One of the many struggles of keeping a farm operating in the black is the intricacy of farm accounting. Many things set bookkeeping apart for farms of all sizes, but a few things particularly make farm accounting and tax management different from that of other businesses.
Timing Is Everything
You know that timing matters when it comes to day-to-day management of your farm: planting, harvesting, and many other tasks are critically time sensitive. But did you know that timing matters just as much when it comes to your farm record keeping? While it may be easy to remember to perform daily accounting activities such as entering invoices, paying bills, and paying employees, it’s equally important to regularly perform other activities that are less frequent and may not involve money transactions but do impact your balance sheet.
For example, when you plant, you should be sure to record all the costs associated with the growing crop as well as its value. When you harvest, you should record the value of your inventory and remove the value of the growing crop. Likewise, if you make a capital purchase with borrowed funds, it’s important to record the corresponding assets and liability to ensure the accuracy of your balance sheet, although there may be no cash activity flowing through your account. These kinds of accounting tasks are often the more difficult to remember.
Land Maintenance & Soil Health
Keeping the land healthy and productive is a significant expense for any farm. Make sure you properly record all expenses for fertilizer, drainage, tiling, irrigation, weed removal, pest control, and soil maintenance. Significant investment in work like drainage and tiling may warrant capitalizing these expenses as improvements to the land. Consulting with your tax professional will help you determine the most advantageous way to record your expenditures.
Changing Valuation of Assets and Inventories
The assets that you own can increase or decrease in value based upon several factors. For example, say you’ve recently added electricity and a concrete floor to a building you own; the value of that building has increased as a result of the investment you made in improving its functionality. The value of crops or livestock that you raise on your farm changes with market rates. It’s important that your balance sheet include realistic current valuations and that you not under or overstate the value of your inventories, especially when working with lenders or potential lenders.
Special Tax Considerations
As in many other businesses, some of the cost of new equipment can be offset against your farm taxes. In the modern era of farming, computerized equipment has become vital business equipment that can also be claimed. Properly claiming and depreciating assets (like tractors, trucks, harvesting equipment, and other farm machinery) over the correct number of years can help you get the most out of your investment and minimize your losses.
It’s also important to carefully record and properly categorize yearly profits and losses. A knowledgeable farm accountant and tax specialist can help you figure out the best way to plan your overall production strategies and invest in the new equipment you need for the best long-term return.
Why Hire an Agricultural Accounting and Tax Firm?
Using an agriculture-specific tax service allows you to take advantage of special rules that apply to farmers only as well as factor in the tax considerations of various business structures for farms (like partnerships, S-corporations, and C-corporations). Focused tax planning can help you develop short- and long-term plans to maximize your profitability and reduce losses, taking into account changing subsidies, markets, and tax laws.
An agricultural accounting specialist can manage your farm accounting to optimize your yearly tax preparation. This can include planning for prepaid expenses like seed, chemicals, fertilizer, and fuel, properly reporting ordinary income and expenses, and managing weather events. If you’re ready to turn over the headache of farm accounting to a pro, call the dedicated, experienced agricultural tax and accounting professionals at AgriSolutions.