Farm Taxes and Business Structuring

So, I have been researching how to set up taxes for a farm. I asked a question on permies recently and got a ton of great info from a real farmer. He suggested looking at schedule C and schedule F and noting how they functionally fit/work together.

Perhaps I am missing it, but I just can't see how those two schedules compliment each other.

I even contacted a CPA specializing in farms and he seemed was totally puzzled.

Granted, I am not well versed in tax code, but I have read most of the directions and handbook for schedule F
The best scenario I could figure was to have income balanced between two businesses (you know, don't work too hard at any one thing) e.g. I have a consulting business (schedule C) and separate farm business (schedule F). Consulting business barters with farm and pays via consulting, farm rents land, vehicles etc from consulting business.

Any thoughts or help on this would be appreciated.

If you are a real permaculture farmer who knows how to functionally match these schedules, I am happy to pay you for consultation if need be. just pm me.

Also, as a note, my understanding of schedule F dictates that one must show profitability in 3 out of 5 years in order to differentiate oneself from a hobby farm. However, should them guys with the powers send a notice to you, you have 60 days to file form 5123 and they have to go away and leave you alone for a five year term. At the end of which, you either demonstrate profitability in 3 of 5 years, or not.

Note, you can file this form the first time you file schedule F, but my understanding is that if you wait to file until if/when you are scrutinized, the five year period starts when you file the "go away" for five year order to "the man."

So, it is handy to know about form 5123, if you are like me and are setting up a farm's financial structures.

Any thoughts, comments, help, criticism are very welcome as I want to structure this correctly and for the most benefit.
Best

Schedule F is a way to drive farming to a corporate ROI model. Short term gains at the expense of long term sustainability. It is impossible to build a farm and meet the schedule F profitability requirement, so you either don't start or roll ALL your big expenses in the first two years and then put zero in the next three so you can show a "profit."

You also need to think of multiple Schedule F farms, not.just a single farm.

R Scott wrote:Schedule F is a way to drive farming to a corporate ROI model. Short term gains at the expense of long term sustainability. It is impossible to build a farm and meet the schedule F profitability requirement"

Not sure that this is true in all situations, at least it doesn't need to be. This gentleman seems to be building long term sustainability in finances and ecology.
https://permies.com/t/20609/forest-garden/started?OWASP_CSRFTOKEN=XQ6F-QUFZ-2TGY-F9SM-WCQC-J9QT-ED3W-NDPQ

R Scott wrote:You also need to think of multiple Schedule F farms, not.just a single farm.

This I like, Thanks!

And yes, I am after ROI, since making a living is a great thing to do.

I can't buck all of the invisible structures, b/c then they tend to become visible structures at some point and show up on your farm with swat teams and confiscate things, at least it happens enough that some folks made the movie Farmageddon (what a travesty).

Yes you want ROI, but you are thinking beyond 1 year payback of tax-code driven corporate decisions. You do a few of those things to get cashflow now, but if you are building permie you are looking for 10-50 year (or multigenerational) payback.

Yes, for me long term, multi-generational sustainability includes finances and ecology -- using whatever invisible structures are currently in place for benefit.

I am interested in hearing from folks with experience in this area on how to structure taxes and corporations to achieve this -- not so much bashing the powers that be.

Thanks for the help!

Yes, "they" want you to show a profit (or lose your status), but they cannot tell you how much profit.

If your marital/dependent status allows you to earn $25,000 before taxes become due, aim for a profit of $24,999.

A few things:

1. The IRS makes a presumption about 3/5 profitability. Its not definative, and failure to meet the standard will not automatically trigger an audit. See : http://www.wvu.edu/~agexten/farmman/taxes/IRStest.htm

2. If you run it like a business then you have a great defense *if* you ever get audited. And startups are different than older operations.

3. The Schedule F losses only matter if you are offsetting it against other earned income. So if you have a tax loss on Sch F aft 3 years you can choose to not take that loss against earned income. Talk to your CPA, but I think you can bank that loss (called a net operating loss "NOL") and carry it forward to offset future Schedule F income.

4. A permie farm probably will not have the same kind of Sch F expenses as conventional. No chems, fertilizers, how much expensive machinery are you depreciating? My point is that it may be easier than you think to show a profit.

5. The NOL can be carried back against earned income. If you have paid income tax for the past 5 years, you can carry back your losses incurred during the farm establishment phase, refile on those past years, and receive a refund. This is high level and you need a CPA or tax attorney who is familiar with it. The basic concept is here: http://ruraltax.org/files/uploads/NOL%20Final%20Draft.pdf

Thanks JD!
I particularly like #'s 4 and 5!
Much appreciated.