It has 09:00 AM now. So let's get started. Welcome to today's webinar. Prepare your farm for tax season. Now, your speakers today will be Florencia cola and query clark. We are farm business management educators with Michigan State University. I am Florencia. My pronouns are she her hers and I am multi-racial. Cory, would you like to introduce yourself? Sure. I'm Cory Clark. My pronouns are she her hers. And I'm glad to be here today. Thank you. Okay. I switch slides. And before we started, we would like to show you our civil rights slide and also acknowledged that MSU occupies the ancestral, traditional and contemporary lands of the Anishinaabe, a Three Fires Confederacy of Ojibwa or Du Bois and put on whatever peoples that was seated in the 119 Treaty of saggy. Now, farmers have been keeping records for 11 thousand years. So we hope this tidbit and knowing that we have a group of nine people on the webinar as of now to encourage you that, to feel that the work that you do matters. So without further ado, let's get started. And we will start with the question of whether you are running a commercial farm. You can find the Internal Revenue Service, IRS definition of a farmer on the cover of the farmers checks guide would choose the IRS publication 225. If you don't have those guide already, I suggest you download it from the IRS website. The link is here or you can just Google it. In a few words. It defines a farmer as someone who operates a farming business with the intent of making a profit. The full definition is here on the slide. But on another hand and activity consider to be a hobby by the IRS. And this is if it's primarily for fun, recreation, or sports without any intention of making profits. The IRS will presume if farming activity is being conducted a for profit, if it produced a profit in at least three out of the past five-year, fat, five tax years, including the current one. Equine operations are the exception with a presumption of profits in at least two out of seven years. If this test does not match, it doesn't automatically mean that the activity is a hobby for the IRS. Instead, they will consider other criteria, including the ones on the slide, the extent to which the activity is conducted in a business-like manner, the expertise, time, and effort spent. So you should keep track of that. The expectation there may be of assets used in the activity to appreciate and value as in invest in for a real estate purposes, not farming purposes, et cetera. You can just read them from there. There are no minimum income amounts though. So that's another thing you should take into consideration. Okay. So why does this matter? Any income from my hobby farm is reported on the first page of the US individual income tax return or form 1040, under other income and it is taxable. You used to be able to deduct hobby farm expenses to the extent of the farms income. But that is not the case anymore. So you will be taxed on your hobby farms gross income. Independently from any expenses you may have incurred. On the other hand, income from a commercial farm is reported on Schedule F, which is an attachment to form 1040, and its expenses are deductible even if they go above income. So if you're a commercial farm operates at a loss in some years, those losses can be used to offset your overall income tax liability. Of course, this makes it convenient for you to call your farm a commercial farm. But can you prove your farm is a business? If you are audited, the IRS will look at whether you can prove that your goal is to make money from farming. The good news is that the practices needed to show the IRS that you are in farming for its potential profit, even if you aren't making money right now, are the same good practices that will eventually make your business successful one. So this is a list of things that the IRS will look at. Note that the fourth is keeping records. Being a hobby farmer or homesteader are great lifestyle choices to, and they may fit your specific situation better. We just hope that these tips will help you prepare for tax season, whatever your income sources or lifestyle choices are. So next, we are going to dive into recordkeeping. We said that in order for foreign businesses to even be considered businesses by the Internal Revenue Service, they need to have accounting records. There are two main accounting methods, accrual and cash. So the IRS allows farm businesses to use either method, which is not the case for all types of businesses. But once you pick one, you are required to get their approval to switch back. Under the accrual method of accounting, you report income in the year it was earned or do even if the payment was not collected. Expenses are similarly deducted or capitalised in the year they were incurred, not necessarily made. For example, if you used an item to grow a crop for, for example, you would account for it even if you haven't actually paid for it to your supplier yet. One good thing about the accrual method is that it matches income and expenses for a certain production year, providing a more accurate assessment of profit. This assessment of profit is often show in what's called the income statement. On the other hand, the accrual method is less flexible in terms of tax management. It requires more time and information and it may result in paying taxes on anticipated revenue. Most farmers use the cash method because they find it easier and are able to better match farm cashflows. With the taxes due. Under the cash firm method, income is reported in the year, it is credited to your bank account and expenses are deducted in the year. The text in the text here, the expenses actually paid. However, a cash based income statement does not reveal true profit. Thankfully, you can convert the cash based income statement to an accrual or adjusted or true income statement. By adding or subtracting year and inventory adjustments for grain feed, livestock, receivables and payables to your income and expenses for the year. And you do this on an annual basis. So since you do it on an annual basis, it saves you some time instead of doing the accrual method all throughout the year. But if all of this sounds complicated, you can get help for all of this free of charge from these folks here who are MSU extensions from business