Family, Finances & Farm - Part 4
Farming has plenty of stresses, and while finances will probably always be part of those stresses, they can be simplified.
For the final part in our Farm, Family, and Finances series, we caught up with Keith Raynor who is a CPA and was a panelist at a prior Women in Ag event to learn what tips he had for important issues like taxes, estate planning and accounting. The 2021 Women in Ag event date will be announced soon.
Separate Home and Farm Accounts
Farm sweet, farm is indicative of how farmers view their farm—as their home. While the two can seem one and the same, they should remain separate from each other in accounting matters. Raynor says it is important to keep farm and home accounting records separate so you do not miss a farm deduction.
Raynor goes on to say that, “When records contain personal and business-related transactions, the opportunity exists to overlook something as personal that was actually a business deduction.”
While there are no requirements to keep home and farm records separate (unless you are a LLC or Corporation), you are required to produce support for every deduction taken of the tax return in the form of a paid invoice in the name of the farm or farmer.
Separating farm and home finances reduces your personal liability. Putting personal assets, investments, and bank accounts in jeopardy by not separating accounts is not wise. Separating accounts also makes tax season simpler and protects you from potential errors which can incur penalty charges.
On the topic of taxes and penalty charges, Raynor has helpful advice if you find yourself unable to pay taxes.
Actions to Take When You Can’t Pay Your Taxes
Taxes are stressful, and the reality of not being able to pay them just compounds the stress. If you find yourself in this situation, there are three tips that Raynor suggests.
(1.) File Returns When Due
Even if you know you cannot pay what tax is due, it is important to file your returns by the due date to prevent a failure to file penalty. This penalty can be steep and is completely preventable. The only time there might be reasonable cause for penalty abatement are underlying circumstances like death, illness or natural disaster.
(2.) Never Ignore a Tax Notice
Raynor says it is important to not ignore a tax notice because it will not go away. Communicate and be assertive with the IRS or NC Department of Revenue. Both have ways to establish installment plans. Once the balance due reaches a certain amount, liens may be filed against the land and personal residence. Raynor says that this severely encumbers your ability to borrow any money and can even prevent next year’s operating line.
(3.) Seek Professional Help
If you are feeling lost, especially regarding the first to pieces of advice mentioned above, seek out a CPA. They deal with this daily with a variety of clients. While it may embarrassing and new to you, it will not be to them and a good CPA will never make you feel bad about owing taxes that you can’t pay. They should just want to help.
Estate Planning, Pre-nups, and Blended Families
Pre-nups can be a touchy topic among budding families. It can even be unfair, especially if the new spouse contributes to and works on the farm. While Raynor has never suggested pre-nuptial agreements for existing farm operations, he does have a couple recommendations. 1) consult your family attorney to determine what is exposed and seek guidance on the pros and cons of a pre-nup. 2) Raynor says he prefers the farmland always be inside of a land holding LLC and collect rent from the separate operating entity that grows the crops. Since land can be the largest farm asset, it can remain in the parent’s names for a period longer than the operating entity and gifted as time passes.
Farm, family, finances… it can all be quite complicated and confusing, but with the help of professionals, and some practical advice, you can gain clarity and plan with confidence.