Small hobby farms may qualify for a variety of business tax deductions.
Hobby farming is an activity that is growing in popularity in the United States. As the name implies, most hobby farmers are farming as a hobby and enjoyable past time. Some hobby farmers discover they can earn a living with the results of their farming activities however, and decide to run their small farm operation as a home business. When you are attempting to operate for profit, the IRS allows you to deduct many of your farm related expenses. Farm specific tax deduction laws are slightly different from the laws that apply to other small businesses, so you may want to consult with a licensed tax professional who specializes in small farm income tax returns.
Hobby vs. Business
When you own a hobby farm, you can qualify for a wide variety of tax deductions if you are operating your farm as a business. If you raise crops, herbs or flowers that you sell at a farmer's market for profit for example, you can claim business expenses and tax deductions. To qualify for business specific tax deductions, hobby farm operators must be aware of the hobby loss rule that the IRS uses to determine whether the owner is actually attempting to engage in a profit-producing activity.
Crop Related Deductions
If you grow flowers, herbs, vegetables or other crops for the purpose of selling, you can deduct the cost of buying seed and fertilizer on your income tax return. The IRS refers to these expenses as prepaid farm expenses because you buy the supplies before you use them.
Livestock Related Deductions
If you raise farm animals for profit, such as selling cheese you make from goat's milk or selling eggs produced by chickens, you can deduct the expenses associated with keeping your animals. Livestock feed and veterinarian bills are two common deductions related to raising livestock, and you can deduct certain travel expenses if you must transport animals to or from other locations.
Home Related Deductions
As a hobby farmer, you effectively work from home and you can deduct some of your home expenses as business expenses. If you pay a municipal water bill, for example, you can deduct a portion of the water you use on the farm is for watering crops or animals as a business expense. If you have electricity run to the barn or chicken coop to keep the animals warm in the winter, you can deduct a portion of the electric bill as well. General office expenses for paper, file folders and pens also qualify as hobby farm tax deductions, along with many other expenses that cannot fit into just one article.
Tags: Related Deductions, business expenses, deduct portion, hobby farm, hobby farmers