Repeated Losses On Sch F

[gman]

I have a couple of clients who have had losses on sch f and some on sch c for almost
20 years. They have very little income and tons of expenses. I give a warning about
hobby loss rules and sometimes give them articles I have found. It does not deter them.

Maybe it would be a good idea to send them elsewhere, but I need all the income I
can. I know they can go across the road and have it done.

These people have gotten away with these losses for a really long time and probably assume they can for some time.

Anyone with any of these clients? How do you advise them??

Thanks

[ChEAr$]

Individual farmers

never have profits. It's a fact of life.

[OldJack]

A tax preparer doesn't make the losses... he only reports the losses made by the client. Unless there is some reason for you to question if this is really a business or the losses are not real, then you should have no problem. Remember, its not your tax return, its the taxpayer's. I have seen young farmers start out and for 20 years they show a loss as they build their dairy herd buying more than selling each year. Farm equipment today cost more than a home did a few years ago, so the equipment purchases usually help create the losses.

[Jiggers]

Many farm losses

But always keep in the back of your mind as you are doing this return, how does the taxpayer live. Does he have other income that he is trying to shelter by have these farm losses?

Explain to the client about the need to have a profit motive. You can have losses, you just have to have a profit motive. Is he claiming these losses with just a few head of cattle?

I had one that had massive losses over several year with very little cattle sales. I keep inquiring about this and one year he slipped up and said that his kids were reporting the sales because "....kids don't need to file a return!"

[thomtax]

I have some farmers that have a loss year after year. They are in it for profit, but will not have a profit for several years to come. The cost of equipment is so high that the depreciation alone almost assures a loss. They both work and make around $70,000 in W2 income. Although they have cattle sales each year, the ulitmate goal is to build the farm into an operation that will provide them with an income after retirement. The herd gets larger each year and at retirement time will have equipment, although depreciated, that will be in a shape to operate the farm. The profit motive is there, but, just as many of the major corporations, have current write offs that wipe out the paper profit. Also, keep in mind, a paper profit is not the same as positive cash flow.

LT

[Black Bart]

Real or not

...the ulitmate goal is to build the farm into an operation that will provide them with an income after retirement. The herd gets larger each year and at retirement time will have equipment, although depreciated, that will be in a shape to operate the farm. The profit motive is there...
LT

I once had a cattle farmer client like that, but it was pretty obvious he wasn't building anything except a tax deduction to butt against his wages. He'd been doing it for 15 years and after I got the case, I warned him for three consecutive years and he ignored it for the same length of time. When he came back with loss number four, I told him no and sent him away.

Still, if he'd been a case like your guy and I really believed your above paragraph, then I guess I'd probably stay with them and take my chances (assuming you/they can prove it). There's no crime in not making a profit while you're getting somewhere.

[Black Bart]

Oh; sorry gman -- I confused your

I have a couple of clients who have had losses on sch f and some on sch c for almost
20 years. They have very little income and tons of expenses. I give a warning about
hobby loss rules and sometimes give them articles I have found. It does not deter them.

Maybe it would be a good idea to send them elsewhere, but I need all the income I
can. I know they can go across the road and have it done.

These people have gotten away with these losses for a really long time and probably assume they can for some time.

Anyone with any of these clients? How do you advise them??

Thanks

your post with Thom's. But still, my answer would be the same for whichever of the two your clients are.

[thomtax]

Still, if he'd been a case like your guy and I really believed your above paragraph, then I guess I'd probably stay with them and take my chances (assuming you/they can prove it). There's no crime in not making a profit while you're getting somewhere.

I do believe them. She keeps detailed records. I originally got them after them they were audited because of a tax preparer that starts at the bottom line and then fills in the blanks to "make it so". Also, whenever I mention that something might cause a problem, she says "Let's not do that then" and goes with whatever advice is given. I've learned that if I question something, she can whip out the invoices, bills, etc. to prove the point.

I need more like them.

LT

PS Her son has now started a company and she has instilled in him to play things straight down the line. They don't want to pay one cent more than necessary, but do not quarrel with legimitate taxes.

[Larmil]

Just a thought

I have some farmers that have a loss year after year. They are in it for profit, but will not have a profit for several years to come. The cost of equipment is so high that the depreciation alone almost assures a loss. They both work and make around $70,000 in W2 income. Although they have cattle sales each year, the ulitmate goal is to build the farm into an operation that will provide them with an income after retirement. The herd gets larger each year and at retirement time will have equipment, although depreciated, that will be in a shape to operate the farm. The profit motive is there, but, just as many of the major corporations, have current write offs that wipe out the paper profit. Also, keep in mind, a paper profit is not the same as positive cash flow.

LT

I have and have had some of these types of clients. Some of them will sell out at retirement and take a "lump sum". Selling a herd and a lot of deperecated equipment has a big tax bite, but only one time. It also helps minimize taxation of social security in following years.

[Gretel]

Yep, I have them too. One old farmer who operates a farm since decades of years and had profits in earlier years. When I asked him why he is still operating his farm with all the losses, he replied that he doesn't have a choice, he has the equipment and just keeps going, probably until he dies.

Is this a profit motive? I don't know, it's winding down business, very, very slow. It's his only income/business activity but his wife has nice W-2 income.

Another one has actually too little of a property to ever make a profit and I think I will not do his tax return next year.

[ChEAr$]

invoices

Thomtax, that's all very well and good, that she is so organized and has all the
expenses down pat and can find an invoice on cue. But expenses are one thing,
and revenue, another. Dont' get me wrong, I'm not accusing here, but should note
that farming is most often a cash business, ifyougetmydrift.

Now, enjoy your weekend! (grin)

[Black Bart]

Candor

I do believe them...she...goes with whatever advice is given...I need more like them...son...started a company...she...instilled...play things straight down the line...

is a much underated virtue. What a wonderful and refreshing attitude to come across in a client. I've got just a very few and I also wish I had many more like her.