Can You Write Off Chickens on Your Taxes?
Uncover the tax implications of raising chickens. Learn how the IRS distinguishes between a business and a hobby to determine your deductible expenses.
Chicken owners often wonder if they can deduct flock-related costs on their taxes. The ability to claim these expenses depends on whether the Internal Revenue Service (IRS) considers the activity a business or a hobby. This article explores the criteria for distinguishing between a business and a hobby, and their specific tax consequences.
Distinguishing Between a Business and a Hobby
The IRS distinguishes between a business and a hobby based on whether the activity is engaged in for profit. A genuine profit motive typically classifies an activity as a business, allowing broader expense deductions. Without a profit motive, it is a hobby.
The IRS uses nine factors to determine if an activity is carried on for profit. These include whether the activity is conducted in a businesslike manner, such as maintaining accurate books and records. The expertise of the taxpayer and their advisors, along with the time and effort devoted to the activity, are also considered.
Other factors involve whether the taxpayer expects the assets used in the activity to appreciate in value. The taxpayer’s success in other similar or dissimilar activities, and the history of income or losses from the activity, provide insight into the profit motive. Additionally, the amount of occasional profits earned, the financial status of the taxpayer, and elements of personal pleasure or recreation derived from the activity are evaluated. For chicken ownership, keeping detailed records of sales and expenses, marketing eggs or meat, and making efforts to improve profitability can support a business classification.
Tax Implications for a Chicken Business
When chicken ownership is classified as a business, all income generated must be reported, and ordinary and necessary business expenses can be deducted. Income sources such as the sale of eggs, meat, chicks, or even manure are reported on Schedule C (Form 1040), Profit or Loss from Business.
Deductible expenses for a chicken business can include a range of costs. These often involve feed, bedding, and nutritional supplements for the birds. Costs associated with coop construction and maintenance, including depreciation for larger assets, are also eligible deductions.
Other common deductible expenses include veterinary care, medications, and equipment like incubators, feeders, and waterers. Marketing and advertising costs to sell products, utilities directly attributable to the chicken operation, and mileage for business-related travel are also permissible. The net profit or loss from the business, calculated by subtracting total expenses from total income, impacts the taxpayer’s overall tax liability. Business income may also be subject to self-employment taxes, which cover Social Security and Medicare contributions.
Tax Implications for a Chicken Hobby
If chicken ownership is a hobby, any income generated from the activity must still be reported. This includes revenue from selling surplus eggs to neighbors or other casual sales.
However, a significant limitation applies to hobby expenses. For tax years 2018 through 2025, expenses related to a hobby activity are not deductible. This means that even if a hobby generates income, the associated expenses cannot be used to reduce that income or offset other taxable income. If hobby expenses exceed hobby income, any resulting loss cannot be used to offset other income reported by the taxpayer.