Yesterday the RDTC Tax Help Blog posted an interesting article with advice for taxpayers working in the farming industry. You can find a snippet of the article below, or click here for the full text.
1. IRS Publication 225
Before you even start thinking about the tax incentives for farming, you should download and read IRS Publication 225 – Farmer's Tax Guide. It was written by both IRS agents and farm extension specialists, and explains complicated tax rules that apply to farmers.
2. Business vs. Hobby Farming
There are significant financial differences between classifying your farm as a business versus a hobby. If your farm is not your sole or primary business then the related deductions you can claim are greatly limited. However, if you establish your farm as a business then you will become eligible for dozens of tax incentives. Publication 225 explains the criteria for classifying your farm as a business, such as demonstrating the intent to make a profit and actually making a profit in three years of a five-year period.
3. Keeping it in the Family
Farmers often employ their own children because of the advantageous tax benefits for both the parents and children. If your child is between the ages of 7 and 18, and your farm is not incorporated, then you can employ them without having to pay social security taxes. The wages are also still deductible on Schedule F.