Farmers Market Vendors and the Tax Man - a PSA

It's that time of year. You're planning your market garden, ordering your seed or nurturing along your seedlings. If you live in a state that allows home-based food businesses, you are stocking up on your supplies.

Are you keeping track of your expenses so you can write them off at the end of the season to reduce your taxable income?

Yes - the money you make at the farmers market is legally taxable income. I wrote the following several years ago.

 As the summer farmers market season approaches vendors are nurturing their vegetable plants and fruit trees, polishing their recipes and dreaming of beautiful Saturday mornings without rain. Farmers market vendors should also be thinking about the Internal Revenue Service.

  

"Why should I worry about the IRS? This isn't a business; it's just something I do on the weekends to make a little extra money."

"To make a little extra money." That phrase is the answer. "A little extra money" earned by selling your vegetables or home-baked breads is income and subject to tax laws. IRS Publication 583 is a great resource for small-business owners. It explains the basics of setting up a business in order to satisfy the IRS at the end of the year.

Most farmers market vendors would be considered a sole proprietorship and would report their income with their personal tax return at the end of the year. A recordkeeping system is a must to know how much you earned over the summer and what your expenses were. This system can be as simple as a ledger book with an envelope of receipts or software on your home computer.

Angie Mohr, a Chartered Accountant and Certified Management Accountant and author of the Numbers 101 for Small Business series of books has a great advice. While Angie reminds small-business owners to get their year-end records in order, I suggest farmers market vendors finalize their record-keeping at the end of the summer market season. Everything is fresh in your mind and it will be ready when it's time to file your tax return.

I've been a farmers market vendor since 2007. I've upgraded to a computerized spreadsheet for tracking my expenses and income but I used ledgers during the first few seasons.

Farmers Market Vendors: Know Your Income

This step is the easiest to follow and the most important. Other than accurately reporting your income to the IRS, it makes sense to know if you are making money at the farmers market. Buy a ledger book at the office supply store; write down the date and how much money you had at the end of the day. Don't forget to subtract your starting bank!

Farmers Market Vendors: Know Your Direct Expenses

Tracking expenses is different for a vegetable vendor than a baked goods vendor. Produce sellers will have the majority of their expenses at the beginning of the season as they buy seeds and plants, plus any fertilizer they might use. Do you buy containers or baskets to package your vegetables?

Most vegetable vendors are using their garden for a dual purpose - home use and selling for income. Be sure to keep track of the yield so that the seed and other costs can be divided accurately.

For baked goods vendors, the majority of the expenses are ongoing and easier to identify. Ingredients, packaging materials and labels are expenses.

Farmers Market Vendors: Know Your Other Expenses

I keep a mileage log in my car to track my miles to every farmers market we attend and every supply trip. Most farmers market vendors won't be able to itemize home business deductions due to the exclusivity requirement.

Farmers Market Vendors: Keep Your Receipts

After recording my expenses, I keep my receipts in a legal-size envelope in dated order in a separate envelope for each month. It's best to not mix business and personal purchases on the same receipt, but if you do buy everything in one purchase be sure to exclude the personal purchase in your ledger.

Our table at the Mount Vernon Farmers Market on the Square