What is a farming business?

Recently my husband and I purchased some acreage with a modest home on it and nothing else. We were heavily motivated by the thought of earning sweat equity and the fact that a good friend was willing to sell it to us at a great price. I had been dreaming about finding enough property for a small homestead and was thrilled by the opportunity and good fortune that had graced us.

As a country girl born and raised, I was eager to shape our bare land into a bustling farm but my husband was the voice of reason. We started small with the purchase of 10 baby chicks and continue to dream/plan for the future. As I sat mesmerized by endless YouTube videos of various homesteads, the accountant in me began to muse about the possibility of turning our little homestead into a real, live, tax deductible, maybe even quit my job someday, farm. Of course my first stop was the IRS website to begin my research.

According to the IRS:

A farming business is the trade or business of cultivating land or raising or harvesting any agricultural or horticultural commodity.

This includes:

  1. Operating a nursery or sod farm;
  2. Raising or harvesting of trees bearing fruits, nuts, or other crops;
  3. Raising ornamental trees (but not evergreen trees that are more than 6 years old when severed from the roots);
  4. Raising, shearing, feeding, caring for, training, and managing animals; and
  5. Leasing land to a tenant engaged in a farming business, but only if the lease payments are (a) based on a share of the tenant’s production (not a fixed amount), and (b) determined under a written agreement entered into before the tenant begins significant activities on the land.

A farming business doesn’t include:

  • Contract harvesting of an agricultural or horticultural commodity grown or raised by someone else, or
  • Merely buying or reselling plants or animals grown or raised by someone else.

– source: https://www.irs.gov/pub/irs-pdf/i1040sj.pdf

The more I read, the more excited I became. This was possible! I immediately went back to my receipts and Quicken software to re-categorize and tag my purchases of chickens and related supplies.

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It was a small step towards the goal of a farm business, but it energized and excited me to realize that our future homestead could be more than a source of food for our family. It could actually become a part of our retirement income.

 

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Cherry Ella Focht

IRS Enrolled Agent Master's Degree in Business Administration Bachelor's Degree in Accounting Senior Certified Professional in Human Resources (SHRM-SCP) Country Girl

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