have a client who owns a "farm" and wants to deduct fence/equipment purchased etc (he is not "raising" animals or crops but might in future!) he has 40 hr wk job (plus owns 2 very profitable tan salons with wife). Does anyway have good reference (or letter they use) to explain why he should not try to claim farm expenses? Thanks in advance...
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Sounds like a hobby. Expenses limited to income!
Three options to deduct expenses:
1. Keep track of expenses for the capital improvements (fences, etc.) and start depreciating them when the farm actually does get going.
2. Buy several pairs of cattle (cow/calf) and then sell the calves before year end and then you have a farm in operation and can take whatever expenses.
3. Lease the pasture out for others to raise cattle and show the income on Schedule E, with expenses.
But I would caution him on the need to have a farm plan that shows a profit motive, even if he has a loss now.Jiggers, EA -
Didn't you hear about the farmer who won millions in the lottery? His neighbor asked him what he was going to do now and he said, "I guess I'll just keep farming until I lose it all.""The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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Jiggers is right. He needs to do something with the land if he wants to call it a farm and deduct expenses.
Those were good options. You can put cattle, goats or something on it that would qualify for a farm.
Linda, EAComment
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Had a client
ask the other day if he could dedcut a backhoe in his AUTO REPAIR business.
Asked him how much it would cost,"about $25,000".
Asked him how much work he had for it, "about six months at my home".
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