Author Topic: Farm secondary income and write offs  (Read 636 times)

Livethedream

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Farm secondary income and write offs
« on: May 04, 2018, 03:17:26 PM »
Been thinking about maybe putting in some additional fruit trees on a 1/2 acre portion of our property. The intent would be to turn a profit and sell at our local farmers market. Lots of options for the fruit, depending on what we choose, maybe 50 trees or so. The second part would be to probably make this an LLC and be able to pay my kids for age appropriate tasks and start funding ROTHS for them.

I have been googling some info on the tax implications, not finding too much relative information.

Wondering if anyone has any insight into this.

YttriumNitrate

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Re: Farm secondary income and write offs
« Reply #1 on: May 05, 2018, 07:05:18 AM »
Let's see, you are planning on forming an LLC in California which means you'll be paying state's annual minimum franchise tax of $800, the farmers market will likely charge ~$200 for the right to sell there for the season, and you'll also need liability insurance for the market (I paid ~$200 a few years ago). So, with those three expenses you'll be starting off $1,200 in the hole before you've spent anything on actually producing or selling fruit.

Turning a profit on 50 fruit trees is going to be difficult.

Bracken_Joy

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Re: Farm secondary income and write offs
« Reply #2 on: May 05, 2018, 07:28:11 AM »
Let's see, you are planning on forming an LLC in California which means you'll be paying state's annual minimum franchise tax of $800, the farmers market will likely charge ~$200 for the right to sell there for the season, and you'll also need liability insurance for the market (I paid ~$200 a few years ago). So, with those three expenses you'll be starting off $1,200 in the hole before you've spent anything on actually producing or selling fruit.

Turning a profit on 50 fruit trees is going to be difficult.

Can't you form LLCs in any state you want? You don't have to base it in your home state? Or is this different for Agriculture or California?

YttriumNitrate

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Re: Farm secondary income and write offs
« Reply #3 on: May 05, 2018, 11:33:49 AM »
Can't you form LLCs in any state you want? You don't have to base it in your home state? Or is this different for Agriculture or California?
Sure, they could form in another state, but then they would likely need to pay the foreign state's fees, registered agent fees, AND the $800 California tax.


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The California Franchise Tax Board (FTB) states that a limited liability company taxed as a partnership is required to:

    Pay an annual minimum tax of $800.
    Pay an annual fee the amount of which depends on the LLC’s income from all sources attributable to orderderived from California.
    File California Franchise Tax Board Form 568 (LLC Return of Income).

The above requirements apply if any of the following applies to an LLC:

    The LLC is formed in California.
    The LLC registered with the California Secretary of State to transact business in California.
    The LLC was not formed in California (a “foreign LLC”), but it does business in California (see Revenue & Taxation Code Section 23101 for the definition of “doing business in California”).
https://www.keytlaw.com/callclaw/ca-member-non-ca-llc/

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Furthermore, every corporation that is incorporated, registered or doing business in California must pay the $800 minimum franchise tax.
https://www.ftb.ca.gov/businesses/Structures/S-Corporations.shtml

wbranch

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Re: Farm secondary income and write offs
« Reply #4 on: May 07, 2018, 11:27:49 AM »
I spent 6 years at a CPA firm in an agricultural area working with small to big farms. There were multiple clients that were trying to do what you are doing and it looked like an endless money sink to me. I grew up on a small dairy farm and have many family members and friends involved in different types of farming as well. It will be years before you end up with enough fruit to have any meaningful revenue. Profit? Only if you don't include a lot of your expenses. Many small farms either talk about their gross income or exclude expenses when you hear good $ amounts being thrown around.

Most clients were putting in the time and effort that they were not treated as hobby farms for tax purposes.  Some had above average W2 incomes and the farm losses returned got them some relatively large refunds. Some amounts were borderline obscene, but they passed IRS audit. Due to this the clients frequently viewed it as somehow coming out ahead while they continually went backwards. But I am 99% sure that any of the partners I worked with would say 50 trees on a 1/2 acre would be subject to the hobby loss limitations.

I worked in the midwest and we had multiple clients with CA activity that were paying the $800 minimum fee + other costs to do business in CA. Worth it for some due to expanded market, but turned into a nightmare for a couple small businesses. Other there any other costs related to inspections or other regulations to sell in CA? Maybe not with small farm?

I still would say go for it as long as you have realistic expectations. Paying wages to the kids would be pretty far down on the list of things to figure out. Do a little legwork and you might be able to find a neglected orchard that you could start managing. I actually know a guy that did that with a 5 acre orchard. I think he is paying the owner $500/yr. The owner had dreams of selling apples in retirement.

fixie

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Re: Farm secondary income and write offs
« Reply #5 on: May 07, 2018, 04:02:40 PM »
Been thinking about maybe putting in some additional fruit trees on a 1/2 acre portion of our property. The intent would be to turn a profit and sell at our local farmers market. Lots of options for the fruit, depending on what we choose, maybe 50 trees or so. The second part would be to probably make this an LLC and be able to pay my kids for age appropriate tasks and start funding ROTHS for them.

I have been googling some info on the tax implications, not finding too much relative information.

Wondering if anyone has any insight into this.
Not much insight for tax purposes, but on the tree side I think you could put in MANY more dwarf trees on 1/2 acre.  High density, tight spacing = earlier/more profit per unit area.  Drip irrigation, 3-5 years to first harvest starting from a grafted whip, as opposed to a standard tree..  Google Permaculture Orchard.  Perhaps you could make it a subscription Upick like in the video?  No picking, post-processing costs and lots of community benefits.  You could interplant with berry bushes, sell hay from the inter-rows...all kinds of things for early income while the trees are small.
-fixie

Livethedream

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Re: Farm secondary income and write offs
« Reply #6 on: May 07, 2018, 08:12:55 PM »
Thanks for the responses, gives me some ideas to look at. Will check out the permaculture info. The trees I planted in the back, 18, are all on drip irrigation and doing great. I’m all for water conservation, luckily here in Northern California our water is pretty cheap so that wouldn’t be a big cost.

Mountainbug

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Re: Farm secondary income and write offs
« Reply #7 on: May 07, 2018, 09:13:39 PM »
Check with your local extension office. They will have valuable information for you, and depending on what county your in they may even want to use you as a collaborator, which could mean free trees if they are doing a rootstock trial. Usually they partner with commercial growers but it doesn’t hurt to try.