management educators. You will DO need to have all the information for the year first. So here you have me to the left and query to the right in a lot of other great folks throughout the state. But so business transactions are normally first recorded in a journal Fashion. And one's entered in the journal transactions are usually grouped by account in summarized in a general ledger showing it balance for each account. Oh, and by the way, do you know what is a chart of accounts? It is is sometimes long list of different categories that you need to keep track of. Not all may apply to you, but here to the left, there's a list of income accounts into the right, there's a series of expense accounts and a well, not pictured here. There is also assets, equity and liability accounts that you should also keep track off. So while accounting may seem complicated at first, there are many tools you can use and many of them are free of charge. Here's just a few examples. You can keep pictures of your receipts instead of paper ones, which is where Google Drive, Google Photos or a OneDrive and Office Lens come in handy. If you choose to use an electronic storage system, you may destroy the original hard copies as long as the IRS is able to determine your correct tax. In the case of a tax audit for keeping track of transactions, there are plenty of applications you can download on your phone or use on your computer. Social, meant and wave are just a few examples of free applications. I believe all bands these days also give you access to Excel records of your transactions. And of course, apart from Excel, there is Google Sheets, the Google version of Excel. So another option is just why not use good old paper and pen. Any of these will be better than a shoe box. I've just colored receipts at the end of the year. So I want briefly to introduce you to the farm records book for management that you can use to enter your transactions on paper. It is available for $15 on the MSU Extension online bookstore or you can also get it for an extra fee from your local extension office. We're working on translating this into Spanish as well. I actually have to say that once they add the shipping charges, it ends up being more expensive than than that, about like twenty-five dollars. So if that's too expensive for you, there are other options and I'll tell you about those. Here's a picture of the booklet. And if you prefer to work on the computer, you can go to bitly forward slash farm records book on your computer browser and access the farm records book just free of charge. Then you can either print it at home, download it to Excel, or use it right into Google Sheets. I'll show you how to do this in detail later. But the firm records book is basically a set of tables where you can enter your transactions by date in different categories. It is organized the same way income taxes are. So a benefit is that it makes tax filing easy. Whether you're doing it yourself or are using a tax preparer. On another hand, the farmer Hertzberg, was designed to be simple, so it does not have formulas in there. It's up to you if you want to add formulas or just add, add up things, right? Using a calculator. If you are into formulas or a bit more complex spreadsheets, you can try the farm cash tracker, which you can find in this link here. The farm kiss shocker has a few benefits over the farm records book, and it's also free of charge. The good thing is that it likes, it lets you copy and paste reports it straight from your bank or an application websites. It lets you work with several different cash and checking accounts. So for example, if you sometimes transfer money between different bank accounts or want to keep track of movements between cash and bank accounts. The farm records book does not have an easy way to do that. While this one, this one does. This is because it uses a double entry system. That's why you see incoming and outgoing account columns here to the right. This is as opposed of a single entry system like the farm records book, where each entry is treated as if the offsetting account was the cash account, which may not always be true. This cash striker also, here's a summary page that will summarize your transactions per month and as a year total and give you net income and cash flow information, among other things. So speaking about record keeping system, if you think you are ready for a paid record keeping system, something more sophisticated, I recommend that tell farm program in which for only $550 per year you get all of these things. The most important of which being in my opinion, the fact that they review and backup your work. But there's also tax benefits and a lot of education. And we are piloting QuickBooks with this program. And we've been working with PCRs, which is another record keeping software designed specifically for farms for a very long time. So if you're interested and record keeping software or a recordkeeping program, I suggest you look into this. So the first and most important financial management tool available to you, your records with three to five years worth of records, either past or a potential, you can analyze virtually anything on your farm, even productive matters and make truly confident decisions. So we are now going to switch to query. I will stop sharing for a minute. I will share. Okay. Have we got the presentation? Yes. Okay. Are you ready to go or would you like to take another second? Friends who? I think we can just keep going. Okay. So as I mentioned, I'm Cory Clark. I am a farm business management educator with Florencia actually, and I cover the my general region or primary region is the thumb area. And so we're going to take a walk today through farm record keeping for taxes. And this stuff will apply no matter the record keeping system you use. So the paper record keeping system such as the farm records book, which we'll talk about how the principles of farm record keeping apply to the farm records book. But it also would work for some of the free accounting systems. The cash tracker or software like PCRs, Quicken, QuickBooks. And so usually when we think about farm recordkeeping, we're thinking about how do we keep good enough records so we compile our taxes. But I think we really need to kind of flip that around and say, Well