Farm Record Keeping and the Tax Connection
When it comes to record keeping on your farming operation, keeping as detailed of reports as possible is in your best interest, not only so you can track your year-to-date progress, but it’s also a must-have for the Internal Revenue Service (IRS) to even consider your farm a legal operation.
As a farm manager, using your records can help you plan for change, budget, track your operation’s progress and can evaluate your operation’s strengths and weaknesses. Recordkeeping is also beneficial when it comes to comparing your performance to other entities, being considered for lending and transitioning your farm to other business partners or family members.
Farm tax preparation and planning can be confusing for even the most business-savvy producer. Tax planning gives you the opportunity to manage your liability or credits using a variety of methods. Once the calendar rolls over to January your options to manage your tax liability become quite limited.
Understanding the most common reasons tax record keeping is necessary is a good way to begin.
Accurate financial statements
You can’t have accurate financial statements without records. Along with profit and loss statements, you should have cash flow statements and balance sheets. Financial statements are necessary for your financial lenders or creditors when it comes to helping you manage your farm business. These records are all required when it comes time to prepare your tax return.
Keep those receipts
Whether they’re online or in a shoebox, it’s imperative that farm managers save records when they receive property, money and services. These records help identify the source of your receipts and, come tax time, will help you separate farm to nonfarm and taxable from nontaxable income.
Environmental regulations
Depending on their operation, environmental regulations may affect some farms. In this situation, farmers are required to track livestock waste treatment, water use and livestock as it pertains to the environment.
Monitor your progress
To be as successful as possible, you should monitor the progress of your farming operation throughout the year. Records will show whether or not your business is improving, which crops or livestock are selling and can provide insight into any changes that might need to be made.
Better farm management
By nature, if you’re keeping records on seed germination rates, you’ll be in a stronger position to select seeds for next year’s seasons. Records on seeds, and even pests, disease, feed types, consumption and bloodlines will help set your farm up for success.
Compeer Financial has specialized farm accounting specialists and tax consultants who truly understand the business of agriculture and are committed to helping hard-working farmers just like you to avoid overpayment and penalties. Visit compeer.com to see if our services and right or for you.
Tax and accounting services are subject to regional availability. For information about service availability in your area, please contact your local Compeer Financial representative.