A tax organizer workbook:farm-tax-organizer-2014. Print it out, fill it in, attach your documents and then either use it with a computer program like TurboTax or take it to a paid tax preparer. The workbook asks some questions that are unique to farms and ranches; some paid tax preparers would not know to ask, but they will know what to do when you give them the information in this form. Likewise, you wouldn’t know all the sections of a computer program to go to, but if you answer all these questions first, and then make sure to find a place in the computer program to put all your answers, (the better programs have screens where you can look up information on tax topics) you will probably end up with a fairly accurate return.
Here is an outline of some ideas and terms related to filing a tax return for you farm or ranch: tax-preparation-for-small-farms.ideas.terms.march.2012
This document (capitalized-costs.march.2014) has simplified information about the very complex tax reporting requirements for taxpayers with value-added inventory (wine or jam or cheese) or permanent plantings (trees and vines) or who build or rebuild structures (such as a barn or a packing shed). This article from one of the top ag tax people in the country will also help clarify how the IRS treats permanent plantings. Also, here is a comprehensive guide to recent refinements to the specific IRS rules governing capitalized costs: repair-capitalization-regulations.CCH.2014.Update . It says things are a little better than they used to be. Regardless, I hope the lesson of this section is that if you have value-added inventory, permanent plantings, or new significant construction in your operation you need to consult a CPA, preferably one with experience in agricultural accounting.
Finally, don’t be fooled by some of what you may have heard about the IRS “hobby loss rules.” Just because you loose money from farming does not mean you are automatically a “hobby” it just means you have to be prepared to document that you are in business with the intent of making a profit. Here is a nice fact sheet on the hobby loss rules from the fabulous folks at Extension: Hobby Loss (RTE 2010-04)
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