how taxes work? And then how do we design our record keeping system so that it works for us as businesses, as well as meets the needs for for tax records. Okay. Tax records are complicated. This is just some of the forms that many farms will need to file. Returns can be five pages, ten pages. I've seen returns of 50 pages or longer. But here's a thing. Your tax preparer is going to use your farm information to complete all these forms. You don't actually have to do this all yourself. And if you use a tax preparer, you don't have to know all the forums. What you have to do is provide the tax preparer with the information that they need to complete your tax return. So farm records don't actually have to be that complicated. You do need a complete set of records that has all the transactions. So all everything where funds go in and out of the business and with all the important details. But there's only four places where funds come in and out of the business. There's operations. So income from selling your products or services, expenses you pay to produce those products or services. Assets. So your purchase assets to produce your income like equipment or land. And then there's funds that might come in when you sell assets. There's that you might take out loans to purchase those assets or maybe a seasonal operating loan. And then you would make payments to pay those loans periodically. And finally, you might take funds out of the farm for family living expenses, or you might be contributing foreign funds into the farm to make sure that it has enough cash. So I've put these categories into a table so that we can connect the cash in and cash out of the business with the taxes that will ultimately be paid for and buy your farm business. Green funds are in red funds, I'm sorry. Red funds are cash going out of the business. So of course, farm operations as income and expenses, That's pretty straightforward, right? Funds come in from operating income. Funds go out for operating expenses, and then assets, assets sold, bring cash into the business and when you purchase them, cash moves out of the business. And then debt to purchase the assets. When you borrow the funds, it brings cash in and paying off the debt takes cash out. And finally, family living. If the farm contributes money to the farm. If the family contributes money to the farm, that is. The cash into the business because it's a contribution from the family into the business. Or if funds are withdrawn from the farm for the family, that is cash out of the business. And so now we're going to connect this to taxable income and deductions. And also point out what's not tax really it will go through the same ends and outs, but relate it to how it impacts taxes. So income and expenses, right, Taxable farm income, ordinary income, Farber expenses are deductible expenses. And this assumes that you're a commercial farm and we are, We're working with that assumption all the way through this, this presentation. And then taxes on asset purchases and assets sold a little more complicated in the farm income expenses. For example, even though you take cash in from an asset sale, only the gains on that asset are taxable. And likewise, you purchase the whole asset often at once. And then the depreciation expense is spread over time as an expense on that purchase. And depreciation has a wide range of choices and we'll all talk, we'll talk about some of that in detail later. And then debt. When you bring cash into the business by borrowing funds or cash goes out by paying the funds. Neither one of those are tax related, but the interest paid is an interest expense, which is a deductible expense for your farm. And then finally, funds the flow in and out of the business for family contributions and withdrawals. They don't affect taxes, et al. Now, personal income and expenses can be really important for taxes, taxable wages, health insurance, there are things that you might use those funds for the have tax implications. And that'll come up in the next discussion. But how those personal funds interact with you, interact with your farm is our tax issue. And how they interact with taxes is not a farm issue. So the Form 1040, the first page of it, calculates your adjusted gross income and that is derived from your personal wages and your social security, as well as how the farm impacts the adjusted gross income. The farm contributes net farm income, right? So that's your operating income minus your operating expenses and also interest in depreciation. And then there's capital gains income, which has to do with the gains on the asset sales. So let's go back to how farm transactions relate to the Texas. Before we get into some of the details, we talked about how the farm generates taxable income and tax deductions. And we noted that farm that does not impact taxes except for the interests and our family living withdrawals and contributions don't have implications directly for foreign taxes. I'm going to flip these around, these rows around it because it'll make our discussion a little smoother. So notice the arrows and I flip those rows and they're trading places. So every transaction that you make from checking and savings and whatever cash accounts you're using with the business. A complete set of farm records has all the transactions fit in to one of these, into this table in one of the boxes. And it's super important to keep those accounts reconciled so that you know that you've accounted for all of the transactions of the farm, but only the transactions in the purple box, which you can kinda barely see have an impact on farm taxes. So not debt principle for example. And like I said, some of the personal expense, personal items that you might take the funds out of the business for. As a sole proprietor, for example, or a partner, they could have tax implications, but they're not about the farm taxes. So this is the table that we're going to work with for the rest of the time, because every transaction that affects foreign taxes are located somewhere in this table. So two main schedules that cover these types of income and expenses. They are the Schedule F, which involves the net farm income, and the Schedule D and the Schedule F here. Both of those actually, both of those flow through to the 1040 and your adjusted gross