It is costing me quite a bit of money to get my farm started; can I claim some of these expenses as a business deduction?

Yes!
If you look at IRS Publication 225, Farmer’s Tax Guide, you can read the details. thinking illustrationChapter 4 describes Farm Business Expenses, one section of the chapter describes Capital Expenses (in the 2012 version of Pub 255, this is on page 25). In this chapter are instructions about how to deduct up to $5,000 of start-up costs in your first year of business. In addition, you can deduct up to $5,000 of organizational costs. If your start-up costs are over $50,000 you begin reducing the amount that you can deduct in the first year, and if your start-up costs are over $55,000 you cannot deduct any start-up costs.

Any start-up costs that you cannot deduct in your first year of business, you must amortize. IRS tells us (in Chapter 7 of Pub 225, page 47) ‘amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. It is similar to the straight line method of depreciation.’ IRS says that start-up costs must be amortized over 180 months, 15 years. So you would divide your total by 15, and add this amount onto your depreciation using Form 4562.

Please study these 2 sections of the Farmer’s Tax Guide in order to account for these costs properly. IRS Publication 535, Business Expenses, Chapter 8 Amortization, describes this in further detail.

The Tax Topic article, Start-Up Costs, on www.ruraltax.org goes into the unusual question of ‘when did your farm actually begin?’ This sounds obvious, until you start to think about it some. An easy date to pick is the date you registered with the Secretary of State, or received an Employer Identification Number. But it is not always quite that easy.

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About Dennis Kauppila

I work with farmers on finances. I started with UVM Extension in 1983, and have worked with hundreds of farmers on issues ranging from starting a farm, how to get a loan, leasing a farm, understanding farm finances, to retiring from farming. I teach 1 or 2 courses for farmers each winter. I am working with several farmers now on business plans, and I continue to work with many farmers on balance sheets and budgeting.
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