|For What It's Worth|
|End of the Year|
The end of the year is upon us and it is time to start thinking about organizing your financial information for tax time. I would like to think most of us are so organized it will only take a minute to turn on the computer, update a few files and then hit the print button.
The reality is most of us put it off until the last minute. The process is very simple; hopefully, you have kept all your receipts, notes, canceled checks, etc. allowing you to readily identify farm revenues and expenses.
Make sure you are able to identify and separate farm income and expenses versus non-farm income and expenses; identify any interest payments relevant to your farm; and know what type of depreciation schedule to utilize for farm equipment, buildings, etc.
A good accountant can make some recommendations on the best choices for depreciation schedules. Some people prefer to depreciate over time, some immediately to get it over with. Then again it may be better to take immediate depreciation on low-value items and long-term depreciation on high-value items. Each personal and farm situation will vary.
There are numerous commercial software programs that can be purchased and installed on your computer. Your choices will be determined by factors like financial scale of farm operation (small, medium, large), number of employees, number of enterprises (various row crops, livestock, fruits and vegetables, so forth), etc. Small-scale operations have a choice of doing their own taxes on paper, computer or hiring an accountant. Whatever you do, make sure to become familiar with Schedule F which shows commodity revenues from your farm on an annual basis. The basics include making sure to organize revenues and expenses into separate categories, and then break them down into subcategories unique to your farm.
Some basic farm expenditure categories might include feed and hay, farm supplies, equipment, labor, fertilizer (including lime) and seed, repairs, livestock purchases and losses, animal healthcare, and travel.
Yes, travel is often an overlooked expense; you would be surprised to see how quickly those miles tally! Try and recall all those trips to the feed store and Co-op, vet, educational or professional meetings, the hardware store, etc. Travel might also include hotels and meals, and can readily add up to several thousand dollars; that 50 cents-per-mile will quickly add up.
A good website with extensive information relevant to the Internal Revenue Service is http://www. irs.gov/businesses/small/article/0,,id=98575,00.htm. Another site by the University of Florida which is more relevant to farm record-keeping and taxes is http://smallfarms.ifas.ufl.edu/ planning_and_management/getting_started.html.
Something else to think about is developing a balance sheet; this identifies your net worth by comparing debts and assets. A part of this would include semi-yearly inventories, one at the beginning of the year and one at the end; in particular equipment and livestock to see if they have increased in numbers and values.
Each of us should know what works best for us and our farm, and know options will vary. Whether you choose to keep your receipts, notes, etc. in a shoe box or enter the information in a computer spreadsheet on a regular basis, all that is up to you. Your other decision will be whether to use the services of a tax accountant or process your own taxes. Whatever you do, make sure it serves you and your family’s best interest, is done in a format making it practical to follow year to year, and is legal to prevent an audit or legal issues. In order to protect your best interest I encourage you to utilize an accountant for preparing your farm taxes.
Merry Christmas and Happy New Year to you and your family!
Robert Spencer is a contributing writer from Florence.