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Previous Entry 2 in one day! Mar. 11th, 2010 @ 08:36 am Next Entry
Since we're working on taxes, and I'm just sitting here waiting for numbers to be given to me...thought I'd toss this out here.

Hypothetical Question:

We are trying to get an Ag Exemption on our property. As you know, we have 5 acres. We have dairy goats, fiber goats, chickens and horses - but the horses do NOT count as Livestock here in Texas (it's stupid, but the idiotic Arabian breeders back in the '80s screwed everyone over, what with their "Arabians are Investments!" campaign. :sigh: Anyway....). Our property taxes Right Now are $3,500 PER YEAR. WITH the Homestead Exemption. (And taxes are gonna keep going up and up and up...and my property? Is NOT worth what they have it appraised for. I can't sell it for the $200K they seem to think it's worth. :sigh: Plus, I only paid $20K for the land - in CASH, so I *own* the property, and really shouldn't have to pay taxes on something I own 100%...I don't pay taxes on my shoes once I've bought 'em..but, again, that's beside the point.)

Sweet Geek went to the Appraisal office to see what we needed to do to qualify. Bear in mind, we are using the chickens and goats to help us become more self-sustaining; we give away a lot of the excess eggs (and what we "sell" doesn't even *begin* to cover feed costs.....we "sell" for donations, and most people won't donate as much as they would pay in the store. It's....nevermind.) and will be using the milk for drinking/cheese-making/ice cream - basically ALL of our dairy needs; the excess will be used in soap. (According to them, we are a "Hobby Farm"...UNLESS we don't make a profit. If it's just for personal use, you're screwed, tax-wise. :sigh:)

Anyway, according to the Appraiser, our 5 acres is "too small" to qualify for most Ag Exemptions. IF we had 20 goats, and IF we could prove a profit 5 out of 7 years, than we *might* qualify. Chickens? Don't even come into the picture. (For the record, most of the properties I looked at that *were* Ag Exempt - including our former Home - had NO animals at all on them, and hadn't had any for YEARS. Got that? The people would toss a cow or a pig out there just long enough to qualify, then get rid of them. The property we own now was Ag-Exempt, and hadn't had a cow on it in 15 years. So.......) (The 20 goat part I am OK with; we'll buy some Boers and keep them well away from the dairy goats, AND we'd eat them. IF we had to keep 20 on the property, I'm still OK with it, for the record. I'd prefer to NOT have to, but I don't mind. We DO have the space, and it's not being used right now - the horses won't eat what the goats will, so they won't be competing for food...anyway.)

I think this is absolutely crazy.

My accountant friend suggested we claim a profit from "sales" of soap. Not a large profit - just $500 or so a year. Pay the State Sales taxes, AND the Federal Income and Self-Employment taxes, and see if that would qualify us. Bear in mind....we'd be claiming a profit that we probably would NOT be seeing. (In this economy, I honestly don't see anybody paying $5 for a bar of soap. But that's another story...) (Don't wanna go the "sell the goat meat" route - that'll bring in the FDA. Don't believe me? What if we sell a goat to good 'ol Johnny, and he gets food poisioning from the Potato Salad his wife made, but sues *us*, claiming it was the goat.....yeah. So not going *that* route!)

Sweet Geek's first response was "No. That'd be lying!"....well......yeah, but WHO is it hurting? I mean, I would be paying taxes on money that I didn't actually *make*...so.......(which, that part broke his brain, I think. He actually stopped and *thought* about it, but didn't come up with anything. So, for the moment, we're not going this route. For the record.)

Here's the deal. Until we get some form of Ag Exemption, we can't get a Tax-Exempt Certificate so we don't have to pay sales tax on Ag-Use items (like - feed. Or Medication. Or fencing supplies. You get the picture.) I see a LOT of folks getting horse feed tax exempt.....which.....I don't understand. Since horses aren't Ag-Exemptable, UNLESS they are "used for Agricultural purposes. Rentals, lessons, etc. DO NOT QUALIFY" according to the Appraisal office. (Yes, they're using the number that they got with the exemption for cows or whatever. But STILL.....) I don't mind paying the sales tax - but I don't think it's fair. (So what else is new?)