income. The Schedule F accounts for your net farm income. So the farm income contributes to it less the expenses, operating expenses, interest and appreciation. And then Schedule D, It takes account of those gains on assets, sales are those capital gains. And these get treated a little bit differently than the Schedule F items which will go through. But the idea is that the Schedule D and come also flows to the 1040 to your adjusted gross income. Okay. Let's tackle the Schedule F. Schedule F works first one section at a time, farm income and expenses. So Florencia talk about the farm accounting methods and farms typically do use the cash method of accounting. So income is recognized when the payment is available to you and expenses are deducted when they're submitted to the vendor. And this means that you can carry things over from the previous year. You might have income that you're from products are selling and 2021. There was really produced in 2020. And likewise, you might prepay expenses in 2021 for next year, which offers you some opportunities to manage your taxes, both your cash actually and your taxes. And then products you sell. So crops, livestock, any other products. The big thing is about whether they are purchased or re-used. So like feeder cattle, for example, the feeder cattle are not an expense until you sell the finished cattle. And so the purchase price is actually included up here in the income section. Oh, there we go. Raise products. It's helpful to separate those out in your records because they're going to go on a different line of the Schedule F. Then rental income. So rental income, if you run out lands or buildings, you have rental income. Normally rental income is not farm income. It actually goes on Schedule E, which of course does, is separate and not subject to self-employment tax. But if you've material, materially participate in forming on the rented land, then the farm income does go on the Schedule F and it is part of your farm income. And then there's additional sources of income. There's custom higher, for example, which may be providing services on for another farm or for another person. Crop insurance, you might have a claim on crop insurance. They may take out your, your premium as a deduction. The full amount of the claim is the source of your income. Ccse loans get a little tricky. That's something you would want to talk about with your texts. Your texts, professional government payments, primarily payments that are directly to the farm. There is a variety of different payments with a variety of different tax implications. Again, talk to your tax professional. Cooperative distributions are usually patronage dividends and the amount you receive in cash. It may or may not be taxable income. It usually is clear on your form that you receive. So you want to have that form 1099 for your tax professional. And then there's a catch-all line for other income, which might be in something like hedging gains. Okay, So I want to relate this stuff to the farm record book. And it provides a place to record all of your income and expenses, debt and asset transactions. So when you are recording and income transaction, you definitely need the date item, buyer and what and the amount of what? A dollar amount of what you sold. The buyer might matter because you may have to look up the buyer later if it matters, it may matter if the buyer was a cooperative, for example. But all these are the columns with the green bar above it. So for example, this June 26th sale of corn, you would have filled in the item corn, the buyer, whoever purchase the corn. Okay. And then in the remaining columns, you'll identify the quantity and where it will go on the Schedule F, There's a column for pretty much every item, the entire the entire schedule F is represented by one of the columns when you put the appropriate income in that appropriate column. So if you sold a 1000 bushels of corn at $4 a bushel, you put 1000 and the quantity column, bushels and the quantity measure and $4 thousand in the corn column. So when something is deducted straight from your gross sales, you need both Section 2 a of the farm record book, in Section 18 of the farm record book or in your accounting system, you need to address both the income and the expenses. The gross sale or the total sale goes in the income section of the farm records book or your accounting records, but then the deduction which has come out of the gross sale goes in the expense section. And then I was talking about purchases, the items that are purchased or items that are produced. Purchases that you've made for resale, those are not deductible or the expenses are not deductible until you sold the, the the product. And so you need to track both. You need to record the sale and the income account. And then the purchase. You record the purchases of the expense account and you're ultimately going to match those up what you purchased so that you can deduct the expense when you sell the, the, the your finished product. So purchase feed or cat or cattle, livestock so old. You can use that for anything resale. And that's one of the columns in the income section. And then there's a column in the expenses section for things that were purchased for resale. So let's shift our attention to expenses. We talk about operations generating expenses is about 15 lines of operating expenses on the Schedule F. And this should really drive you're categorizing of those expenses. As far as the specifics, we'll go through some of those in a minute and then we'll talk about interest expense that's associated with that payments and depreciation expenses that is associated with asset purchases. So here's some of the specific lines that have some specific details that are important to know. Repairs and maintenance. There I'm like line 25. The expenses on the Schedule F are in alphabetical order and auto car, truck maintenance type things, those need to be recorded separately from farm appointments. So like your expenses, if you have the total expenses on say, a car and you use the car, 50 percent for business use than 50 percent of those expenses are ultimately tax-deductible farm expenses, whereas farm equipment, when that's repaired, maintained, that is a farm expense. Equipment leases. This is a tricky one. Only. Operating