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While the tax planning process can seem daunting, it becomes much more approachable if you plan ahead and work with your accountant to determine what makes the most sense for your farm.
“Being very forward thinking and not thinking one year at a time is a good strategy,” says TJ Wilson, Director of Sales for FBN® Finance, about tax planning. “Making the right decisions right now will both protect farmers' working capital and put their operation in the best position forward from a tax standpoint.”
Here are five basic steps to prepare for tax time:
During the year you receive money, property and/or services from many sources. Your records can identify the source of your receipts and help you separate farm from non-farm receipts and taxable from nontaxable income. This helps your accountant properly report this information to the IRS.
Gather your revenue receipts, invoices, checkbook and bank statements. You can use a simple code to delineate these items — such as “B” for business, “P” for personal and “?” for things you might be unsure about. This simple process will help your accountant quickly summarize information and figure out those with a “?”.
You want to get the greatest tax deduction possible, so you also need to identify all business expenses. You can use the same process as above — gather any expense receipts, credit card statements and your checkbook, and then take a few minutes to categorize expenses. This will make the process go much more quickly with your accountant — and may jog your memory as to anything you might have otherwise been overlooked.
Typically, financial statements have at least two components:
A profit and loss (or income) statement
A balance sheet.
If you’ve completed the above two steps, you’ll already have most of the information for the income statement. However, it’s also helpful to collect income information reported to you by other people, such as:
An employer (on Form W-2)
A bank (typically on Form 1099-INT)
The government (on Form 1099-G)
A cooperative (on a Form 1099-PATR)
Typically this information comes in around the end of January.
Additionally, you should set aside the following:
Bank statements as of December 31
Purchase documents for equipment, trucks, livestock, etc.
Closing documents for any assets you purchased with a loan
This information, along with the income and expenses you identified in steps 1 and 2, will aid in preparing complete and accurate financial statements.
In addition to completing your tax returns, almost everyone who receives income from you also must prepare their own tax return. If you had people working for you during the year, you need to report to those people the amounts you paid to them for their services.
For example, if someone worked for you as an employee, you’ll need to report the wages you paid to them on a W-2 and if you paid a contractor or service provider, you may need to send a Form 1099 to them.
Again, your accountant can help you with filing the forms.
For this last step, the good news is you really don’t have to do much of anything! The IRS requires “you [to] keep your business records available at all times for inspection…If the IRS examines any of your tax returns, you may be asked to explain the items reported. A complete set of records will assist in the examination.”
File paper items in a place for safekeeping and organize corresponding digital files as well. This way, you’ll have the information if you need to access it in the future.
Looking for additional guidance on the financial health and future of your ag operation?
The FBN Finance team includes more than 35 loan advisors, analysts and closers, each with an average of 15 years of ag finance experience. Because many FBN Finance professionals are producers themselves, they deeply understand the unique nature of your ag business.
Click here or complete the form below to connect directly with a member of our team.
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The material provided is for information purposes only. It is not intended to be a substitute for specific tax planning, tax preparation, or legal advice. Please consult a qualified professional. Neither Farmer’s Business Network nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in the material and any liability therefore is expressly disclaimed.
Terms and conditions apply. FBN Finance, LLC commercial operating lines of credit are offered by FBN Finance, LLC and are available only where FBN Finance, LLC is licensed. Equipment financing provided by Ritchie Bros. Financial Services, Ltd. and TCF National Bank. Land financing provided in connection with Farmer Mac. Input financing provided in connection with our financing partners. To qualify for a financing offer, a borrower must be a member of Farmer’s Business Network, Inc. and meet the underwriting requirements of FBN Finance, LLC and its lending partners. All credit is subject to approval and underwriting. Interest rates and fees will vary depending on your individual situation. Not all applicants will qualify.