As you gather information for your tax preparer, keep these tips in mind:
1. Separate your major farm activities into separate businesses (Enterprises). If you have multiple farm entities, each should have its own bank account and cash flow statement. If you have multiple activities under one entity, keep separate records so you can track profitability. Livestock enterprises should be a different cash flow statement from grain, for example.
2. Use accounting software to keep your farm financial records organized. Very few people (these days) are careful and detail-oriented enough to keep accurate paper ledger records. If you use a computer for anything, use a computer to keep track of your financial records. Your lender will thank you and your tax preparer will thank you.
3. Keep farm and personal income and expenses separate. Even if you think you can deduct some personal expenses as farm expenses, keep separate records and ask your tax preparer what is deductible.
4. If you own farm ground for rent, or if you rent farm ground to farm, keep seperate records of each “farm” and “tenant” (or landlord). This will both help you track profitability for each farm and allow your tax preparer to record rental information correctly on the tax return.
5. Consider a “pre-tax” meeting (or phone call) with your tax preparer before the end of the year. Check to see whether there are any changes in tax law that will affect your bottom line. Some of my clients ask for a “dry run” tax return before the end of the year to check that they are on track with cash flow as the year draws to a close.
Bonus Tip: Ask questions throughout the year. As you think of questions, or as you consider a major purchase or payoff of debt, call your tax preparer to see what she might suggest. After the fact is too late for spending money if you don’t need to (or missing an opportunity for a timely deduction). Your tax preparer can keep notes about the conversation and make sure that it gets into the conversation at tax time.
If you don’t use these methods for organizing your financial records, now is the time to start. Your tax preparer can help you get set up to be more organized for 2017. It will save you both time and money. If it takes me a long time to organize your records when I prepare your taxes, I charge you for it. My organized clients have a much lower tax prep bill.