Tax Deductions for Starting a Farm Without Revenue Yet - Can I Claim Startup Expenses?

Thanks for the response! I definitely have the intention of making a profit, but I'm worried the IRS might see it as a hobby since I have a full-time job too. Should I create an LLC to make it more "official" looking? And for the business plan, does it need to be super formal or just something basic showing my intentions?

You don't necessarily need to form an LLC to prove business intent, though it can help demonstrate seriousness. What's most important is showing profit motive through your actions and documentation. A basic business plan is fine - outline your goals, projected timeline for profitability, marketing strategies, and expected expenses/income. For a side business, the IRS understands you'll have other income sources. What they look for is whether you're running the operation in a businesslike manner. Keep detailed records, separate business and personal expenses, have a dedicated farm bank account if possible, and document your learning and development efforts that show you're trying to become profitable.

Did it help you figure out depreciation schedules for equipment? I'm in a similar situation with a farm tractor purchase and not sure if I should use straight-line or accelerated depreciation.

I'm skeptical about AI tax tools. How accurate was it really? Did you have an accountant verify the information it gave you?

It absolutely helped with depreciation options. The tool explained the different methods (straight-line, 200% declining balance, etc.) and even calculated the potential tax benefits of Section 179 expensing versus regular depreciation over time. It showed me which would be most advantageous for my specific situation. As for accuracy, I was skeptical too at first. I actually had my accountant review the recommendations, and she was impressed with how thorough it was. She only made minor adjustments based on some recent tax law changes. The documentation it helped me prepare was exactly what I needed for filing properly.

Wait, how does this actually work? Does it just help you navigate the phone tree or does it actually get you to a real person faster?

This sounds too good to be true. The IRS phone lines are notoriously impossible. I've literally spent 4+ hours on hold before. No way some service can magically get you through.

It does more than navigate the phone tree. The service actually holds your place in line and calls you back when they're about to connect you to an agent. It saved me from sitting on hold for what would have been hours. I was totally skeptical too! I had tried calling the IRS three separate times about my farm deductions and never got through. With this service, I got connected to an actual IRS tax specialist who knew about agricultural businesses in about 20 minutes. The agent confirmed my understanding of startup expense rules and gave me specific guidance on how to document my intent to run a profit-making farm business despite not having revenue yet.

That's really helpful. How detailed do the logs need to be? Like do I need to track hours daily or is a weekly summary okay? And did you have any issues with the fact that you had another job while starting the farm?

Weekly summaries are fine as long as they're consistent and show reasonable time investment. I just kept a simple spreadsheet noting what farm activities I did each week and approximate hours. During my audit, the IRS was actually impressed with this basic documentation. Having another job wasn't an issue at all. Many farmers have off-farm income, especially when starting up. The key was showing that I treated the farm as a business, not a hobby. The business plan showing how I intended to become profitable within 5 years was crucial. The IRS understands that farms often take time to become profitable - they just want to see that profit is your actual goal and you're making decisions accordingly.

That's a good point. In Pennsylvania we have Clean and Green which reduced my property tax by almost 60% when I started my small farm. Had to commit to keeping it agricultural for 7 years though.

The farm journal idea is brilliant! I never thought about documenting weather conditions and daily learning - that really does show serious business intent rather than hobby activity. I've been keeping basic expense records but nothing that detailed about my actual farming activities and decision-making process. Quick question about Section 179 - are there income limitations I should be aware of? Since I'm just starting out and won't have farm income this year, can I still use it to offset my regular W-2 income from my day job? I'm definitely going to look into this for my tractor purchase. Also wondering if anyone has experience with the IRS "presumption rule" - I've read something about how if you show a profit in 3 out of 5 years, they presume it's a business rather than a hobby. Does that mean I need to rush to profitability or can I take my time building up properly?

Great questions about Section 179! Yes, you can generally use it to offset your W-2 income from your day job, but there are some limitations to be aware of. The deduction is limited to your total taxable income for the year, and there's also a phase-out that starts when you purchase over $2.7 million in equipment (which probably doesn't apply to your situation). For farm businesses specifically, Section 179 can be really powerful in the startup phase since it lets you deduct the full cost upfront rather than spreading it over 5-7 years through regular depreciation. Regarding the presumption rule - you're thinking of the "3 out of 5 years" test, but don't feel rushed! This is just a safe harbor rule that creates a presumption in your favor. Even if you don't meet it, you can still prove business intent through other means like the documentation everyone's mentioned. Many legitimate farms take longer than 5 years to become consistently profitable, especially specialty crops or operations that require significant land improvements. The IRS understands this for agricultural businesses more than other ventures. Focus on building your operation properly and documenting your business-like approach. Rushing to artificial profitability could actually hurt you in the long run if it means making poor business decisions.

This is exactly the kind of comprehensive advice I was hoping to find! Thank you for breaking down all the options so clearly. I'm definitely going to open that separate business checking account this week - I've been mixing everything with my personal accounts which sounds like a red flag. Quick follow-up question: when you filed Schedule F with zero income, did you have any issues or extra scrutiny from the IRS? I'm worried about triggering an audit by claiming business losses against my W-2 income in the very first year. Also, did you end up going with Section 179 for your equipment purchases, and if so, how did that work out for you tax-wise? I really appreciate you sharing your real-world experience with this - it's so much more helpful than trying to decipher the tax code on my own!

No issues at all with filing Schedule F with zero income! The IRS actually expects this for legitimate startup farm operations. What matters is that you're treating it like a real business from day one. I filed Schedule F showing my startup expenses and equipment purchases, and it established my farm business officially without any problems. I did go with Section 179 for most of my equipment, including a similar-priced tractor. It was fantastic for my tax situation because I could offset my regular job income immediately rather than waiting years for depreciation deductions. Just make sure your total business income (including your W-2) is enough to absorb the deduction - you can't create a loss with Section 179, but you can reduce your taxable income to zero. The separate business account was probably the single most important thing I did. It makes tax preparation so much easier and shows the IRS you're serious about keeping business and personal expenses separate. Even if you're just buying chicken feed and fence posts right now, having that clean paper trail from the beginning is invaluable. One more tip - consider getting a business credit card too for farm purchases. It creates an even clearer separation and many cards offer cashback on farm supply store purchases. Plus having business credit established early can help if you need financing for future farm expansion.

This is really reassuring to hear from someone who's been through the exact same situation! I'm feeling much more confident about moving forward with claiming these startup expenses. One thing I'm curious about - when you started your farm journal, did you go back and try to reconstruct activities from before you started keeping it, or did you just begin from that point forward? I've been working on my property for about 8 months now but haven't been documenting daily activities beyond basic expense tracking. Also, for the business plan, how detailed did you make yours? I'm wondering if I should include things like market research on local egg/goat product demand, or if a simpler outline of my goals and timeline would be sufficient for IRS purposes. Thanks for sharing your experience - it's incredibly helpful to know that others have successfully navigated this transition from startup phase to legitimate farm business!