomes a hobby. So how does this work? I will not be able to get money back? So if I show a prfit I have to pay taxes against gain? Ny in sight would be great. This is only my second yr with claiming the farm.I live in NJ.
 

Charley

Well-Known Member
Joined
May 9, 2007
Messages
2,048
Reaction score
271
Yes, you need to keep separate records of income and expenses to claim the farm as a business. Have a separate checking account and a business plan (i.e. budget and forecast of your expectations of showing a profit). Keep copies of all your income and expenses and advertisements and any press releases you make or any publicity that your farm is featured in.

If you have a gain it will be taxed as income. If you don't have any income and you take a loss for expenses, you will most likely be called in for an audit and it can be deemed a hobby. In a hobby you can only take hobby losses up to your hobby income, so it works out to be a wash, you cannot take a loss. In horse farms you have 7 years to show a profit in four out of the seven years...so you are ok for the first three years showing a loss, but need to show a profit in the fourth year, fifth year, sixth year and seventh year. If you are set up correctly and really trying to make a profit and can show this in an audit you may be able to convince the tax examiner of this and take a loss for more years but you will most likely have to prove it in an audit situation. If you can't convince the tax examiner you can end up paying not only the additional tax but penalities and interest also.
 

zoey829

Well-Known Member
Joined
May 5, 2007
Messages
2,262
Reaction score
6
Thanks so much. Now I understand. After the 3 yrs can I switch it to a hobby? Or would it be too late?Because we all know I will never make money with horses. Next year will be our 3rd tax year.

It really made me upset because the accountant thought the numbers were crazy. I have recipts for everything. I mean you know the expenses of horses and farm maintence. It is a family acctountant and we have been using him for yrs so he is a really nice guy but I got that feeling he thought I was crazy. But between hay, farrier and vet the cost is a lot. I was a bit insulted. That is when he said I could only do it for 3 yrs, like i was trying to "beat" the system and all the numbers are true! I mean you know, how it goes-how do you make a million dollars with horses? Start with 2 million dolalrs!!!!!
 

TMR

Well-Known Member
Joined
Dec 1, 2002
Messages
179
Reaction score
8
If you really feel that you will never make money with the horses, then it is not a business. You do not start up a business knowing you are going to lose money. Unfortunately, many people think they can say they are doing the horses as a business just to get the tax break. It has caught up with many and have cost them major amounts of money. If you don't feel you will ever make money with the horses, then it is a hobby not a business. I know this is not what you want to hear, but your accountant is telling you truthfully and basically he realizes that if your costs are that high that a profit is not very likely. The horse business is a high audit industry. If you have never gone through an audit, you do not want to. It is very high stress and ends up costing.

I have done my horses as a business for the past 10 plus years, but it is in conjunction with our other farming and we have shown profit. It is very hard to do and the IRS watches closely. Due to the changes in our life and the horse market, we are looking at this being our last year as a business. It will be probably be reclassified as a hobby outside the farm due to the fact that we do not see profitability in it any longer. For the majority of horse people, the amount of money you might get back for taxes is not worth the risk to claim it as a business.
 

zoey829

Well-Known Member
Joined
May 5, 2007
Messages
2,262
Reaction score
6
I would love to make money from my horse farm. The time nad hours I put into alone. But in reality the only way I could would be if I hurt the care for my horses, suc as, less farrier work, shots and vet care. I can not do that to them. I was just worried about transfering it into hobby, would that look bad? I really wanted this to be a small business but the reality is with gas, hay etc I will never turn a profit. I dont want to get into trouble for transfering it into a hobby, too late in the gamr.
 

TMR

Well-Known Member
Joined
Dec 1, 2002
Messages
179
Reaction score
8
It is not too late in the game to change it to a hobby, many small businesses go belly up within 3 to 5 years. I own a NAPA auto parts store as well as our farming and horse businesses. It is very challenging to make a profit these days in any business. The horse business isn't the only area hurting. You have to play cut throat with prices to compete, but then you have to pay the overhead (bills) as well. If you don't make enough profit to pay the bills then you are done. Just as in the horse business you could price your foals for $100 bucks and they would sell, but how much money would you have lost doing so. The IRS sees businesses come and go yearly. It is unfortunate, but reality.

Sorry this got so winded, it is a subject I deal with daily and is very frustrating. Your accountant can tell you how it is done changing over to a hobby.
 

zoey829

Well-Known Member
Joined
May 5, 2007
Messages
2,262
Reaction score
6
Thanks. And that does not even consider if we pd ourselves!! Could you imagine!! I make uh 3 cents a day!!!! Thanks for the info. It is ashme and I would to make a living off the farm but those days have passed.

Thanks again
 

MinisOutWest

Well-Known Member
Joined
Oct 8, 2007
Messages
721
Reaction score
0
Location
Up In the Mountains, CO
the IRS auditor told us, and our acct too. in seven years, you are 'suppose' to show a profit two years during that time. !!!!!!!!!!!!!!!!!BUT!!!!!!!!!!!!!!! if you can show you have legitimately ran and are running a business, you do not have to have a profit...... some criteria- a registered business name with the state, a separate checking acct with biz name because ALL of your funds travel thru this for biz only, a separate credit card for biz purchases only. there are , i think , like 4 or 7 things to do/ to show the IRS you are running a business. So your acct needs to go back and read the horse biz laws because he/ or she is wrong. we are into our 7th year, no profit and no problem, because we can meet/ prove we have attempted to run the business legitimately and meet the criteria the IRS has required. few things I remember being said, profits on selling horses is not taxed for the first 750,000 and no tax either for the first 750,000 made on foals either, or it was 500,000, but who makes that? not me!!! oh and the auditor told us a miniature/ horse business rarely gets audited if the biz is under the 999,999 level. well I dont see me at that level with my minis anytime soon.
 
Last edited by a moderator:

zoey829

Well-Known Member
Joined
May 5, 2007
Messages
2,262
Reaction score
6
Yeh! I am not near that amount. I wish. I guess I will have to do the research on my own and my "mini" friends.
 

Latest posts

Top