by Elizabeth Higgins, CCE ENYCHP

Taxes can get confusing because there are many different definitions of a farm business used by different programs.

In New York State many purchases for a commercial farm business are exempt from sales tax if the item will be used more than 50% for the business.  Commercial farm businesses in this case are defined based on having sales, not based on profitability.  So, if you are purchasing equipment to grow fruit and you plan to sell more than 50% of the fruit you produce then your purchases are probably exempt from sales taxes.  If you paid sales tax, you could submit a claim to the state to get it reimbursed.  This is the link.  If you plan to give more than 50% of the fruit away or keep more than 50% for home use, then your purchases would not be sales tax exempt.  This is the link for more information: Farmers and Commercial Horse Boarding Operators – Exemption Form ST-125 (ny.gov)

If you have more than 7 acres in commercial ag production and generate more than $10,000 in sales of an unprocessed ag commodity (the $10,000 would be the value of berries not $10,000 worth of jam) you would be eligible for having your property taxes on the agricultural land taxed at the agricultural rate, which is generally (but not always) lower than the non-agricultural rate.  If you have less than 7 acres you need to generate $50,000 in sales.  For orchards you can apply to get ag exemption prior to full production, but you would need to be able to show that you have enough trees, bushes or vines planted that you would be likely at full production to meet the income threshold to be eligible for the tax break.  Visit this link: Agricultural assessment information (ny.gov)

For federal income taxes the first test is if you are operating as a business or a hobby (the federal business or hobby test does not matter for sales tax exemption or ag assessment).  The difference between a business or hobby is that a business is operated with the intention of making a profit whereas a hobby is not.  For example, some people like to grow grapes and make wine or brew beer and they sell some of what they produce to be able to afford to continue to make wine or brew beer – but the way they operate the business is not profitable and making a profit is not their goal.  They just like doing it and want to keep busy.  Here’s how to tell the difference between a hobby and a business for tax purposes | Internal Revenue Service (irs.gov)

Having a hobby farm that has significant sales still makes you eligible for a lot of ag programs, but the way you would file federal income taxes would be different.  If this will be a business, not a hobby, then you will most likely use a federal Schedule F.  A lot of the benefits to farm businesses are in the tax code and it is complex.  The IRS does have a publication for farmers that helps to explain farm taxes.  Publication 225 (2021), Farmer’s Tax Guide | Internal Revenue Service (irs.gov) I recommend reading it if you plan to do your taxes yourself, even if you do not plan to it is a good idea to be generally familiar with farm taxes.  The Rural Tax education website also has some good resources for new farmers that are accessible. New Farmer Tax Topics (ruraltax.org).

Cornell Cooperative Extension offers income tax education programs for farmers in the winter, look for information to appear this fall.

If you are totally new to farm recordkeeping – consider enrolling in the Cornell Small Farms online program to see what classes, they will have this winter. Another good resource is the  New England Farm Account Book | Extension (unh.edu).  This resource will give you a sense of what farm records generally should look like.   You can also hire someone to set up your system for you.  Farm Credit East, for example, will do that.