It’s rare that a farm family today doesn’t have at least one job in town contributing to the household pot.

In 2019, the USDA reported that 96% of American farm households derived some income from off-farm sources, such as wages or salary from an off-farm job, pensions or investment income. In 2022, about 88% of all U.S. farms reported gross cash farm income of less than $350,000, according to the USDA.

And the smaller the farm, the more the farm family relies on that off-farm income for household expenses.

As Tax Day rolls ever closer, families might be taking the time to review how they’re making the most of those off-farm paychecks for their needs today as well as their retirement needs in the future.

Adams Brown, Strategic Allies and CPAs is a certified public accounting firm headquartered in Wichita, Kan. Principals and agriculture industry leaders Bill Glazner and Turner Polzin shared a few things farm families may want to keep in mind in regard to their off-farm income streams.

Fund today

A direct deposit every other week in the family checking account is one thing, but if a family isn’t planning how to best use that paycheck to cover their living expenses, they may be leaving money and benefits on the table, Glazner and Polzin say.

Consider first what family living expenses need to be covered by that paycheck, like health insurance and child care.

Polzin says you first should understand what health insurance plan options are available and what they bring to your family. “Are they weighing their options?” Polzin says. “Do we want to sign up for the high-deductible health plan or the low deductible? And do you understand that if you do sign up for the high deductible, then you have an HSA option?”

Funding that HSA can come with federal, state and payroll tax benefits. Understanding what to choose from employer health care plan options is critical to not leaving money on the table, Polzin and Glazner say.

Child care is expensive, and some employers may offer a flexible spending account that puts aside pre-tax dollars to pay for child care expenses. Maxing out that employer plan is more often than not a better option than paying for child care out of pocket with after-tax dollars and taking a deduction on your personal tax return, Polzin says.

Plan for tomorrow

“Contrary to popular belief, some farmers do actually retire,” Glazner says. Whether they spend that retirement traveling or they need to plan for long-term care, there will come a day when the farm couple won’t be actively farming.

But farmers often put off planning for retirement because the cash needs of the farm come first.

However, if your employer offers a 401(k) safe harbor match, the return on the pre-tax funds you put in your 401(k) would likely be much more beneficial in the long run, Polzin says.

“You could take that money and generate a return on the farm, but I think you’re going to be super hard-pressed to find a better place for $2,000 to $6,000 than putting [it] into your employer’s 401(k) plan to max out the match they’re willing to do,” Polzin says.

If you don’t max out that employer’s match, you’re just leaving money on the table, Glazner adds.

It’s also advisable to make sure that you are enrolled in a catastrophic insurance plan, and to look at insurance for your later years. One major medical procedure or a long-term disability could bankrupt the farm.

The needs of the farm

It’s tempting to cross revenue streams in times of trouble for the farm, the two say. But using off-farm income to consistently cover farm expenses year after year is not sustainable. “If the farm is struggling, you should have a really good idea why it’s struggling,” Glazner says.

Glazner says reinvesting farm income back into the farm while using the off-farm income to provide for household needs is maybe the better option for the family. However, there are opportunities that crop up where the farm might be able to expand quicker by utilizing the off-farm income, achieving a better overall rate of return with that cash, Polzin says.

“I have a couple with a spouse who is very well paid off the farm, and they take a lot of the income that she makes, and they’ve been buying farmland with it,” Polzin says. This strategy allows the farm to grow at a faster pace and take advantage of the economies of scale much quicker than if they were just reinvesting the farm profits alone in farmland.

Another young client may be buying out an older generation and utilizing their off-farm income to finance that.

The ultimate goal, Glazner and Polzin say, is to make sure that farm families research their benefit options to make the most of them for their families today as well as their needs in the future.

Editor’s note: The statements here are intended for discussion purposes only and should not be interpreted as legal or tax advice. Please consult your own business accountants or financial and legal experts.