C. Robert Rice on Making Your Farm a Business |
I am usually a good notetaker, but I am offering a disclaimer to the notes that follow: they are as good as I could understand them. If there are errors, they are mine, not Rice's. Please do feel free to contact him, as undoubtedly I will be doing in the near future.
Rice CPA
200 Spring Ridge Drive
Suite 206
Wyomissing, PA 19610
T 610-374-2595 F 610-374-2597
RRICE@RICECPA-ATTY.COM
A thorough excellent presentation! |
Where expenses are larger than income, Act 183 covers hobby losses. There are 7 steps to analyze for hobby losses. If the farm is a hobby, losses are not covered against other income as an offset in Pennsylvania. If your farm is a business, then the IRS will tax it.
Bottom line: you need to generate sales. C Corp has a viable business; S Corp is a beginning way to go if you are generating losses.
Accounting is vital if you are going to run a business. It has its own bank account, a manual ledger system and/or a computer ledger (Quickbooks, Peachtree, Quicken). Do not write checks out of your personal checkbook; checks must come from the business bank account. A separate credit card for the business is not required, but you must write a separate check for the business with a business checking account. If you are an LLC or a Corporation, you must have a separate account, credit card.
You need a short and long-range plan |
You need to think about what your business goal is—what do you want to see as your endgame 5 years, 10 years down the road? Your business is a work in progress; you need to make adjustments as you go. As you grow as a business, you need to make logical projections. You should review your projections and goals annually, and ask yourself where you want to be based on where you have been.
Expertise from outside people is critical in the mix from the beginning. Start with a Certified Public Accountant in your team of advisors. Then bring in an attorney to create sales agreements and leases. Have the attorney review your plans. The next person should be a financial advisor. And last but not lease, you need a farm consultant and llama expert to help advise you. Consult with people in the field to ask them what you could/should do differently. Getting outside expertise and following it is yet another way to demonstrate that you are a business, not a hobby farm. Ultimately, you can use your team to re-/negotiate contracts with vendors and banks.
Keeping track of your farm means keeping records. Keep all copies of sales, invoices, and contracts. Retain everything for 7 years and show support for your expenditures. In the start up period, there are typically losses as you get your name out there and establish yourself. If the federal government challenges your substantial underestimate for a period of years, they will go back that number of years. The definition of a trader business does not require you to make a profit; it requires you to function as a business. Your defense at an audit is how you functioned; this is what I did and this is how I did it. I am in losses because of whatever the facts maybe, and each person’s facts will be different.
It takes time to develop a recognizable business name.
Hobby loss rules depend on many things. What is your manner of activity? Did you bring in a new animal and it spread disease and killed half your herd? Expertise of taxpayer or advisors is critical. Have you developed appreciating assets? Is there a history of success and/or a history of income or loss. What is the financial status of the taxpayer? If you make $500,000 income as a doctor but show you have a $60,000 hobby loss, the IRS will likely go after you because you have the potential to be hit. Your exposure gets higher as the gap gets wider. What can practically help is do you run your farm as a separate entity so it doesn’t show up on Schedule F loss but a Schedule E.
This session, as well as the Wet Lab three-hour special presentation, left me with the same feeling: both could save a life--the former of a farm, the latter of a cria. Very solid information, and I recommend your contacting Rice if you have additional questions or need of his services. Absolutely impressive, and I do not say that lightly.
I owe a very special thank you to Mrs. Rice for being a tech savvy helper; she saved my day when I could not locate a file. She, like her newborn who never uttered a sound (loves Daddy's voice), was absolutely wonderful. Thank you so much.
This presentation just might have been one of the most practical and timely one that I have had the pleasure of viewing.
Tech savvy and wonderful! |
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