Many livestock producers have a full time outside job, or derive their primary income from a source other than their farm.

You may call yourself a "hobby farmer", but care should be taken in how you operate your business as the IRS has special guidelines that may classify you as a not-for-profit organization and disallow many deductions you may otherwise be entitled to.

IRS Publication 225 is a must read for any person operating a livestock ranch or farm, regardless of your size of operation.

In it, the IRS lists nine factors used to determine if your operation is for profit, or not. All factors are taken in to account and no one factor is decisive:

  • You operate a farm in a businesslike manner.
  • The time and effort you spend on farming indicate you intend to make it profitable.
  • You intend on income from farming for your livelihood.
  • Your losses are due to circumstances beyond your control or are normal in the start up phase of farming.
  • You change your methods of operation in an attempt to improve profitability.
  • You, or your advisors, have the knowledge needed to carry on the farming activity as a successful business.
  • You were successful in making a profit in similar activities in the past.
  • You make a profit in farming from some years and the amount of profit you make, and
  • You can expect to make a future profit from the from the appreciation of the assets used in the farming activity.

Publication 225 also explains changes for 2008 and 2009 such as:

  • Standard Mileage Rate Increases
  • Increased section 179 Amounts
  • Additional tax relief for disaster areas

To read the entire article, link to Cattle Grower.