leases are deductible as operating expenses. The longer-term leases where you might be buying the piece of equipment that the NDA where that's expected. Those are treated like alone. Highly recommend talking to your tax professional about that. And then taxes, only certain kinds of taxes are deductible as farm expenses. So real estate taxes, which should be itemized if you're using our program it like PA 116, payroll taxes, like employee so the employer contribution of Social Security and Medicare, and then personal property taxes is on the Schedule F, but not really a thing in Michigan. So not estate taxes, not personal income taxes. In self-employment tax, which is calculated for the 1040, are calculated separately. That's not a farm expense on the Schedule F. Insurance, there's certain kind of insurances that are deductible. Crop insurance is the deductible deductible property and casualty. Casualty insurance for the farm and liability insurance, health insurance for you as an owner and for your family, provided you're a sole proprietorship or a partnership, those are not deductible as a farm expense, but it is an adjustment to income on the Form 1040. So again, some of the things that don't belong in the schedule off are still, still should be accounted for, so you can use them in other places on your taxes. Also, life insurance is generally not deductible at all. So the labor expenses, there's two kinds of labor. There is your W2 labor, which are your employees and your contract labor, which would ultimately some of them. Anyways, we get a Form 1099 NEC. The W2 labor has some different lines on the Schedule. F, contact labor, much simpler, but there's a lot of rules about what can be considered. 1099 labor. For employees, you pretty much can adapt everything you spend on them, their gross wages or payroll expense, your employer portion of social security and medicare and sometimes unemployment tax. Their withholdings are not a farm expense, but but any other benefits you provide for them, employer contributions to retirement accounts, employer paid health insurance. Those are farm expenses and sometimes there's tax credits for providing particular benefits. Okay. And there's a page in the farm record book to account for all of these different transactions. Important note under labor is not a deductible expense. So when you're working on the farm, that is not deductible for a sole proprietorship and usually not a partnership for those particular business entities. It's different for an S Corp or a C corporation. So he managed to the bottom line, the net farm income. And this is the number that flows through to the Form 1040. Keep in mind this is calendar year profits. So this is for taxes. Whereas like Florence, he was talking about your management numbers are different than this. It requires a bit more work. That's the kinds of things that analysis of the kinds of things we do. And the farm records, what does keep does keep expense records. First you need to check information, the date, vendor amount, check number, and then you also keep track of the category with this, with the farm records book in the columns. And then from before you have the purchases for resale and the quantity and total purchase price or here in the middle, interests from debt payments. All right, a little bit. Not quite as straightforward, but also a tax deduction. And then Principle, of course, not a tax deduction. Interest is down in these lines. The bottom that's to line 21. And it separates out real estate mortgages from farm equipment and operating loans. So you need to record in your records what kind of loan or what loans that apply to so that your accountant your tax repair, can identify that. So again, when you did your loan information for an interest portion of the payments, transaction date, credit or loan description, beginning loan balance. So you can match all these things up. Now, the farm record book is going to track your principal and then your interest portion, and then an end balance. The software will do that a little bit differently, but also keeps track of the principal and interest portions of your loan payment so that you can then deduct the interest expense. You will probably get a 1099 Form, 1099 from the lender. And that is also important for the texts for when you're preparing your taxes. In the new loan column, you would have operating loan borrowing, which maybe one time, maybe a rolling line of credits. And then with equipment or mortgage loans, you would borrow usually one time and if it's part of the purchase transaction, one of the important things about the purchase transaction is that the total amount of the purchase will go on the asset section, and then the loan amount goes here. And finally the payment, you break it down like I was saying and about that, You gotta have it match ultimately to your 1099. So waiting for the statements come after the payment can be helpful for having the right amount in the print is interest column and the principal home. And then again, you calculate the ending balance and voila long records. So the last expense is depreciation. And so we'll talk about asset transactions on the farm asset side, it's again, like I was saying earlier, not the asset purchase itself that goes on the schedule eV It's the amount of depreciation that the purchase generates. The total depreciation from that purchase will ultimately be the entire purchase price. But there are a variety of different methods by which you can calculate the depreciation to spread that out over years, to take that sooner. So it's not the purge, the attractor is not being deducted like chemicals or feed. Its, you know, its impacts multiple years. Also, land doesn't depreciate. So if you buy land, there's no depreciation expense. Also raised livestock. That doesn't appreciate either. That's going to be an asset sale. But equipment purchase, breeding livestock, buildings, improvements that will all generate a depreciation expense. And there is a ton of options. Again, you just spread it over multiple years. There's guidelines for that and multiple choices. You can deduct a portion or the total amount in the year of purchase. In many cases, that's called Section 179. You might hear that term. And combinations of the two. I want to mention