Farm Horizons, February 2007
Are you ready for tax time?
By Myron Oftedahl
Are you ready for the annual dive into your record keeping system, so that you can meet with your tax preparer and do your taxes this year?
Some of you may still be using the trusted drawer or box to collect all of your receipts and expenses for the year, and now it is time to sort it all out so that you can get the totals that are necessary for taxes.
This usually means a couple of days and nights, and probably a few aspirins. A lot of children avoid dad or mom during this time, as they often are not real easy to get along with while enjoying this task.
Is there an easier way? Yes, there is, whether you wish to use a pen and paper system or a computerized method of accounting.
A good paper system is the Farm Account Book. The Account Book breaks your farming income and expenses into the various categories for taxes, and also allows you to fairly easily determine income and expenses by enterprise, such as corn or soybeans. The downside of a paper system is that you still need a calculator to add up the columns.
There are several computerized accounting systems available, depending on how comfortable you are with the computer, and how in-depth the records are you want to keep.
A very simple record system could be set up using an Excel spreadsheet. The advantage of an electronic system is that you don’t need to add columns. If you want monthly totals or to do a mid-year check against your cash flow, you simply print a report and you can review the numbers.
Any accounting system requires a commitment of time. I like to suggest that you set aside a specific time of the week. Sunday evening or Wednesday morning is the hour that you stay ahead of the paperwork. When do you sit down and pay the bills? Do your record keeping at the same time.
Actually, some of the computerized accounting systems allow you to write checks on the computer, and it automatically enters them into the accounting system.
One of the benefits of the Farm Management Program is accurate accounting. With an accurate accounting system we can then do mid-year checks, a tax estimate at the end of the year, and tax management activities.
We also use these numbers to generate an analysis of your farm to determine if you were profitable, and which area of the farm the profit came from.
Good records make decision-making much easier, because now you know how much you spent on repairs for a particular implement, what the average selling price for the year was, or what the cost of production per bushel of corn, per 100 pounds of milk, or per hog sold was.
If you really dread paperwork, I would urge you to seriously consider committing an hour a week to do your accounting, instead of trying to do the entire year’s worth in one week.
I think you will find it is much easier if you do a small piece of it at a time. Just think of how relaxed you will be a year from now if your accounting is caught up, you did a tax estimate so that you know what to expect, managed your end-of-the-year income and expenses accordingly, and are now ready to meet with your tax preparer by the February deadline.