Tax Tips for Ranchers

The end of the year is here, but so is all the end of year bookwork and tax prep that comes with it. Hannah Mann, founder of Pioneer Accounting LLC, shares several tips and strategies to help ranchers simplify tax season in a recent episode of the Casual Cattle Conversations Podcast.  

1. Bookkeeping Strategies that Work 

Reducing overwhelm and indecision starts with creating a benchmark.  

Mann says, “Having clean, real-time books lets us see multi-year trends, determine what’s making money, and create better strategies.”  

Yet, she knows how challenging it is to keep books updated for the majority of ag operations. 

“Most operators don’t have time for bookkeeping. That’s why having a system that’s easy and in real time is huge,” says Mann. “When you’re three or four months behind on reconciling and tax strategy time comes, it’s overwhelming.”  

Mann encourages producers to find systems that work for them and not just for their CPA.  

She says, “One day I asked my clients to shoot me straight about the current program we used. They only used it because they thought it was the only way to work with me.” 

This personal experience shifted Mann’s approach to how she works with her exclusively ag clientele. One of her first choices for bookkeeping software is Ambrook.  

“Ambrook automations can allocate expenses across enterprises for you—it’s doing the bookkeeping instead of doubling your work,” explains Mann. “In Ambrook you can see profit and loss by enterprise at your fingertips—it’s profound for understanding what’s actually making money.”  

Additionally, Ambrook offers flexibility to catch up on bookwork while you wait in the school pickup line or in the other gaps of time within your day via their app. You can literally send an invoice from the cab of the tractor for the custom hire job as you leave the field. No more adding things to the to-do list. That is that much sooner you get paid and have the working capital back into your operation. 

2. Updating Equipment Purchases, Loans and Raised Livestock 

Whether you do all of your bookwork or hire it out, having updated equipment purchases is a crucial component of tax preparation. 

“A huge part of prepping for tax season is making sure every purchase order gets saved, uploaded, or sent to your accountant,” says Mann. “If you buy a tractor and no one enters the asset or liability, the books don’t know it ever existed.”  

Tracking interest deductions is also commonly forgotten during the end of year rush. 

She says, “Oftentimes people make loan payments but miss the interest deduction—sometimes tens of thousands of dollars left off their books.”  

Finally, knowing how to categorize raised versus purchased livestock can save you big time. 

“Raised versus purchased livestock has to be tracked correctly—it can cost you 15 cents on the dollar if it’s thrown on the wrong line,” explains Mann. 

Mann encourages producers to ensure their CPA and CPA’s team understand agriculture.   

She says, “You have to be sure the person doing your tax return truly understands ag so they’re not throwing steers on depreciation.”  

3. Know Your Options 

Every operation and business is different, which means asking your CPA about different opportunities and being flexible year to year is important.  

Mann says, “Keeping a good pulse on multi-year strategy matters—ag is volatile and these tools exist because of that volatility.”  

One such tool is a Schedule J which allows farmers and ranchers to average their income over several years. 

“The IRS has said Schedule J is underutilized, but they’re not going to send you a letter saying, ‘You could have income averaged—try again,’” explains Mann. “Farmers and ranchers have so many crazy good tax benefits the rest of us can’t take. There’s just so much opportunity to keep working capital in the operation.”  

Understanding effective vs. marginal tax rate is also important.  

“Your effective tax rate is essentially the average tax you're paying on every dollar, where marginal tax rate is for every extra dollar you take in, what will that be taxed at,” says Mann. “People could have a 22% marginal tax rate but their effective rate is only 14%. That’s the biggest thing people don’t understand.”  

4. Shift Your Mindset 

While taxes might not be fun to pay, they may be the better financial decision in the long run.  

“I really hate to see when people try to buy their way out of tax because it hurts them on working capital and on equity,” says Mann. “Those with cash and working capital are the ones who get opportunities when land unexpectedly comes up for sale—not those buying their way out of taxes.”  

Decisions about write offs should be made clearly and with a plan.  

She says, “Before you buy that thing this year versus next year or prepay all that feed, make sure the decision comes from a place of confidence.”  

Depending on the scenario, Roth IRAs are worth looking into.  

She explains, “If someone is effectively paying 7% tax, they’re often better off putting money into a Roth and letting it grow tax-free.”  

Mann also warns people to be cognizant of other retirement funds.  

She says, “With solo 401Ks and IRAs, people don’t realize they still owe self-employment tax on that Schedule F income even if they’re contributing to retirement.”  

Now What? 

Take these questions to your accountant and make sure there aren’t better options for you. Know your operation is unique and be open to new concepts that help build generational wealth.  

Listen to the full conversation on the Casual Cattle Conversations podcast.   

Learn more about Ambrook: ambrook.com/casualcattle