again, when you purchase an asset with the loan, it if asset with you set width alone, the asset purchase price is the entire amount of the asset and then the low portion and the cash portion. So you want to make sure that you record the entire asset purchase. So the depreciation can be calculated accurately. So again, this kinda, this tax plan, comprehensive tax planning is pretty important. From the farm records book. When you purchase an asset, you record the date, description, and total price so that you can get an accurate description and you'd figure depreciation schedule. And then you can talk about depreciation choices with your tax preparer. Um, and then when you sell it, when you sell assets, you might do both of those in a year. You have you potentially enemies have a gain which may be taxable income. So we're talking about breeding livestock equipment. We are talking about land, buildings, anything you would typically hold more than a year. The amount of gain depends on the sales price versus what is called the tax basis. And that depends on the original purchase price and the depreciation that you, you took on that asset. So you're getting is basically what's left of the sales price comparison to this remaining, this remaining tax basis. A lot of assets, their tax bases to 0 because the depreciation was taken fairly quickly, or because the asset was held for a very long time. And then the entire sales prices again, the type of game. So that was the amount of gain. And the type of gain depends on how long you held the asset. So the gains maybe test similar to net farm income, but without self-employment tax. Or they may be subject to the lower capital gains rate in this really depends on how long you hold the asset. And then there's also depreciation recapture, and I'll talk a little bit about them. So, okay. If you hold an asset for less than a year, that is a short-term gain, and that's the one that you pay taxes on it like at the same rate as you would net farm income, but no self-employment tax for assets you hold over a year. Or in cases of breeding livestock, it's two years. Those are long-term gains and that's taxed at the capital gains rate, which might be 0% or 15 percent depending on your total income. A good reason to do some tax planning because it's kind of, it's kind of a complicated calculation, but it can come in very handy if you manage that well. And the depreciation recapture has to do with assets that you sold and have already depreciated. Again, this is my tax repairs are our wonderful. You just have to give them the information that they need in order to make these calculations. Okay. So the capital gain or loss is going to go into the schedule, the Form 1040, to be part of your adjusted gross income. And you can do all that in the farm record book. When you sell an asset, you need to record the dates, asset description, and total amount of the asset. And you want your what you want is your information to be clear enough that the accountant can or the tax repair can locate it on your depreciation schedule and make all the necessary calculations. Okay. So we have made our way through each section of the business and how to record the different transactions. And that as we talk, there's different places in the farm record book to record these transactions. There is cash going out of the business, like a farm expenses, interest, depreciation in section 1. Cash coming into the business, go in various places. In section two. Fluids, you will talk more about the records book as a recordkeeping resource. Okay? So I will stop sharing my screen and fluoresce so you can take it from me. Okay. I will actually was just answering a question. And I'm gonna answer half of it and I'll let you answer the other half. It was a question about tax prepares. And the part that I did not get to answering and I thought maybe you would have a better idea than I do, is what is the average cost to hire a tax preparer? So if you want to just maybe type the answer on the Q&A while I get my screen going. Why didn't provide a quick and good at? It can bury everything from a few $100 to multiple thousands of dollars depending on the complexity of your business and the quality of the records you give them. So the less time they have to spend on your tax return, the less the costs. But it's in the multiple hundreds to the multiple thousands thing GET query. And you should be seeing my screen now. Okay, great. So We're Korea. Before I start, I also answered a lot of questions, but if you want to look at them and add anything or answer any other questions that come up. Feel free, please to do that. Absolutely. Okay. Thank you. So no, I'm going to show you in more detail how to get this farm record spoke for management that we've been talking to you about. Like we said before, this is a free tool to keep track of your farm income and expenses. And it can be used in Excel google Sheets, or just be printed off to fill out by hand. So you should open up a browser and type www dot bit dot L-Y, forward slash farm records book in the address bar and hit Enter. I enter to that link on the answer to the very first question today, if you want to have take that from the chat or the Q&A box. And then the farm records book for management will open. This is a view only version for anyone who wants to use this book to be able to download, you will need to make a copy of the document in order to use that. If you prefer to use pen and paper, you can just print it from here by clicking on the printer icon at the top left. On the next screen, you'll need to select Workbook instead of current sheet if you want to print the whole farm records book, or if you prefer, you can just print sections at a time by leaving current sheets selected. Make sure letter paper is selected and you should be ready to go. Hit Next. And once you do that, you will see a second and more realistic preview of what it's actually going to print like. So here you can take a few moments to make sure that everything is fitting right on your pages. If it doesn't for any reason, contact me. But if the formatting looks correct, which it should, you are ready to print. Just select your printer of choice and click on Print. If you prefer to work on Microsoft Excel, you can download the file on your