Author Topic: Looking to reduce taxable income through part time farming  (Read 2972 times)

jmr5x

  • 5 O'Clock Shadow
  • *
  • Posts: 47
Looking to reduce taxable income through part time farming
« on: March 08, 2016, 12:03:58 AM »
Does anyone know anything about the minimum effort you can apply to be qualified as owning a livestock farm?  I am guessing that if you show you buying and selling livestock that you are a farmer.  Just kicking around the idea of using this to lower my taxable income.  My inlaws have land and all the equipment that would be needed for this.  It may be possible to buy the minimum acreage from them to start this project. 

JZinCO

  • Pencil Stache
  • ****
  • Posts: 701
Re: Looking to reduce taxable income through part time farming
« Reply #1 on: March 08, 2016, 12:17:39 AM »
I am  contracted by agricultural entities here to write management plans, a requirement to qualify for my state's agricultural tax abatement program. The requirements vary by tax authority so you will need to contact any assessor's offices that tax your land. There may give you some vague directions as to what progam statutes to refer to and these may hard to understand if you are in compliance with them. In lieu, you should contact first your local soil and water conservation district, then your local NRCS office and possibly your university extension office. You can also check out your local Farm Service Agency office.
Bear in mind that you might save a significant chunk in property taxes but expect to spend at least half of that for compliance or for investing on improving your land (nevermind the actual cost of your operations). As an example, I write plans with a floor of $3000 and tack on $5/ac above that and I am cheap. My plans are approved by NRCS for release of federal cost-share programs. Some consultants can work for less upfront but will then ask for a cut of proceeds from your operations.

edit: I'll give you an example of the requirements for one tax abatement program. 1) Own as least 40 forested acres or 80 acres under perpetual easement w/o development, or a parcel of land either under CRP or actively ranched or cropped, 2)Harvest actual forest products, crops or livestock, 3) Have an approved management plan, 4)Annually submit an inspection fee (up to $600), accomplishment record, and work plan.
For livestock as per your question, the land is then valued according to gross income per animal unit month over 10 years times number of acres to get gross income. Then expenses such as water and fences are deducted. Then the net income is divided by a 13% cap rate to get actual value. Then actual value  is multiplied by 0.29 to arrive at the assessed value. In general, you are being taxed based on land use value rather than fair market value. If you do have buildings and improvements the fair market value are tacked on to land use value.
So that is just an example I work with and your tax district will differ.

Just to add a caveat, there are the rules and then there is the application of the rules. You might deal with an individual county assessor that is just a dick. He or she has alot of authority in deciding if you are in compliance.

edit:edit: oops. You mean reducing taxable income? I'm not sure about this one. I was addressing property tax...
« Last Edit: March 08, 2016, 12:40:38 AM by JZinCO »

jmr5x

  • 5 O'Clock Shadow
  • *
  • Posts: 47
Re: Looking to reduce taxable income through part time farming
« Reply #2 on: March 08, 2016, 01:17:06 AM »
Wow that is some interesting information!  I am actually going to dig into your post a little.   

JZinCO

  • Pencil Stache
  • ****
  • Posts: 701
Re: Looking to reduce taxable income through part time farming
« Reply #3 on: March 08, 2016, 08:21:45 AM »
Sorry. It was late and I was a bit incoherent. Anyway yeah I was addressing farm property tax. I have no experience with reporting farm income to the IRS (your OP?) but this site might be a good primer: http://extension.psu.edu/business/ag-alternatives/farm-management/understanding-your-federal-farm-income-taxes

jmr5x

  • 5 O'Clock Shadow
  • *
  • Posts: 47
Re: Looking to reduce taxable income through part time farming
« Reply #4 on: March 09, 2016, 12:18:18 AM »
Sorry. It was late and I was a bit incoherent. Anyway yeah I was addressing farm property tax. I have no experience with reporting farm income to the IRS (your OP?) but this site might be a good primer: http://extension.psu.edu/business/ag-alternatives/farm-management/understanding-your-federal-farm-income-taxes

Thanks again JZinCO,  I have been looking at some of the Farm Service Loans and they look very interesting.  Also some of the Farms you have to have a business plan maybe such as what you provide.   Is this what your business offers stand alone or other financial planning?

