Our farm’s revenue has been up and down the last couple years. As we get closer to the end of the year, I’ve been thinking about taxes. I usually end up doing the bulk of my tax preparation in December. Any suggestions around tax prep this year? — M.L., Illinois 

Since I’m not a CPA, I won’t give tax advice. That said, creating a tax strategy and working with tax experts is an issue that impacts every farmer out there. 

One of the challenges around tax prep in farming is the ability to rely on the quality of the people you’re working with. In the past, farms may have relied purely on whoever was available in their local geography.  

The broader access available via technology now offers an opportunity to discover who has the tax expertise you need for your operation. That may mean your CPA or tax preparer lives hundreds of miles away from you. 

So how do you know if you have the right CPA or tax preparer? First, find out if they’re focused on your industry. You want to work with someone who has a deep understanding of agriculture. Your style of agriculture may have some differences that require particular expertise due to side businesses within your operation. 

Next, you want to work with someone who can take a strategic approach with you. A major risk around tax planning and the finance side of a farm business is working with someone who knows the basics of ag taxes but doesn’t know how to turn it into a strategy. 

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Finally, work with someone who is proactive. If you haven’t yet heard from your CPA or tax preparer, and find that you’re having to nudge them to get things done, that should raise concern. Work with experts who are driving you toward key deadlines and milestones. The focus should be on your business, not their business. 

It boils down to this: First off, the IRS tax code says all income is taxable — and then fills 2,500 additional pages to basically explain how not to pay taxes! That’s why you need both deep expertise and strategy to make sure your farm is operating legally and to intentionally take care of your farm business in an appropriate way. 

This year isn’t going to be a profitable one for our farm. Not really looking forward to conversations with my banker. Any guidance on that as we get ready for the 2025 crop year? — T.B., Iowa 

Many farms have had some profitability challenges this year, and that creates an opportunity to better understand what your lender is looking for. 

One of the top measurements you and your lender likely talk about each year is the debt coverage ratio, which is net operating income divided by the year’s debt payments. Banks ideally want to see that ratio above 1 or 1.25. If that number goes below 1, farms may have to turn to other sources to meet debt obligations. 

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You already know the levers to pull: increase revenue and look at the expense side to streamline the operation. Ask yourself these questions: 

Depending on how your debt is structured, you might be able to work with your lender on how much has to be paid this year, or if repayment can be stretched. 

Be proactive in the lender relationship. Before talking with your lender, reflect on your game plan. The bank wants to know that you have a plan and the steps that you will take. 

Work with your bank to create a plan toward farm financial health. Ag lenders know revenue cycles swing wide and cost structure changes, so none of this is new to them. Being proactive, open and committed to execute the plan will go a long way in your lender’s view.