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Hobby farmers and the 3/5 rule?
I believe what you are reffering to is that you can show a loss on your equipment and investment for three years but you are expected to show a profit in five or you will likely be audited. If you are takeing right offs or deductions on buisiness expenses for those first years the govt is looseing $ on you. If it is a legitimate buisiness expense they expect you to start paying taxes on those profits or capital gains. This is too prevent "buisiness" expenses, wink, wink from occuring. Anyone takeing theese sort of deductions or planning on purchaseing or doing something along theese lines should have a long talk about your exact plans with a Certified Accountant. Most are very reasonable, In fact most are a downright bargain for what they charge compared to other professions.
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Hobby farmers and the 3/5 rule?
That is of course once you are up and running. no one makes a profit in the first three years, unless they are in need of a new CPA !
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Hobby farmers and the 3/5 rule?
Now were talkin ! And realisticly most buisiness do noy show an instant profit due to start up cost, lease hold improvements, Inventory, labor etc. A lot of folks have gotten in more than a bit of a bind in the last few years trying to right off home based buisinesses on primary residences, home pc's, The Tractor that is used to mow the lawn etc. It used to be reasonable to break out the % of actual buisiness use, But I wouldnt get caught with my hand in that pickle jar anymore. Personal use and buisiness use need to be totally seperate.
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Hobby farmers and the 3/5 rule?
Charlie, It really does pay to get a couple of opinions. CPA's are a bargain in my book. One thing to remember is that tax law is often vague. I have a fairly large corp and I never mix my personal tax CPA with my corp tax. My partners dont follow suit. It is critical to remember the final decesion is always yours and you give the final stamp of approval when you sign those returns. You do not want someone knocking on your door in 20 years talking fines/penalties and interest. One example I can offer is that when my wife and I met we both had homes, so double and triple everything, beds, tvs, furniture. We moved all this stuff around for several years and then started donateing it to the salvation army. I am talking like 10k worth of stuff a year. My last accountant depriciated everything untill we came up with about 25% of the purchase price for a deduction which sounded fair to me. I changed offices this past year and the new guy says, hay, claim 100% the IRS never audits this, looking more than a little peekid at that he also offered 50%, 25% or 10%. Needless to say I chose a much smaller number. It is just not worth saveing a net of only a couple dollars to walk way out in that grey area. Like I always tell my CPA, I dont mind getting audited but I damn well better not loose !
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