1. The Basics of Farm Recordkeeping
Slide 1
Introduction of myself – background in farm returns, etc
The Basics of Farm Recordkeeping
Morgan Waldeier, CPA| Timmins, Jacobsen & Strawhacker, LLP

2. Overview Purpose and value of records Type and use of records
Implementation of a system
Tools and resources
When people think about record keeping the first thoughts that come to mind are “I don’t have enough time” “I can do that at year end” “my accountant can do that” ( I won’t make you raise your hands but I’m guessing we have a few “box recordkeepers” ie I’ll give my accountant this box to figure out at year end “I can do that at year end” The problem with this thinking is you are losing valuable management tools. If you are waiting until year end you are losing out on valuable planning throughout the year. Recordkeeping should be perpetual not periodic. In this presentation I am going to cover why you should be thinking of recordkeeping as a value to your business, the types of records and their uses, and how to implement them. I will also provide some software options and resources for tools to use.

3. Purpose of Farm Records
To file income taxes
To meet loan requirements
To be eligible for government programs
To value assets
Decision making tool
To really determine why recordkeeping is so critical to a successful business we need to determine the purpose of records. I have a few listed here
File income taxes – This is the default that everyone goes to when they recordkeeping –I have to do it to keep the IRS off my back
Loan Requirements – Next in line is the lenders – they want to know where I am to see if their loan is safe or if I can get more money
Eligibility for gov. programs – Do I qualify? Well let’s see how things looked last year
Value of my assets – What am I really worth? Do I need to worry about estate planning? What can I pass to my heirs
Decision making tool – I have put this last because I think people have a tendency to order the need this way, but this should be number one on everyone’s list. If you have a firm grasp of where you at you can plan and adapt to markets (not react), you can plan for acquisitions, you know where you stand for tax purposes before you get the balance due. And this what I want to focus on today.

4. Purpose of Farm Records
Internal Revenue Service
Summary of business transactions
Gross income, deductions, credits
Documentation to support your transactions
Invoices, receipts, cancelled checks
Documentation regarding assets
Date of acquisition, purchase price, depreciation taken (allowed) and information regarding sale
Ex. - Purchase receipts, real estate closing statements, cancelled checks, bank statements
Livestock records to determine type of gain on sale (determines your tax rate)
Other entities
Cash flows, debt to equity ratios, asset values
As mentioned before one of the top reasons on people’s list are for keeping records are tax returns. So what exactly should you have for tax returns? I have referred to the Farmer’s Tax Guide for the requirements of records. This is an excellent source for a variety of farm related tax matters and I have included the link so that you can use this as resource. So the IRS requires the following for to support the information you report on your tax return ….
One area I don’t think people realize or keep adequate records for is for the value of assets on their books. Yea everyone problem keeps the receipt for their combine or pickup, but what about livestock? This is an area that I see a lot where people don’t keep great records or don’t provide them to tax preparers that could save substantial tax. – I will come back to this later
Other entities-
Banks want to know do you have the capacity to make payments, is their equity there to loan on (need value of assets to determine equity), what are income levels do they put you in level eligible for government programs, how long have you had assets, etc. - If you keep these records all a long it’s a simple answer

5. Types of Records Financial Records Nonfinancial Records
Profit and Loss (Income & Expense)
Receipts and cancelled checks
Cash flow statements
Net worth statements
Budgets
Nonfinancial Records
Production reports
Yields, use of inputs, etc
Livestock records
Birth weights, purchase records, replacement herds
Breakeven points
Cost of acquisitions
Renting vs. purchase
The first type of records are financial records – this what everyone usually thinks of when you record keeping – As we have already talked about you can use these for -----
Nonfinancial records – in my opinion these types of records are essential to a successful farming operation and often the most underutilized. For example…..

