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  • FALL ACCOUNTING PRACTICES FOR THE FARM: The Sioux Nation Podcast, Featuring Jonathan Guenthner

    Jonathan Guenthner, partner at ELO CPAs & Advisors and Agribusiness Practice Leader, went on The Sioux Nation Podcast to discuss fall accounting practices. He has been employed full time with ELO since May of 2005 and has worked within the Agribusiness practice during his time. "I enjoy working with farmers because I grew up on the farm and get to live vicariously through all of my farmers. I enjoy helping them achieve any goal they may want to accomplish," Jonathan said. He has been the Agribusiness Partner since 2016. Podcast linked below:

  • What does the March 1 tax deadline really mean for a Farmer?

    March 1 is approaching and if you’re a farmer, you likely believe March 1 is your deadline to have your taxes filed and paid. In some instances that is true, but there are many factors to consider. Unlike other business owners, farmers do not have to make quarterly estimated tax payments. This is for good reason as farm income can be highly variable from year to year making it difficult to estimate what the current year tax may be. Because of this exemption from quarterly payments, farmers historically have had to file their taxes and pay by March 1. A farmer only has a March 1 deadline if they are a “qualified farmer” in the eyes of the IRS and owed tax in the prior year. A “qualified farmer” is someone who has 2/3rd of their gross income from farming. The March 1 deadline does not apply if the following circumstances apply: The farm showed a loss in the prior year and did not owe tax. You and your spouse have tax withholding payments from W-2 jobs that cover your current year tax. Tax credits offset your current year tax liability. A farmer can extend their deadline to the normal tax deadline of April 15 by making one estimated tax payment by January 15. This payment is the lessor of prior year’s tax payment or 2/3rds of the estimated current year tax. The best way to determine the amount of what this payment should be is to work with your trusted ELO advisor. Farming is a very capital-intensive industry where the cost of capital should be considered when making decisions. The decision of when to pay tax is no different. Depending on where the farmer’s current year tax amount lies, it may make the most sense to make a January 15th estimated payment or even to not worry about the March 1 deadline at all. The IRS is currently charging 3% interest on “late” tax payments. A farmer’s line of credit interest rate is likely higher than that making it make economic sense to not worry about the March 1 deadline. Let’s take a look at an example to illustrate: The farm had a tax liability in the prior year of $10,000. The farm had a good year, and the current year tax liability is estimated to be $50,000. Let’s assume the farm’s line of credit interest rate is 4.5%. If the farm pays the $50,000 by March 1, the interest cost of that payment (net of tax) to April 15 is $216. The IRS’s interest will only be $74 for waiting until April 15 to file and pay the tax. In this example, the farm should not worry about the March 1 deadline. The business side of farming continually is becoming more complicated. The list of information requested from your CPA seems to grow every year. Many times, farmers don’t have all their information until mid-February and in some instances not until March. Because of the growing complexity, it is becoming more and more difficult to get the tax return completed by March 1. Extending your tax deadline might not only make economic sense but it may relieve some stress with completing the tax return. MEET THE AUTHOR ADAM BORMANN, CPA AN AGRIBUSINESS PROFESSIONAL WITH ELO CPAS & ADVISORS, A LEADING SOUTHEASTERN SOUTH DAKOTA ACCOUNTING AND CONSULTING FIRM WITH OFFICES IN SIOUX FALLS, MITCHELL, YANKTON, HURON, CHAMBERLAIN AND MILLER. Learn More | Contact


    What is one of the most important jobs on the farm that is also the most neglected job? Without a doubt, it is the farm business accounting portion of the operation. Many operations view this task as a necessary evil, making it a job that may only be completed once a year before the meeting with the bank or before it is time to file a tax return. Most operators would agree that managing the farm’s finances is one of the most important jobs on the farm despite the neglect it receives. There are hundreds of thousands, if not millions, of dollars, flowing through the farm’s account each year. Yet there is a simple question that goes unanswered: “Did the operation make money last year?” This cannot be determined by simply looking at the balance in the checkbook. Most farms keep their accounting on the cash basis of accounting because that is how the Schedule F on the tax return is reported. This means that income is recorded when there are deposits and expenses are recorded when there are checks written. If deposits are greater than checks written, an operation made money that year, right? Not necessarily. Let’s look at how deposits and checks flow through in a crop year. Often, the farm is collecting income and writing checks that cover three crop cycles. For example, in 2021, operations will have likely sold 2020 and/or 2021 crop; paid for 2021 overhead expenses such as insurance, repairs and utilities; and will pay for 2022 crop inputs such as seed, chemical and fertilizer. Couple this with the fact that an operation’s revenue fluctuates daily with changes in grain and livestock prices – accounting on the farm is more complex than it gets credit for. In fact, it is more complicated than most small businesses due to constant fluctuations of input costs, output value and the inconsistent flow of those expenses and revenues. So, what’s the answer? Accrual accounting is the answer to this problem. To describe it simply, accrual accounting is the way an operation thinks about the farm’s year. If an operation completed harvest after harvesting a record crop with a profitable price, they would say it was the best year on record. At the end of the year though, why don’t the financial statements reflect that success? That begs the question, what good is an accounting system if it cannot answer the simple question – “Did we make money this year?” Moving to an accrual basis is the first step for an operation to allow its accounting system to start paying dividends for the farm. Accrual accounting transforms your accounting system from a purely compliance tracking system to a managerial tool that increases visibility that allows an operation to make more informed decisions to drive profitability. It answers these simple yet complex questions of: “Are we profitable?” “Which crops are making us money?” “Are we in a good working capital position?” “Are we cash-flowing enough to cover our debt payments?” “Should we take on that ground at that price?” Given the dollars and risk that is at stake in farming, these are important questions to know the answers to. Getting your accounting system moved from cash to accrual accounting can be a tough task for those unfamiliar with the structure and process. Working with a trusted agribusiness advisor that not only understands accounting but also understands the business of farming is critical to your success. An agribusiness advisor can be much more than just someone to manage your taxes, they can understand everything you go through as a farmer. They can be a key business partner to help provide you with accurate financial information that drives decision making in your operation. Farm sustainability is what this boils down to. It is a desire of farmers to pass the farm down to the next generation and to leave the land in better shape. There is a missing piece to that equation for this to happen – financial stability. What would happen if an operation placed as much emphasis on passing on a better financial position to the next generation? Doing so will enhance the chances that there is a viable and profitable operation there for the next generation. That is what leaving a legacy is all about. MEET THE AUTHOR ADAM BORMANN, CPA AN AGRIBUSINESS PROFESSIONAL WITH ELO CPAS & ADVISORS, A LEADING SOUTHEASTERN SOUTH DAKOTA ACCOUNTING AND CONSULTING FIRM WITH OFFICES IN SIOUX FALLS, MITCHELL, YANKTON, HURON, CHAMBERLAIN AND MILLER. Learn More | Contact

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