By David L. Sefton, M.S., CPA
Oh my gosh! It's that time of year again, what do I do! One of our readers expressed it this way:
What publications do I need to get for a bird business and what forms need to be filed? The IRS gives me a different answer each time I call, if they have an answer at all. Most of the people I talk to there say, "I don't know, and I don't know how to find out." Then they transfer me, and I start all over again. You know the funny thing? It's my responsibility to figure it out and if I do it wrong, even though they didn't know and couldn't help, I'm the one who pays for it!
Welcome to the world of taxes. It is harder to get a straight answer from the IRS than to get a fair ring toss at a carnival. You've hit the nail exactly on the head. You are on your own. Three words of advice: Document, document, document! When you talk with someone at the IRS and they give you advice, always get the individual's name, the date and the time you talked to them, as well as their identification number (which they now have to give). I frequently ask the IRS what time their computer shows. Further, I ask them to read back the notes they have entered into the computer. Guess what? Almost half the time, after we have been talking a while, they haven't entered anything. As I said (several times), documentation is a good idea.
The IRS has a Farm & Ranch publication. It is difficult to read and highly confusing. For what it is worth, you can pick it up at your local IRS service center, or request it by phone. The general position of the IRS seems to be that the raising of companion animals does not qualify as farming. There is no statutory support for this position. I disagree with this position strongly, even though the IRS has included language to this effect on the back of Schedule F.
Schedule F is the form you use that is attached to your "long form" 1040. It shows your profit and loss from "farming" your parrots. (I don't think ranching would be the right term, would it?) It is important to use Schedule F because as a farmer you do not have to capitalize inventory cost (which would be all your feed cost) and can deduct expenses before you have made your first income, which is a very important consideration for the aviculturist entering into raising parrots for the first time.
There is no single, good source for finding information for aviculturists preparing their own taxes. A good professional tax preparer would be the best route. However, I have heard many aviculturists complain that they know more about their "bird" taxes than the paid preparer! Unfortunately, this could be true if you have attended one of my lecturers. Look for a preparer that has a number of farmers as clients. He will be the most likely source of sound, accurate information. IRS personnel are rarely experienced in such specialized areas of taxation. Therefore, their information, unfortunately, is typically inaccurate. The aviculturist's best approach is reading my articles (of course I would advise that!), and use of common sense. In the alternative, you might ask your bird club to sponsor me to come speak to your club. My final advice: Start early getting your records together so you don't have to worry about questions at the last minute. There's no use making a stressful situation even more stressful.