Many homesteaders struggle when it comes to tax season, and it can be difficult to know what you can and can’t deduct, especially when you seem to barely be making ends meet. It can be difficult to handle taxation issues, especially if you only have a small homestead and don’t consider yourself a small business. If you are largely crafting, growing, and selling excess produce from your homestead, there are numerous ways you can claim business and other expenses, however, regardless of what your net profit is. Here are just a few of them.
Prove Intention
Technically, those who farm and work the land solely to feed themselves are not usually considered small business owners. If you just make a little extra money selling extra vegetables at a local farmer’s market, you may not qualify as a small business owner. However, if you are pouring a lot of money into your homestead, such as through quality equipment, fertilizer, new buildings, and other expenses, you may be able to claim that you are a small business that just hasn’t made a profit yet. If you can prove your intent to make money (and show your investment into your homestead), you will be able to claim some tax deductions for the money spent.
Count Depreciating Assets
If you buy an asset (such as equipment or machinery) that you don’t intend to sell within a year of getting it and that will be used to make money, you can claim it as a fixed or depreciating asset and take a depreciating tax deduction from it. Essentially, a depreciating tax deduction is like a regular deduction that is spread out over several years, instead of the year you purchased the asset. While in some cases it’s better to just get the full deduction, there are some situations where it will be helpful to homesteaders to spread out their deductions over several tax years, especially if your earnings fluctuate. Depreciating deductions are especially useful for capital expenses, which cannot be deducted normally.
Understand the Difference Between Operating and Capital Costs
Capital assets are high-value items that make a small business more productive, like equipment, buildings, and office furniture. The cost of maintaining these assets is known as capital costs. However, it can be difficult to tell the difference between capital costs and operating costs, which are the costs of daily business operation. This can be difficult where things like operating machinery are involved. Essentially, most maintenance tasks are seen as operating costs, which is a regular business expense that can be deducted normally, whereas repairs or renovations that add value to equipment or property would be considered capital expenses. Talk to a tax expert if you have questions regarding which ones you can claim on your homestead.
Take Advantage of Rent
If you are working a homestead with several other people, it can help when tax season comes to organize your living situation so that everyone is paying ‘rent’ to one main deed owner who pays the mortgage. In this situation, the deed owners have to count the rent as income, but the rental property itself becomes a capital expense. This means it can be depreciated over the years, and house maintenance, landscaping, and repairs can also be considered business or capital expenses.
Count Travel Expenses for Temporary Jobs
Many homesteaders take on temporary work throughout the year or may spend one year working and one year on the homestead. The good news is that you can count the money spent on gas, vehicle maintenance, and tolls as business expenses. In fact, for temporary jobs away from home that last less than a year, you can even count living expenses (such as rent, food, and laundry) as business expenses! Counting up and planning for these deductions will help you save a bundle come tax season.
It can be frustrating to deal with taxes on top of all the other myriad complications of homesteading, but do not fear! By taking advantage of these common deductions and knowing how to claim your enterprise as a business, you will be well on your way to getting back as much money as you can from Uncle Sam.
By Deborah Goldberg