Time for a Fiscal Checkup!
Feb 02, 2011
One of the things that struck me about attending both the TEPAP and the Top Producer Conference is how many of our top farmers are still not taking advantage of all of the financial tools available to them.
For example, I would estimate that probably upwards of 90% of all farmers are still using the cash method of accounting to track their farm income and expenses. For most, this is the method that they use to prepare their income taxes, however, it HARDLY ever gives an accurate picture of overall farm net income. Ask yourself how much of the expense that you pay at year-end has nothing to do with this year's crop or how much of your crop sales reported in this year was actually harvested in this year.
By using farm accrual accounting on an on-going basis (not simply making some adjustments at year-end), you can accurately determine how much income you generated off of this years crops and know what you really made for the year, not what you show to the tax man. Some farmers hesitate since they think it will create more work for their accountant/CPA at tax time, however, to convert from accrual to cash for the tax return is usually very easy for a tax preparer to work out.
Since this is the time you are working with your tax advisor, make sure to discuss this with him now. It is much easier to get switched over at this time of year than in the middle of planting or harvesting. Once you make the switch, you will never go back.