computer, go to File, Download Microsoft Excel, and an Excel copy will download on your computer. Once you do that, you can just open it and it'll look pretty much exactly like the Google Sheets Version. If you want to print from here after you have completed it with your records, you'll be able to do that. But you may need to make a couple of minor PJ adjustments or you can just send the file to your texts, prepare if you would like. Your third option is to signing with a Google account to use Google Sheets. If you're assigned and you will have a couple more options. And the one that you should use is going to File, make a copy. You will be able to select which folder in your Google Drive to use. And once you do those, Google is going to create a new copy of this farm records book that is now going to be editable so that you can start entering your information. Then you can just print a copy or print a filled-in version, same instructions as before. Another thing you can do from your copy of the farm records book is to share it if you're using Google Sheets, is to share it with a family member, your tax preparer. Copy of the farm markets book will be fully privately yours. Nobody except those you choose will have access to your records. Msu Extension will not see any of that. So now let's dive a little deeper into how to use this farm records book. If you have just downloaded it, you can follow along or you can just watch the screen captures I have here on the presentation and take a look at it later. So the farmer gets book has ten sections as outlined in the index, which is on the homepage. On a daily basis, you're only going to deal with pages 1 through 3. Query has been talking about a bit about these pages, but we'll review some of it again and and then on a quarterly basis, it'll check your work on Page 4, 5, and 6 have tables that resemble the most relevant tax forms so that you can estimate your Texas and December if if you want to do that. And we just seven through 10 are dedicated to creating financial statements and financial analysis. This is a little more advanced, so we will not focus on this today, but just know that if you want to be able to do farm financial analysis, MSU extension educators, like I said before, it can create not only an income statement for you, but also a detailed financial analysis. As long as you're able to put together the information for pages for 78, which are the cashflow statement, the production reports, and the balance sheet or net worth statement. I'm also updating this book all the time. So yeah, make sure that, I mean, as long as you go into that link, you will be getting the most updated version. But if you have feedback about it, I'm happy to hear it. All right. Each section starts with an explanation, so you can learn a lot by just reading all of that. Now we're going to go through an example. Let's imagine I am a farmer and it's the beginning of July. And I'm trying to finish up my second quarter records. I have already completed all of my first-quarter work. So that means that I have gone up to page 4 for the first quarter. And as you can see at the bottom of page 4, I have checked that my beginning balance plus my income, my minus my expenses are equal to my ending bank balance. So inflows, outflows. So now that I'm entering my second quarter information, I'm going to go back to page 1 and finished entering my June expenses, including at least date amount and what category it is. Now I am going to add up the categories for the month of June. As you see here, everything before June was already entered and I'm working on the month of June. Then I have to add up the total expenses for June. I also have an employee which was not counted in the above expenses, so I have to add that I enter his gross pay and any deductions into withholdings on this table. And suppose I bought a truck, I have a business property section to enter this information. And if I would have borrowed or repaid any loans, I would also enter that in the last table of this page. In this example, I don't have any, so this is empty. But suppose that all of those were my expenses for the month of June. Then I go to page two and I'm going to enter my income, although my sources of income. So I again, I enter each transaction and align entering at least the date and amount, which with as much detail as possible. And then again, I add each category for the month of June and come up with a total of operating expenses for June by adding all of those up. Suppose that I traded in an old truck when I bought the new one. I enter that in the sales of business property section where I can include some information about depreciation. And all of this is explained in the instructions. So now that I am done with a farm income and expenses, I can try to keep track of some personal expenses that may be relevant for tax deductions and adjustments at the end of the year. So this would go on page three. Well, the farm records book does not have a place to track all of your personal income and expense transactions. And especially if you're a beginning farmer, you may have a lot of off farm income or expenses that you may want to keep track of. My advice is that you try and keep track of your personal transactions just as good as you do your business transactions. And like I said before, there are a lot of tools to make that easy for you. But the logic of the farm recruits book is to just basic like calculate your personal expenses as a difference between what you had at the beginning and what you have now, taking into account any. Farm income, your farm income and expenses. It's just another way to do it. There's there's more than one way to do it. But either way, it is my belief that you should be able to keep good track of your business expenses and keep good track of your personal expenses income as well. Okay. So that's Page 3. Once I've entered all of these transactions for June, I'm ready to go to page 4 and do my second quarter close out. Since this is broken down by quarters and I have calculated before is by month. I have to go back and add my April, May, and June transactions for each income and expense category and enter those totals in the second column of page 4. Once I do that, I'm going to go to the bottom table and I'm going to enter my