It’s not uncommon that a farmer’s tax basis balance sheet may get off balance at some point in time. QuickBooks will always make sure your debits and credits match, but it doesn’t know that you paid off your tractor loan three-years ago or what your accumulated depreciation should be.
It’s important that your tax-basis balance sheet have a solid reconciliation at a good cut-off date (in case you missed it; I have an article here What is a cut-off date?) because that is what your accountant uses to make sure that all your transactions are in your books to develop your tax plan at year-end.
The good news is that cash basis balance sheets are straight-forward to get back in order. Smaller operations may just need to redo their cash reconciliation (there is an example of a cash reconciliation in that same article What is a cut-off date?).
Larger operations – those with payroll, lines-of-credit, term loans, and high-value equipment – need some additional time and information. The documents you’ll need:
- Bank statements
- December 2019
- January 2020
- 2019 Tax basis depreciation schedule
- Year-end payroll tax payments
- 2019 Form 943
- 2019 Form 940
- 2019 State withholding
- State unemployment
- Loan statements
- December 2019
If you haven’t reconciled your balance sheet before, you will want to work with your bookkeeper, accountant, or CPA when you get all the documents; especially if you fall into that larger operation category. Now is a good time to talk to your bookkeeper or accountant on rebuilding your balance sheet if you are interested. They may still be finishing up some tax work thanks to COVID-19 but let them know you’re interested and I’m sure they would happy to get it done before your 2020 tax planning meeting. Going through the reconciliation process a couple of times with a little bit of help will make sure that you don’t have any surprises come tax time.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.