JZinCO

  • Pencil Stache
  • ****
  • Posts: 701
Re: Looking to reduce taxable income through part time farming
« Reply #5 on: March 09, 2016, 07:46:37 AM »
So farm credit bureaus (a major source of private farm financing) recommend that you have a business plan, finance plan and risk management plan. There are short, maybe one or two pages each. I write resource management plans also known by the NRCS as conservation activity plans. These plans tell the landowner how to manage their natural resources and implement conservation practices. So here's the gist. Landowners tell me their goals such as 'I want to lease my rangeland to cattle'. I develop SMART (specific, measurable, etc) objectives to fulfill the goals, then inventory the land (soils, forest stands, pastures, etc). I write prescriptions for how the objectives will be attained (ie this is how many cattle to run, this is what grazing system to use, the pastures need to be improved with these grasses). Then I write in constraints and how to mitigate those (ie some noxious weeds are present and they can be controlled using these management actions). So, with this plan I can then work with NRCS to get the landowner funding to do the work and then oversee contractors who do the actual work, in this case setting up fencing, weed control.
In short, as a resource consultant, my plans address resource needs and concerns and not how to finance the ag operations, credit financing, running the books, etc. Generally, you'll find that planning related to running the business' books can be done by the credit bureaus but this not my forte. Some consultants could do both and eventually I should expand my roles but I find that, what I do, forestry planning, is actually done at-cost to the landowner so business planning is almost moot.
« Last Edit: March 09, 2016, 07:50:50 AM by JZinCO »

jmr5x

  • 5 O'Clock Shadow
  • *
  • Posts: 47
Re: Looking to reduce taxable income through part time farming
« Reply #6 on: March 09, 2016, 07:11:15 PM »
So farm credit bureaus (a major source of private farm financing) recommend that you have a business plan, finance plan and risk management plan. There are short, maybe one or two pages each. I write resource management plans also known by the NRCS as conservation activity plans. These plans tell the landowner how to manage their natural resources and implement conservation practices. So here's the gist. Landowners tell me their goals such as 'I want to lease my rangeland to cattle'. I develop SMART (specific, measurable, etc) objectives to fulfill the goals, then inventory the land (soils, forest stands, pastures, etc). I write prescriptions for how the objectives will be attained (ie this is how many cattle to run, this is what grazing system to use, the pastures need to be improved with these grasses). Then I write in constraints and how to mitigate those (ie some noxious weeds are present and they can be controlled using these management actions). So, with this plan I can then work with NRCS to get the landowner funding to do the work and then oversee contractors who do the actual work, in this case setting up fencing, weed control.
In short, as a resource consultant, my plans address resource needs and concerns and not how to finance the ag operations, credit financing, running the books, etc. Generally, you'll find that planning related to running the business' books can be done by the credit bureaus but this not my forte. Some consultants could do both and eventually I should expand my roles but I find that, what I do, forestry planning, is actually done at-cost to the landowner so business planning is almost moot.

I may need to get in touch with you!  I am currently talking to the local Farm Services Agency about a possible loan to purchase a farm.  I would love to see what type of benefits I could have by utilizing one of these plans and taking advantage of some type of government assistance program for the farm. 

JZinCO

  • Pencil Stache
  • ****
  • Posts: 701
Re: Looking to reduce taxable income through part time farming
« Reply #7 on: March 09, 2016, 08:59:42 PM »
Feel free to send me a private message with any questions you have!

jmr5x

  • 5 O'Clock Shadow
  • *
  • Posts: 47
Re: Looking to reduce taxable income through part time farming
« Reply #8 on: March 10, 2016, 12:35:15 AM »
Thanks!  I am in the very beginning stages of planning.  I have much to research.