Joe Horner, Extension Economist for the University of Missouri’s Commercial Agriculture Program, said that in addition to keeping track of income and expenses for tax purposes, every producer should complete a “Balance Sheet” at the end of every year.
“A balance sheet, also commonly called a Financial Statement or Net Worth Statement is simply a listing of all that you own and all that you owe,” Horner said. “The difference necessary to make them ‘balance’ is your equity.”   
A balance sheet needs to be completed every year as of Dec. 31, so that differences in wealth can be matched to income and expense flows recorded in one’s taxes.
“Unless a producer has a track record of historical balance sheets completed every year, there is no way to tell if all their hard work is helping them make financial progress,” Horner said.
Part-time farmers who manage their income and expenses to avoid paying income taxes especially need to use a balance sheet to track equity growth over time to demonstrate profitability.
Michael Popp, professor in the University of Arkansas’ department of Agricultural Economics and Agribusiness, recommended that producers talk to their accountant about what software package they recommend so that data entry only has to be audited rather than performed manually by the accountant.
Purchase and sale records for livestock, equipment and buildings for calculations of depreciation, and capital gain/loss calculations will need to be gathered at the end of the year as well, Popp added.
“Producers should prepare any government program materials the accountant may need to verify,” Popp said.
Producers should include an inventory of all of their livestock, feed, machinery and land as of the end of the year to complete their balance sheet. “They need to place a market value on all of the assets they own,” Horner said. “They also need to make a list of their loan balances and how much they owe on open account balances.”
According to the IRS Farmer’s Tax Guide, publication 225, generally, producers must keep their records for at least three years from when your tax return was due or filed or within two years of the date the tax was paid, whichever is later.     
“However, certain records such as asset records and employment tax records must be kept for a longer period of time,” Horner said. “If in doubt, keep the box.”
Regarding safety nets and future planning due to the Farm Bill not yet passing, dairy producers should realize they may be without a safety net due to the end of the MILC program. “They should make an effort to learn about other means of price protection available,” Horner said.
In addition, “If Ozarks producers suffer a third year of severe drought, many will need to destock additional animals,” Horner added. “They will need to keep track of the numbers involved as they cull herds so that they defer paying income taxes on that income under the special drought restocking provisions.”

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