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My wife and I have bought 25 acres and we plan to start a small organic farm next year. It is time for our first big investment...a tractor. I was wondering if anyone could offer some financial advise as to the best way to go about it as far as taxes are concerned. I am assuming it is deductible? Do we need to establish a small business with the State first? Again, we do not plan to officially open for business until next spring.
Thanks for any advise!
Joey
Small organic farm.
Wish I could do that. Will you have time to have the land properly certified as Organic.
For economics it may be wise to visit an accountant and then draw up a financial plan.
Egon
We will likely be producing organically without a certification for a while. We only have 25 acres in a small community, so we will likely spend a few years offering our goods to the neigbors.
Two types of taxes to consider, sales and income. Sales is usually an easy issue to deal with - depending on your state, of course. Income tax is an entirely different beast. The best advise here is to get a good accountant and do some homework on this site.
I'm no accountant, but I've got a good one and have discussed ways to start a farm. The long and the short of it is that for me farming isn't something that I want to try and use as much of a tax deduction. There are a number of rules governing what you can deduct, when, etc.
One of the greatest is that you are farming as a true business, rather than a hobby (the IRS frowns on "gentleman farmers" trying to deduct equipment when they really are doing things for their own enjoyment). One of the criteria is, "do you make money"? I think the requirement is that you show a profit 2 years (maybe 3?) out of 5. Here is a lengthy IRS page describing (in painfully technical terms) some of the "dos and don'ts.
So the answer to your question about deducting the expense of a tractor is "definately yes". You'd depreciate it over some period of time (set by the IRS, I think) so each year you'd write off some of the cost against profits. Again, the key is that you make profits at some point. If you show losses for too long, you'll become an audit target.
But I'm not the one to answer that question. You need a good accountant, preferably one that has some experience with agricultural customers. You should be able to find one through word of mouth, and you don't have to have one right away. I'd recommend it, though, because having owned a couple of businesses (one successful, one...not [img]/forums/images/icons/frown.gif[/img]) I can tell you that having a solid business plan is critical. You need to know what you're going to do before you do it.
There are also numerous government resources available if you are willing to wade through the red tape. One is the USDA, another is the Farm Service Agency. Also, make sure you go to your local Cooperative Extension agency - they can help you with local information (you can find yours via the national web page.
Also, find and join your local farm bureau. Go to (and maybe join) a local farmer's market or two. Network and you'll find the answers you need. This isn't a bad spot for that, either [img]/forums/images/icons/grin.gif[/img].
As for advice on tractors, you won't find more information and opinions on that issue than the sister site of this one, TBN. Check out the "buying" forum for more information than you can eat about brands, models, attachments, and such. The book offered on the site is an excellent resource, and I wish I'd bought and read it before I bought my tractor.
Good luck, and keep us posted...Chris
Resist the urge to buy lots of farm stuff to get started. We approached our 77 acres using the old adage "Don't plant anything the first year except fence posts."
We were fortunate to find a neighbor that would give me access to his tractor. I have done things like buy new tires for it, keep it full of diesel, etc., that cost far less than even the depreciation on a new tractor. This expereince has also educated me on what type of tractor I will eventually purchase. Had I gone with my first impulses, I would have bought a compact tractor and later regretted it.
Jump on the time senstive things such as a soil sample.
If it turns our that your place needs lime, then getting that in the ground for next year's crops, hay, etc. will become your first project. I was able to contract with a large farmer to come spread the lime, till and plant my fields for far less than I would have been able to do it myself. I still spent $4,000 on the whole project and feel that it was only a first step in getting the farm back in shape.
If you have decided on what you want to grow then you can work backwards. Do you have barns for food storage?
The best research you can do will be to get a subscription to AcresUSA (see http://www.acresusa.com/magazines/magazine.htm
and Small Farm Today (see http://www.smallfarmtoday.com/
Good luck. We are having lots of fun with this new stage of life. [img]/forums/images/icons/smile.gif[/img]
Thanks everyone for your advise. We are definately going to take "baby steps" until we get established. Thanks again!
Joey
One of things that I would suggest strongly... is to write a business plan.
Normally, you would have to write one if you were going to borrow money to start your farm, but in our case, we weren't planning to borrow (yet). But what it does do is to make you think through all of the issues, risks, strategies, and operational plans. It adds some structure to how you think about your farm. There are a lot of resources on the web and in books to help you understand what you don't know. [img]/forums/images/icons/smirk.gif[/img] In my case, I actually put together capital plans, cash flow for ten years, and a balance sheet. All were helpful in understanding if we can actually make a business out it. There are a lot of resources available for the financials too. In the end, it becomes a 'living' document that I revise and update as I learn more.
Joey, I will repeat what was said before. It is extremely important to get an accountant/business consultant. My wife and I have been working on establishing our farm for four years. We go to as many of the cooperative extension courses as we can, and have gotten to know all of our cooperative extension agents. They've given us some fantastic advice, but the best advice of all that they've given us is to get an accountant/business manager. They even recommended one, who we use. She is a CPA, and she and her husband have a local dairy farm. Her specialty is taxes and business plans for farmers. She has become a good friend and a great adviser, I don't know what we'd do without her!!!