For Tax Purposes

For the past month or so, most of the farm-related work around here has had to do more with forms and computers than with soil and seeds.  Luckily, though, the taxes are done, most of our seeds have been ordered, and the weather has been good enough to allow us to get some tilling done (with our new tiller!).

This was the first year we’ve done any business taxes at all, and I confess it’s a little intimidating.  Because we also live where we are farming, we decided to be very conservative regarding what expenditures were business-related vs. home-related.  It might seem straight-forward, but consider such things as fencing (would we have put that fence up anyway?) and certain seeds (would we have grown that if we weren’t farming?)  We might be splitting hairs, but we surely want to be able to justify every last cent in the case of an audit.

For some reason financial information feels like such a private subject - which is probably why it is so hard to get an idea of what to expect when starting a small-scale farm.  But that’s why Peaceful Valley has asked us to share such information - to help others who may be contemplating it.

Our “record-keeping system” worked for us this year because we are so small, but we’ll need to get better in the future.  We basically just put all potentially business-related receipts in a particular drawer.  As tax time came near, I sat down with a simple calculating spreadsheet and the receipts, entering business expenses into the categories shown on Schedule F (the federal Profit or Loss From Farming tax form).  Expenses that we decided to consider as home-related were set aside, although we are keeping all of it together with our 2010 tax records.

Reading about farmers and taxes online, one gets the impression that a lot of farmers do what felt instinctive to us this year - underestimating expenses (due to caution, or - unfortunately - incomplete record keeping).  This is clearly not good business.  However, the thought of being audited and not being able to produce ample support is terrifying.  I say all this to warn you that our numbers, although probably close, are not an absolute accounting of what was spent (although the income is accurate to the penny!).

Driftwood Farm’s 2010 Financials - “For Tax Purposes”

Total gross sales:  $2,893.90

Expenses: $6,595.35

(Expense category breakdown - “Fertilizers and lime”: $739.91 (includes compost); “Vehicle, machinery and equipment rental” $494.51; “Seeds and plants” $452.72; “Supplies “: $4908.21.  The large numbers include tractor rental, and the purchase and delivery of two 1200-gallon water tanks.)

Of course, our expenses relative to income in 2011 should be lower, considering that most of the equipment and more expensive “infrastructure” are in place.  We recently received a “Business Property Statement” packet in the mail from our county assessor.  My phone call to their office helped a little, but we still need to sit down with this form and figure out what exactly is going on.  We’ll let you know…

PS - As we have for years, we prepared our taxes using one of the well-known tax prep websites.  The information they asked for seemed very thorough, definitely above and beyond what was needed for a small, owner-run farm.

3 Responses to “For Tax Purposes”