IF we went the soap route, I would have to buy the supplies, and I would have to track expenses. I would also have to.....make receipts to "prove" the profits. (That's the sticking point with me.......the profit part.) I *will* be making soap anyway, so keeping track of expense receipts isn't a big deal. I'll be making large batches, as well - we'll be swimming in milk soon, and it'll HAVE to be used in some way. So proving cost of goods sold won't be any problem at all. (In other words, the money WILL be spent on the soap, regardless. It's the income I won't be able to prove, since, well...there won't BE any/many sales. Friends might buy some, but not enough to make a true profit.)

So, my question to the masses: What you *you* do? I've been racking my brain to see what Torah says.....and I'm not coming up with anything. I'd be claiming a non-exsistant profit, which means I'd be paying TOO MUCH in taxes to the gov't......we ARE using the land for Ag purposes - we're NOT going to get an exemption then sell the animals - that *would* be wrong. (I'm not trying to justify this, or get people to agree with what I want to do - I honestly want opinions here. At this point, we're not doing anything. I'd like to - I'd LOVE to cut my property taxes down a couple of thousand a year, but NOT if it's honestly against Torah.) I'd like some "outsider" views on this. (And I'm not really worried about the tax-exempt portion - if we get it, great, if not, no biggie. We're not talking *that* much in sales tax, to be honest - maybe $40/month. I really don't know - I don't track that.)

So. Discuss. I want your real views. Also, bear in mind that I am NOT talking about cheating on my taxes - the whole point of this is that IF we went this route, we'd be paying in MORE taxes then we would actually *owe*. NOT underpaying. I want to make that point perfectly clear. I am NOT against paying taxes I owe - I'm just trying to find a way to get an Ag Exemption that I quite honestly feel we qualify for - I am NOT trying to underpay the gov't. The whole "Render unto Ceasear what is Ceasear's" thing? Yeah, so NOT trying to not do that. (And I already try to "render unto God what is God's", so that part's covered. IF I did make a profit, God would DEFINATELY get His portion FIRST, before the gov't.)
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spin a yarn
Date:March 11th, 2010 03:23 pm (UTC)
Okay obviously your laws are different than ours are.
In California anything bought for the production of food is tax exempt.
All chicken food, all hay and grain for the goats.
Here I see a lot of people putting in trees to get some kind of break on water.
How about selling live animals? Can you claim that? Sell chicks and baby goats? that might turn a profit?
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Date:March 11th, 2010 04:03 pm (UTC)
I tried to run my soapmaking as an actual business, for three years (04-06) For me, it started as a hobby, so it was very difficult to organize it properly as a business - the computer I used for business was the one I'd had for some years, and the kettles are the same ones I dye in, etc. But, I did try to keep it as clean and organized as I could manage.

I would be *very* wary of making up numbers for the IRS. They have very little sense of humor. You won't only have to show a net profit; you'll have to invent an entire Schedule C form to accompany your 1040, and it has to detail several things about your business, your supplies expenses, your marketing costs, inventory, etc. You can't just say "made five hundred dollars profit on soap this year." Mine was always a loss; not a big one, but after the deductions that accompanied running the business, it never made money. It basically kept me in soap supplies - which is one of the main reasons I stopped trying to do it as a business, because I knew I couldn't prove profitability.

If you're claiming retail sales, you'll have to have a lot of small receipts, bank account paperwork, business ledgers. I wouldn't make up wholesale sales, because they keep track of wholesalers and you would have to invent them... with retail sales, you would also have to file for a Sales Tax and Use Permit with State of Texas, and report your sales (annually, quarterly, or monthly, depending on your business levels) and you'd have to pay the 8.25% on any retail sales you make.