beginning and ending cash balances. And I'm basically going to do the math to see if I have accounted for everything and if a jives, this will be the moment to enter transactions that have not been accounted for. Up to this point, such as any non-farm income and expenses, gifts, inheritances, savings, that type of thing. So going back to Texas, base 5 of the farm records book copies, Schedule F, so that you can try and estimate and to manage our Texas at the end of the year. If you have been using the farm workers book, you should have all the necessary information for that form. Your tax preparer can also do that for you if you want to do that. Page six of the farm records book copies the information requested and form 1040, Schedule 1, Schedule a and schedule S, E. Know that these are not official. So these would be like the personal forums. On note that these are not official forms. The one the ones on the farm records book. You might need to file more than these few forums as well. So these are just the most common ones to help you make an estimation at the end of the year. So this is all I had for you today. Let's see if we have any more questions. Corey, I see you added some stuff, so that's great. Thank you. I see you answered mix. So thank you for that. Okay. If you all have anymore questions, please write them in the Q&A box and we'll try to answer them now. I see that there's a number of beginning farmers on the webinar. And we will send some resources, information. I'll type resources that you can take a look through in the follow-up e-mail? Yes. Yes. I've put a lot of lengths on the on one of my answers, but I'll try to add that to the follow-up email as well. Okay. Well, there's another one that came in. Do the firm hold on. Here it is, due the farm books apply for different states. I don't see why it wouldn't. Yes, because of all of the all of the texts categories and query, if you know differently, let me know. But all of the categories that we are using for the farm records book are the federal tests categories. So Every state is subject to the same categories for their federal taxes. Yeah. The state with the farm records were designed for federal taxes. Most states start from like Adjusted Gross Income or start from farm income. In there. They're States records and their SE tax requirements. And you would look for that in order to use the tax records from or use the records from the farm records, buck. So there's those foreign markets but doesn't apply to any particular state. Mm-hm. Right. There is a number. Does the Excel worksheet carry totals over two pages or do we need to calculate totals to carry to monthly page? The farm records book for management. So the one that I showed at the end, that one does not have any formulas. So it is up to you to Ford or enter formulas, which is, you know, if you're familiar with formulas, my logic for not entering formulas there is that is supposed to be a simple tool for those that are on are doing record keeping on paper, on paper or something very simple. So I didn't want to make it complicated. If you are familiar with formulas, you should be able to make the formulas yourself. If you're not familiar with formulas, having formulas there would just make your life more complicated. So that's the reason why I didn't use formulas on the farm worker. It's book. There is the other book, the one called pharm casts tracker. And the link is on the very first answer to the very first question. You can look into that one. That one has a lot of formulas. If you want something a little more automatic. And if you want, you can also contact me and we can try to put something together. I, you know, I like spreadsheets, I like formulas. So I would love to work with you on that, but not everybody does. So there's another question about some production software type apps. And there is a ton of opportunities for software on the production side as well as on the financial side. We do have a beginning farmer program that puts resources together for beginning farmers. And there's probably some information that can be located on that. It's kinda beyond the scope of what we can talk about within this webinar. But we will provide links to the beginning farmer resources through MSU Extension as well as some of the other resources. So we'll address that beam query, the beginning farmer webinar series. We have both the beginning farmer webinar series and the publications over the what's called the demand series. It stands for, I have no idea. So something about beginning managers and stuff. It's odd, but it's a really good series with a lot of really good for vacation. Yeah. So for the beginning farmer webinar series, I put the link on my second answer. But I didn't put the demand serious link. So I'll I'll make sure to add that to the follow-up email. Looks like those were all of the questions that came in so far. And you are welcome to contact either one of us with further questions. That's fine. Yes. And there's also maybe I can quickly go back to the map where there's you can at least see the faces of the other faults around the state if you feel like somebody else would be closer to you, not that that matters a lot in the world that we're living in now. But here we've got Frank, Stan, Roger, and John. Okay. We still have a couple of minutes, but it seems like no more questions are coming in, so well, we'll probably just let people go. Thank you, everyone. Oh, actually, something just popped in. I took the beginning. You're welcome. Erica in Cornelius says, I took the beginning farmer webinar series, but no one was able to give me any information for Farm Apps. Farm Apps, yeah. Yeah, the production as well get you in touch with the person that works with production. Hi, The Beginning Farmer series. And you can see some information about that, right? It will depend on what type of farm you have. What do we know that if Cornelius did he say that another Cornelius, please tell us what type of farm you have are and that will help us directly direct you to somebody who is a specialist in that type of production. You can just email that to me because it is 10:00 AM now. And so will I ever go? Thank you. Bye.
Prepare your Farm for Tax Season Now
From Florencia Colella February 25th, 2021
33 plays
0 comments
Add a comment