6. Implementation Financial Records Nonfinancial Records QuickBooks Excel
Simple Start
Integrate with bank account
Excel
Apps and document management systems
Neat.com
Excel
Land costs
Breakeven
Apps
Record books
Calving records
Vaccination logs
Farm record keeping manual
So now we have an idea of why record keeping is so important, but a lot of you are problem sitting there saying so how can I do this? I’m a farmer not an accountant, I don’t know how to get on this information in one place, I don’t have time for this - My answer to that is let someone else do the work for you
Well kind of…..There are tons of resources out there to help you accomplish the financial records and nonfinancial records.
* Use QuickBooks to organize your information – all the financial reports are then at your fingertips with a click of a button
Quickbooks seems to be too complicated a simple excel sheet is better than nothing and can provide you with update to status of your business – not an excel expert no problem – there are 1,000s of spreadsheets out there that some else has already created you simply enter the info
DMS and apps – organize info for you, scan receipts
Non financial
Create spreadsheets that show you breakeven points
Determine whether it’s efficient to feed out calves
Compare costs of renting vs purchase
Apps – farm management apps, weather apps, livestock tracking apps
Paper records – calving books, vaccination looks, farm record keeping manual

7. Examples – Financial Records
Export balance sheet right to excel take to lender and up date a few numbers. Take to your CPA they work with you to make adjustments for tax and you are done. You can run on the accrual or cash basis.

8. Examples – Financial Records
Using excel for record keeping –
This is an excel found online simply enter you monthly activity when you get your bank statement and all expense flow through to annual amount leave room for adjustments. Take to your accountant and they can see exactly where your numbers come from and how to code.

9. Examples – Nonfinancial records
Here is a couple examples of using excel to determine breakeven
The first is a crop budget excel spreadsheet-
This form is already set up and you can change the items in gray to calculate your profit per acres, you total net profit, your breakeven point, what you need to sell at to make you expected return
The second is feeder calf breakeven –
You enter your amounts in the white cells and it calculates what you market price you need in order to get breakeven
This were already created and take a matter of minutes to determine what prices you should be selling at or whether or not feeder calves would be profitable in the current or future markets.

10. Livestock records Raised stock held under 1 year
Normally calf crop- subject to ordinary rates
Purchased breeding stock
Bulls, heifers, cows- can take depreciation on, but recaptured at sale
Raised breeding stock
Replacement heifers, bulls – subject to capital gains rates at sale
Livestock sales can be subject to different tax rates and it is important to understand where your livestock income is coming from. There are 3 types of livestock for tax purposes raised livestock held less than 24 months (normally your calf crop), purchased livestock (feeder calves, bulls, heifers to be used in breeding), and raised breeding stock (heifers kept longer than 24 months to be used for breeding). Each can be taxed differently so it is important to be aware of what you have and how your reporting this to your accountant. Calves are the easiest you raise them and then sell them and report the income as ordinary. The next are purchased livestock you are probably letting your accountant know that you bough a bull or bought bred heifers and then they are depreciated, but when those are sold some of that depreciation has to be recaptured at ordinary rates. Raised livestock kept for breeding purposes can be sold and only subject to capital gains rates. Depending on tax brackets and number of cattle sold the tax difference can be substantial. The problem is if you are providing this information to your accountant or you don’t know, how can they properly report? The answer is they can’t and most likely default to FIFO meaning fully depreciated cattle are taken off first which may not be accurate.

11. PLANNING =
TAX SAVINGS
These are the 2017 tax brackets for ordinary rates vs capital gains rates. As you can see a married individual can make up to $75,900 and still pay zero tax on capital gains. So let’s say your on the fence about whether or not you should start a replacement herd this year. Your cows are old and you have some pretty good heifers but maybe you should wait another year? So you look at your records and you think income should be right around $55,000 for the year and you want to stay in that range. Based on your budgeting you think next year’s profit might be around $100,000. By selling this year you could sell

12. Resources – Excel Worksheets
tutorial/managing-your-finances/

13. Resources – Training

14. Resources – Apps
orials/