bbeal4me
New Member

Tax Year Prior to 2020: I am raising back yard chickens...I can use them as a tax break

 

Retirement tax questions

As a hobby, or do you sell them and/or the eggs?

Retirement tax questions

Hobby and to feed the family

Retirement tax questions

The most "famous" tax deductions are social engineering created by Congress to encourage certain behavior, like having children or owning a home.  But the real purpose of a tax deduction is to go against income -- if you earn $5000 but you have $1000 of expenses, you should only have to pay tax on $4000 of profit.

So, if you raise chickens as a business and report taxable income from selling eggs or meat, then you can deduct your expenses (food, chicks, transportation to the farmer's market).  But if this is a hobby or personal use and you don't report taxable income, you can't deduct expenses.  Congress never created a special chicken deduction.

WKins2
Expert Alumni

Retirement tax questions

If you are raising chickens as a business, then yes, you can claim the chickens, income, and expenses from raising them on a Schedule C. TurboTax will walk you through how to prepare the Schedule C, and capture your other tax data as well. 

 

You should be using TurboTax self-employed to generate the Schedule C. You can get that by clicking here: https://turbotax.intuit.com/personal-taxes/online/

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sem10624
New Member

Retirement tax questions

This 2019 exchange caught my eye during a search related to farm expenses. 

 

What's the threshold of farm sales to meet in order to claim expenses in tax filing? I.e. if I sold just 1 dozen eggs from my hen flock, is that enough to be able to claim their feed and water for the tax year or is there a threshold to meet? Same question with regard to livestock.

 

Thanks for reading and responding.

Retirement tax questions

@sem10624 

 

Not-for-Profit Farming

If you operate a farm for profit, you can deduct all the ordinary and necessary expenses of carrying on the business of farming on Schedule F. However, if you don't carry on your farming activity, or other activity you engage or invest in, to make a profit, you report the income from the activity on Schedule 1 (Form 1040), line 8i. You can no longer deduct expenses of carrying on the activity, even if you itemize your deductions on Schedule A (Form 1040).

 

Expenses for activities you do as a hobby, or mainly for sport or recreation can not be deducted.

 

In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

  • You operate your farm in a businesslike manner;

  • The time and effort you spend on farming indicate you intend to make it profitable;

  • You depend on income from farming for your livelihood;

  • Your losses are due to circumstances beyond your control or are normal in the start-up phase of farming;

  • You change your methods of operation in an attempt to improve profitability;

  • You, or your advisors, have the knowledge needed to carry on the farming activity as a successful business;

  • You were successful in making a profit in similar activities in the past;

  • You make a profit from farming in some years and the amount of profit you make; and

  • You can expect to make a future profit from the appreciation of the assets used in the farming activity.

 

Presumption of profit.

Your farming or other activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. The activity must be substantially the same for each year within this period. You have a profit when the gross income from an activity is more than the deductions for it.

 

If you fail the 3- (or 2-) years-of-profit test, you may still be considered to operate your farm for profit by considering the factors listed earlier.

ThomasM125
Expert Alumni

Retirement tax questions

@sem10624  If you are required to file a tax return, then all income you describe should be entered on your tax return. Whether you can deduct expenses is largely dependent on whether you have a profit motive. If so, then you can deduct the expenses, otherwise you are considered to be engaged in a hobby, wherein you must report your sales but can't deduct your expenses.

 

If you incur a loss in your venture in three out of five years, by default you are considered to be engaged in a hobby, even if you have a profit motive.

 

Here is more on hobby activities:  Hobby losses

 

 

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rarb97
New Member

Retirement tax questions

Can I write off the guard dogs, along with their food and vet expenses?  They are used to protect my chicken and chicken coop.

 

Retirement tax questions


@rarb97 wrote:

Can I write off the guard dogs, along with their food and vet expenses?  They are used to protect my chicken and chicken coop.

 


If you are reporting your activities as a self-employment business on schedule C, you can deduct "ordinary and necessary" business expenses.  

 

"To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary."

 

Where you might get into trouble with dogs is there is an additional "but for" rule with respect to personal expenses that are also work expenses.  You can only deduct business expenses that are only for the business, or another way of putting is, you would not have the expense but for the business.   If these are pets, and your use of them in the business does not actually incur business-specific costs, you can't deduct the expense.  If you acquired them because of the business and you would not have them if you didn't have the business, then they are deductible.