In the News

By: Cara Galleni, CPA

As a farmer or rancher, you care about your farm, livestock and property. You are concerned about how it produces and yields a return for your family. But as a business owner, you also need to care about the state of your recordkeeping and ensure that you have measures in place to be proactive rather than reactive.

All businesses must keep good records, which will help you do the following:

•Monitor the progress of your business. Is it improving, declining, or otherwise?

•Prepare your financial statements which are the “score cards” to measure your success.

•Keep track of revenues and expenses. Clearly identify business-related items from personal transactions.

•Compliance with laws and regulations. Complete and accurate records will make any IRS exam much easier.

You may select any method that clearly shows your income and expenses. You could use manual ledger books (like grandpa used to use), Excel spreadsheets, or an electronic recordkeeping system. Computerized software packages can be inexpensive and relatively easy to use. They do a great job to record all of your transactions and require little knowledge of bookkeeping to get started. You may find that you enjoy “counting the beans,” especially using a software package that can make it simple and straightforward.

Proof of payment of an amount, by itself, doesn’t entitle you to a deduction for your expense. You will need to keep backup information. Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips and canceled checks. These documents contain information you need to record in your books. You need to keep these documents because they support the entries in your books (and on your tax return). Keep them in an orderly fashion and in a safe place. For example, organize them by year and type of income or expense. The supporting documentation is much easier to keep as you go, rather than be trying to recreate it after the fact. Western AgCredit’s draft program can help with your recordkeeping by providing the description (that you include on your draft) in your loan transaction summary.

The following points describe examples for certain types of supporting documents:

•Gross receipts – bank deposit slips, receipt books, sales invoices, Forms 1099-MISC

•Inventory and expenses – cancelled checks, purchase invoices, cash register tape receipts, credit card sales slips, vendor account statements

•Assets –information related to when and how you acquired the asset and how you used the asset will also need to be maintained for your records.

The retention period for maintaining your documentation can get a little complicated and is beyond the scope of this article. Your professional tax advisor or attorney is best suited to advise you on the retention schedules that would be best for your business.

More information on this topic can be located on the IRS website. Publication 583 may be particularly helpful. Put a proactive record-keeping organizational plan in place, and feel more comfortable about your year end recording keeping and taxes to help you succeed in your agriculture operation!