Family farm issues

bobm

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My wife audited a lady's tax returns a few months ago that had huge losses due to huge expenses for her family dairy the past 5 years. This older lady was also audited 3 and 2 years ago for huge losses. She was advised by the previous auditors that to be considered a business she has to make a profit in 2 out of 3 years or be classified as a hobby therefore any expenses would not be deductible. Her family dairy owns over 650 mature dairy cows and employs 4 farm hands. During the last audit , my wife counciled this lady as well as her tax preparer who was also present to consult a CPA that was specializing in farming to see where she could cut expenses so that she could continue as a business before her tax status is changed or risk the loss of her dairy farm to foreclosure for nonpayment of bank loans to cover her huge operating expenses. It seems this lady was a bleeding heart crazy cat lady type that didn't have the heart to cull the older cows that could no longer produce a calf so could not produce any milk as well as the very poor milkers which totaled at 122 cows . She had to buy feed and labor for these cows that were not producing any or negligeable income versus cost. As of today, due to advice of the CPA, her bank loan was restructured and additional funds added to the loan, 105 of the cows have gone to auction and another 50 will be going to auction next week. One of the farm hands was let go. A bovine nutritionist was consulted so that the rest of the cows could increase milk production. A veterinarian was hired to consult on which bulls were to be used for AI to improve on the future cow herd milk production. Armed with this information , my wife was able to continue this lady's dairy as a business at least for another year then have another review of progress toward profitability. I hope that she makes it ! :hugs
 

Smart Red

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It is next to impossible to believe that a 650 cow dairy enterprise could ever be considered a hobby. It sounds like a life sentence at hard labor to me.
 

so lucky

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I wonder if the lady was running the dairy after her husband's death, and didn't have the business experience that was needed? Hope things improve for her, after making these hard decisions. I bet your wife gets a lot of satisfaction out of being able to guide someone to success in a situation like that.
 

baymule

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Farming is a lesson in life in a REAL world. Life, death, cull, slaughter, birth is all a part of it. It's not all pink noses and fuzzy babies. It's old, unproductive or sick animals too. You have to be able to make those tough decisions. I hope this lady makes the transition from bleeding heart/bleeding money to sound business decisions.
 

Chickie'sMomaInNH

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she could help cut some of her losses if there are any agriculture universities nearby that may have students willing to help/intern with her as part of their education.
 

PhilaGardener

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Any advantage to separating her personal finances from the business (by incorporation)? It might also limit her personal risk if the business fails to turn around. Hope it all works out for her!
 

Rhodie Ranch

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Retired mama's make the best pastrami and slow roasted roast beef. That is what I used to spec for the restaurant chain - utility cows for these two products.
 

bobm

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Retired mama's make the best pastrami and slow roasted roast beef. That is what I used to spec for the restaurant chain - utility cows for these two products.
Micky D comes to mind !
Any advantage to separating her personal finances from the business (by incorporation)? It might also limit her personal risk if the business fails to turn around. Hope it all works out for her!
Her farm was inherited already free and clear, the bank loan for operating purposes was placed in first mortgage position. This has already done and recorded , so any incorporation now would be after the fact. Banks aren't exactly stupid. Since the IRS can't offer any specific advise , but may point one to a profession that could if asked (lady's tax preparer asked ), she should be in good hands. Now it is up to her to follow through, and it appears that she had her eyes opened and is following advise of the CPA , Veterinarian, and any other professional that may be/ is consulted.
 

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