Hobby Farm versus Actual Business Farm

Discussion in 'Business Buzz' started by glenolam, Jul 21, 2010.

  1. glenolam

    glenolam New Member

    Jul 20, 2010
    Canterbury, CT
    I'm trying to research the differences between hobby farms and actual business farms. We have a small herd and I plan on breeding 3 of my does this year, then breed all 7 does next year and sell the kids.

    I don't have full blood/registered goats, but I do have very nice quality gals. I want to provide small family farms like mine the option to own goats at a lower price than some of the farms in my area (most are registered herds producing show quality expensive goats). I'm not looking to make a profit, but to have the girls start helping out their feed bills a little :wink:

    I've read, re-read, then read again the IRS website along with other articles and it seems that what I’m looking/able to do is a hobby farm. I have a hard time believing that I can make a profit 3 out of 5 years (which is what the IRS wants to see in order for you to be a business) and I’m afraid to start claiming my goats as a business only to find out it’s a hobby farm in the IRS eyes and owe them lots of money.

    I know that in a hobby farm you report your income as “Additional Income”, you must itemize your deductions (which we already do anyway), are only able to deduct your expenses up to the amount of your income and that there are 3 categories of misc deductions that qualify.

    Does anyone have a hobby farm, not a business? If so, I would really appreciate feedback about how you handle everything and what experiences you have. Does anyone find that you really can’t deduct any of your expenses (such as feed bills, vet bills, repairs, etc) because your additional income is already “cancelled out” due to the first category of misc deductions (real estate/personal property taxes and the like)?

    I know I can fill out Form 5213 with the IRS which basically says I’m not sure if I’m a for profit company or a hobby farm, but, again, I don’t want to claim deductions only to find out 5 years down the road the IRS doesn’t consider me a business and makes me pay up for the deductions I was claiming.

    I’m more or less trying to get this right from the beginning so I don’t hurt myself in the long run. Thanks a bunch!
  2. toth boer goats

    toth boer goats Moderator Staff Member Supporting Member

    Jul 20, 2008
    Corning California
    sounds like it will definitely be a hobbie farm....even if you break even....showing a profit is crucial to be able to an actual business.... so be very careful and make sure you get an accountant or tax preparer that knows what they are doing...

    As A hobby Farm.... alot of deductions are lost....
    The safest way...and I highly recommend this... is to go to your tax preparer and explain to them... what you plan on doing and what is the best method for you....you are correct in saying.... that the IRS isn't forgiving... if you file in the wrong way.....the mistakes may cost you dearly....in debt... :(

  3. myfainters

    myfainters New Member

    Oct 29, 2009
    Lancaster, CA
    You know this is a GREAT topic! I've been wondering the same thing. Right now we don't even count as a hobby farm LOL We are usually about $2-3,000 short of the goats paying for themselves every year. :) So we don't file for Hobby or business.

    However, I'd really like to lease the 30 acres next door to us and start growing our own hay.... I think that would really cut down on our costs significantly and then we might be looking at making a profit (down the road)

    I'm interested in any insight anyone can add to this topic. :)
  4. glenolam

    glenolam New Member

    Jul 20, 2010
    Canterbury, CT
    I prepare our own taxes and feel pretty comfortable listing everything as a hobby farm, but I wanted to hear about other's experiences with it, specifically with respect to deductions only to the amount of income.

    My thinking is that if I begin selling goats and list that as additional income would I end up paying extra in taxes because I wouldn't be able to deduct any of the actual expenses of raising my goats? IRS says you have to itemize your deductions into 3 categories and the income is fist offset by the first class of deductions, which is real estate taxes and property taxes, followed by the 2nd class of deductions (but only any amount over 2% of your AGI can be deducted) then finally the 3rd class, which is stuff that really doesn't apply to me.

    If we're already itemizing and taking the first class of deductions based on our income from our current jobs wouldn't that mean that adding income would be just that and actaully make us pay more in taxes (this assumes that our 2nd class of deductions doesn't meet the 2% rule of AGI)?

    Guess I'll just have to try it on our taxes next year and see...
  5. toth boer goats

    toth boer goats Moderator Staff Member Supporting Member

    Jul 20, 2008
    Corning California
    Wish I could help more .... but... I just don't know on those issues.... hopefully someone else may... good luck .... :thumb:
  6. Lexibot

    Lexibot New Member

    Jul 27, 2010
    Well here's my idea.

    At the moment, I am a poor SOB. So, it's a hobby farm. Once I got more things going on though, it'll slowly turn into a small business, and if everything works out great, in 4-5 years, I could make an EASY EASY $30,000 a year working from home. In my area, that's $8,000 a year vs working full time.

    In my state, you have to pay taxes on farm animals, so I would assume with that, you would get a tax back from the things you used that year on the farm; feed, wood for buildings, etc.

    So I would say until you get highly into it, it's more of a hobby. But also, with hobbies, it's supposed to be more of a side line thing, and a "just for fun" activity, where businesses are supposed to be a financial gain.

    Definitely lease, it will save you lots of money, depending on how much they are leasing, to hay yourself.

    We are getting 80 acres to let the goats roam on, granted it need fencing, which will cost a pretty penny, but save in the long run.
  7. citylights

    citylights Member

    Jul 3, 2009
    Southern California
    Hey all, is there such thing as a "hobby farm" in IRS lingo? I file a Schedule F -- Farm income or loss -- every year. We are raising goats, which are considered livestock. Horses, I know, fall under IRS scrutiny, but goats are livestock!
  8. AlaskaBoers

    AlaskaBoers New Member

    May 6, 2008
    Wasilla Alaska
    very interesting topic
  9. Begotten75

    Begotten75 New Member

    Nov 27, 2010
    Goat business could be a hobby farm or an actual business. It depends on the purpose of the owner. Goats are one of the easiest animals to breed and feed and you'll just need a small capital in putting up the business.

    More info about: business continuity
  10. toth boer goats

    toth boer goats Moderator Staff Member Supporting Member

    Jul 20, 2008
    Corning California
    A hobby farm is ....for those who break even .... or are at a loss... never really making an income....

    A Business means... you are making a good profit(income).... from selling the goats...or their milk ect.... for a few years...

    http://docs.google.com/viewer?a=v&q=cac ... dnEikMvNbg