Can You Claim Chickens on Your Taxes?

Many individuals raising backyard chickens wonder if they can lead to tax deductions. Claiming chickens on your taxes depends on whether the activity is considered a business or a hobby by the Internal Revenue Service (IRS). Understanding this distinction is crucial for navigating potential tax implications.

Business or Hobby Determination

The IRS differentiates between a business and a hobby based on the taxpayer’s intent to make a profit. An activity is considered a business if its primary purpose is for income or profit, while a hobby is pursued for personal enjoyment or recreation without a profit motive.

The IRS uses nine factors to determine if an activity is carried on for profit. No single factor is decisive, and all facts and circumstances are considered. These factors include:
Whether the activity is conducted in a businesslike manner.
The expertise of the taxpayer or their advisors.
The time and effort expended on the activity.
The expectation that assets used in the activity may appreciate.
The taxpayer’s success in similar or unrelated activities.
The history of income or losses from the activity.
The amount of occasional profits.
The financial status of the taxpayer.
Whether the activity involves elements of personal pleasure or recreation.

If the chicken-raising activity is deemed a business, all income generated is taxable, and ordinary and necessary business expenses can be deducted. This allows a business to offset its income with expenses, reducing its taxable profit. Conversely, if the activity is classified as a hobby, any income received must still be reported. Hobby expenses are generally not deductible for tax years 2018 through 2025. While hobby income is taxable, the costs associated with earning that income cannot be used to reduce the tax burden.

Tax Rules for Chicken Businesses

For those operating chicken activities as a business, tax rules apply to reporting income and deducting expenses. Income includes revenue from various sources, such as the sale of eggs, meat, live chicks, or manure. Breeding fees or other services related to the poultry operation also constitute taxable income.

Many expenses are deductible for a chicken business, provided they are ordinary and necessary for the operation. Common deductible costs include:
Feed, supplements, and grit.
Veterinary care and medications.
Coop construction, maintenance, and supplies like bedding, feeders, and waterers.
Purchase of equipment such as incubators and brooders.
Depreciation of assets like coops, equipment, or breeding stock.

Other deductible expenses can include:
Utilities, if clearly separated and attributed to the chicken operation.
Marketing and advertising costs.
Mileage related to business activities, such as trips to the feed store or farmers’ markets.
Business insurance.

For tax reporting, income and expenses from a farming business, including a chicken operation, are reported on Schedule F (Form 1040), Profit or Loss From Farming. Net earnings from a chicken business may also be subject to self-employment tax, which funds Social Security and Medicare. This tax applies if net earnings from self-employment are $400 or more in a tax year. Self-employment tax is calculated on Schedule SE (Form 1040), Self-Employment Tax. The self-employed individual is responsible for both the employer and employee portions of these taxes.

Essential Record Keeping

Maintaining accurate records is crucial for any chicken-related activity, whether a hobby or a business. Record keeping serves multiple purposes, including substantiating reported income and expenses, demonstrating business intent to the IRS, and facilitating accurate tax returns. Records are necessary in case of an IRS audit, providing the documentation to support claims.

Key records to retain include income records, such as sales receipts and invoices for products sold. Expense records require receipts for all purchases like feed, supplies, veterinary bills, and equipment. For business-related travel, detailed mileage logs are necessary to support deductions.

Documentation proving business intent is useful if the IRS questions the nature of the activity. This includes:
A formal business plan.
Evidence of separate bank accounts for the operation.
Advertising efforts.
Records of asset purchases for depreciation deductions.

These records can be maintained through various methods, such as spreadsheets, accounting software, or organized physical files, depending on the complexity and scale of the operation. Tax records should be kept for at least three years, the period during which the IRS can audit a return.