Welcome back at Prestige Auditors: your business companion and tax consultant. We’re not only helping our clients grow and boost their business, but also educating those who just want to have basic knowledge on business matters and nothing else. So your status doesn’t really matter, if something interests you, you can always find it in our blog section: no obligation, no commitment, no responsibilities, just you and our blogs!
Remember when we were talking about the differences between hobbies and business? Well, today we will talk about something similar, something more interesting, and something that you can come across very often. Have you ever thought about starting your own farm? Because if yes, you should know all the basic tax laws that will be needed to operate your farm business. Let’s be honest, taxes are frightening and in order not to chicken out, we have to understand how they work and how we’re taxed!
Am I Operating a Farm?
If you’ve already created your business entity, and now you’re wondering whether what you’re doing is qualified as a farm, you chose the right article! As you may know, the IRS has many answers to different questions, and this case is not an exception.
So, if you ask Internal Revenue Service (IRS) about your business, the answer would look like this: “You are in the business of farming if you cultivate, operate, or manage a farm for profit, either as owner or tenant. A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. It also includes plantations, ranches, ranges, and orchards.”
However, this is not the end!
IRS will certainly need you to answer to some questions in order to better understand the nature of what you’re doing. For example, are you sure that your “farm” is operated in a professional, practical, efficient and business-related way? Or do you take measures and different methods to enhance your business, improve your productivity and profitability? Is the money that you earn important for your living? Is it your source of revenue? Or if you invest your time ad efforts in what you’re doing, are you intending to make it more money-making and cost-effective?
As you can see, to better understand the character of your what you’re doing, you should separate the wheat from the chaff and answer to the following questions. Of course, you don’t need to answer to all of them, however, sometimes you may need to create an exhaustive case to better understand the nature of your work and efforts.
If you’re only planning to open your farm, or turning your hobby into a real business, you will surely need to form your business entity. This is a responsible step that you should take to ensure your business is being operated in a right and efficient manner! For this, we highly recommend that you work with professionals like Prestige Auditors, because wrong business entity can lead to wrong outcome and consequences!