And would the tax exemption from the soap sales "business" be applicable to the agriculture purchases? Your business records (which the IRS can audit, going back as far as 3 years, and if they find discrepancies, then investigating as far back as 7 years) would have to show the purchases, and you might be put in a position of having to explain why you're showing an inordinate profit on soap, while the supplies you're purchasing seem to be mostly animal feed and fencing supplies.

And one other thought - cheating to lose is still cheating. Why do you want the tax exemption? It sounds like the main point is to avoid paying (sales) tax. Is it going to be much more than the income tax you'll be paying on the profit you show from soap? I realize that it might get there if you're buying a tractor or building a barn, but for most supplies, the taxes probably won't make up the amount of money you'd have to spend running the soap sales.

To me, it sounds like a really, really bad idea.

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Date:March 11th, 2010 04:32 pm (UTC)
No, the main point is the Ag Exemption itself; the county won't allow it unless it's for BUSINESS. Doesn't matter that I have the land, the animals, etc - to get an Ag Exemption, you HAVE to prove a profit.

I have no problem keeping track of receipts, etc - all our books are in QuickBooks anyway. Fleece sales doesn't count (I asked...stupid, but there ya go.) To sell milk, etc, we have to go thru the FDA - which I WILL NOT do.

Soap sales - I've watched at craft fairs. Most of them are cash. $5/bar, tax built in. The sellers - IF they are doing this legally - have to back into the Sales taxes. Honestly, I doubt most of them are doing that - the ones I spoke to had NO CLUE about tax forms, etc. (I do taxes, which is why I asked. I wanted to know exactly what forms to get, etc.)

We're looking at about 20 gallons of milk PER WEEK. (And I'm low-balling that!). I WILL be purchasing the soap-making supplies - in bulk, since we will have so much milk that needs to be used (we drink maybe 2 gallons a week; cheese/ice cream/yoghurt/etc won't take *that* much!)....so, receipts of money spent won't be the problem.

As for receipts for sales - most of the people that are selling at craft fairs, etc DON'T give receipts. I asked....and no one had 'em. So....I'd like to know how they handle it with the IRS/State Tax offices.
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Date:March 11th, 2010 04:42 pm (UTC)
I wonder the same thing - I know that I wasn't a great book-keeper with my business, so some of these folks, I have NO CLUE how they manage to get right with the tax man!

I wasn't talking about giving receipts to people - I meant, showing receipts of money, to make your profit. If you're showing all the expenses that you're shelling out, you'll have to have all that amount plus $500 to show that as a profit... and if you don't pay the taxes on the whole amount of your sales receipts, you'll run into the folks with the State. I'm not saying it's not doable - I'm just thinking it might be more trouble and cost than it nets.
Date:March 11th, 2010 04:15 pm (UTC)


Doesn't sound good to me, either.
BTW, you don't own your property unless you have the... crap what's that called? I don't remember. It starts with an L, I think. And nobody owns theirs. You simply own what's on THEIR land. You pay taxes to use THEIR land. Michael Badnerick has a constitution class series on it.
Our taxes are $1100 on 3 acres. We simply have enough withheld so it gets paid with our tax return. Ironic, that, eh?
Date:March 13th, 2010 05:29 pm (UTC)
does the profit have to come from just one source/product, or can it be from the whole enterprise? i realize your tiny herd of cashmere won't be producing much, but at the prices cashmere can run that could contribute. if you planted some herbs (or dye plants), hay a pasture and sell the excess, sell goats milk for soap making, sell composted manure, seedlings, produce, lease out the goats for land clearing purposes, wouldn't all of them contribute toward turning a profit and then qualifying as exempt? obviously each source would have it's own regs and reqs, and headaches, but surely you could find some fairly passive activities that alleviate the conundrum?

we had an eventful week, the three kids and the biggest baby of them all had norovirus. I did too but...yeah, i'm the mom. *sigh* i'm off to rest.
(spin a yarn)
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