The agribusiness industry is unique compared to other industries because there is no “time-out” for farming. Farming is all day, every day. No hours, no punching in and out—farming is a way of life. This can make the financial management of your business difficult.
For the most part, many farmer’s will say they have a ‘gut feeling’ of where they are at financially, and while their sixth sense is generally pretty accurate, this kind of tracking isn’t the best. Tracking records on pen and paper versus tracking on a financial software system can be the difference between making or not making a major mistake.
It only takes one year where you think you have more income to work with than you actually do. For example, James estimates he has $100,000 of net income to work with, so at year end he bought a brand new tractor to eliminate his tax liability. Unfortunately, due to recording errors, it turned out he only had $10,000 of net income, and now he is stuck with the new purchase he didn’t necessarily need.
How can an advisor help?
I encourage every farmer to set up at least one meeting to briefly go over where your farm stands financially. At Yeo & Yeo CPAs & Business Consultants, we utilize this meeting as an opportunity to see what unique areas of you need you have, and if working with us is beneficial for you. Many times, we find that our clients realize they weren't looking at their full financial picture before, or that there were things they were missing in their own assessments.
Another thing to consider is that the tax laws are always changing, and having an advisor is a smart way to make sure you have everything up-to-date and accurate. With the new tax reform, Tax Cuts and Jobs Act (TCJA), that started this January, it will be critical for farmers to utilize the tax cuts available now, that may not be there in the future, or to plan ahead for tax cuts on the horizon. With 93% of US farmers paying income tax at the individual tax level, it is clear that a farmer’s tax strategy and financial approach will be different than in the past. While the individual tax changes will have some impact on producers, the business provisions of the law will have a much deeper impact for agribusinesses.
I anticipate there will also be a very strong push to have a 2018 farm bill passed, which is essentially all new agricultural laws, whether it be extending or creating programs, or modifying the way certain agriculture practices are done. There might even be new best practices coming on the horizon.
What to bring to your first consultation
For an initial consultation meeting, we might ask you to bring a copy of a prior tax return. And always bring questions—asking good questions helps you make sure that your CPA gets the full picture of your operation, because every farm is run differently. Typically, we like to know:
- What kind of software are you using?
- How big is your operation?
- Are you planning to grow?
- Do you have employees?
The most important thing to remember: your CPA is here to help.