I live next to farmers. Everything they do and own is a business expense. The business owns everything. Home, cars, utv, electric, propane, internet, new land, gas, desiel, and red desiel. They go on multiple caribbean vacations, rent out the banquet room and claim it as a business expense. Is this really what business are able to do?
In: Economics
The vacation thing is tax evasion / fraud, which is illegal; and will be easily discovered on an audit.
“Is this really what business are able to do?”
Yes! There are a lot of extra little steps to structure it in ways that make it look legit come tax time, and owners regularly fail to take those steps or step outside them. But the IRS is underfunded, it would be wildly unpopular to audit every farm business, and “able to” isn’t the same as “legal”, let alone “ethical”.
My boss does something similar, he owns a frozen food warehouse, we deliver things like french fries and hamburger patties to restaurants. He only has one checking account for the business, no personal account. Everything he does comes from the business account. His cars, cell phones, everything. He does not get a salary, if he wants cash he takes it from the daily deposit. I am not sure how that all comes out as far as taxes go I assume it is written off as his personal income.
There’s multiple forms for filing taxes. 1040 is the basic for personal taxes, which has some variations. But there are additional forms to decide income and losses from specific activities.
There’s a lot of differences in structure depending on the state. The process for things that are shared for both personal and farm use is decided by assessing a percentage of the value between business use and personal use. So if the property taxes of a farm property is $2000, you might calculate that 75% of the property is farm use and therefore $1500 is deductible as a farm expense and $500 deductible as a personal expense.
There’s a lot more that can be deducted as a cost of doing business that you can’t deduct personally, but there are also restrictions as well. By the book, you need to report that usage for vehicles, but you can also keep a old beater available to say that you have a personal vehicle to use if you needed to.
These expenses don’t reduce taxes, but they do reduce the income used to calculate adjusted gross income, which reduces the number that taxes are based off of.
How did you get a hold of their tax forms?
As someone who has ran a small business they don’t.
What you can claim is limited.
Here is what happens, they put everything on the business account, and let the tax accountant figure it out.
Then they tell you they “deduct” everything.
Technically true, but at the end of day only some stuff is actually getting counted, and they probably don’t even know what exactly is.
How is it different then any other business? Any other business can write of their business travel, company cars, heating and internet costs etc.. Why would this be different?
If the house on the property was a office instead, it seems like you would understand it better. Everything done on that property would then in fact be an expense used toward farming
There will be legitimate claims amongst the things you’ve listed but it’s worth remembering that many small business owners are just as crooked as the big corporations. Sometimes even worse to work for. Particularly when there’s no HR procedures and your boss is a pillar of the local community.
“Small business tyrant” is a phrase I’m particularly fond of for this reason!
Farmers have the privilege of living in their company, so everything is business. And banks, animal food companies, meat processors and the like are happy to help them keep the books ‘right’.
It’s all fun and games until the IRS takes a look at you. When that happens you better have a really good paper trail and be able to make a convincing argument that everything is a legitimate business expense.
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