TaxLink

Blocking and Tackling

Now that tax season is over, I’m visiting my clients and reviewing their year-to-date financial statements. One discussion point is basic blocking and tackling. I recently read that farm income is projected to be 45% lower in 2019 than its peak in 2013. Have you lowered your business and personal expenses by 45%? Are you doing the little things to reduce burning through equity? Here are some thoughts:

CONTROLLING COSTS

Are you trying to cut your input costs? Are you looking at downsizing your farming operation? Are you looking to sell machinery? Everyone has an excuse not to downsize the farming operation. But, if high rent/poor yields or too much equipment is dragging down the rest of the farm, maybe now is the time to clean house.

MARKETING STRATEGY

My most successful farm clients have a marketing strategy. It first starts with understanding their breakeven. Most farmers base breakeven on a tax basis not an accrual basis. They also fail to separate business and personal expenses. Know your profit or loss from farming and what you spend to maintain your lifestyle. Base a marketing strategy on solid information and be diligent in implementation. You may never sell at the highest price, but you will also never sell at the lowest price.

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RECEIVABLES AND PAYABLES

Keep close track of receivables and payables. I have clients who sell commodities directly to livestock and dairy operations. Times are tough, and sometimes people don’t pay. If you notice your accounts receivable increasing, have an honest talk with your customers. Get them on a payment plan. If the shoe is on the other foot, also have an honest talk if you are falling behind. We are all in this together, but we still need to be responsible.

DEBT

Debt can strangle a good operation into liquidation. I frequently hear that it’s OK to increase debt because you have equity, but to what end? If you reach a tipping point, even after liquidating all your assets and land, you won’t have enough to pay the taxes and the bank. Maybe it’s time to sell some machinery or underperforming land to lower your debt. Maybe it’s time to rein in business and personal expenses to avoid eating equity.

GOVERNMENT PAYMENTS

Maximize government payments. Around Sept. 1, you will be able to elect ARC (agricultural risk coverage) or PLC (price loss coverage). Examine which is better, and make the election. A new round of tariff payments was announced in May. Make sure you keep up to date with the mechanics of the program.

TAX PLANNING

Many of my clients have intercompany debt or accrued liabilities. Do some tax planning in the fall. If you are showing losses, it might be a good time to clean up some of these items when there is little or no tax impact.

Many of my clients feel there isn’t much they can do. My recommendation is to go back to blocking and tackling. Even in bad times, doing the basics correctly can make a difference.

Tax Columnist Rod Mauszycki, J.D., MBT, is a tax principal with CLA (CliftonLarsonAllen) in Minneapolis, Minnesota.

Read Rod’s “Ask the Taxman” column at about.dtnpf.com/tax.

You may email Rod at taxman@dtn.com.

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