C. Robert Rice, Jr., has a lot of letters after his name, but he tells us he is partial to being a CPA, despite his excellent qualifications as a lawyer. Rice was one of my must-see sessions, and I wasn't disappointed. Confused at times, but agree with the one attendee's comment at the close of the session: he was the best presentation on this subject ever given.
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.
C. Robert Rice is a practicing lawyer and CPA, among his many credentials, and his presentation covers practical points about tax deductibility. Pennsylvania has the most farms; rural residency, intermediate farms (250 and under), and commercial 250 and over. Rice’s presentation is geared to a rural residency farm, where the people live on and work the farm.
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.
Sole proprietor: you own all the expenses and benefits.
LLC: single member LLC, meaning you go to the state to apply, need an attorney and an operating agreement. If you operate as a business, look like and run as a business, you can better offset losses. LLC is a middle ground between sole proprietor and LLC. Then you operate as an LLC. A corporation is taxed as such; you can be the sole owner of the farm business or you could be GM. Either way, you would be a PA corporation.
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 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!
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.
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Thank you for sharing valuable information. Nice post. I am very impressed to read this post. The whole blog is very nice I found some information here Thanks..Also visit my site cpa certification Did you know that anyone can call themselves an "accountant"?
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