Episode 48 Beyond Bookkeeping

Too many farmers work hard every day without having a clear picture of where they stand financially. In this episode, Beyond Bookkeeping, we're discussing bookkeeping, profitability, tax planning, and why knowing your numbers can make all the difference. 

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Intro (00:01)
Welcome to Beyond Agriculture, the podcast that takes you beyond the scope of ag and into the real-life stories, conversations, and events taking place in our community. Who we are and what we do is beyond agriculture.

Cassie Johnson (00:18)
There's an old saying in agriculture that if you're paying taxes, you're doing something wrong. But is that really true? Today on Beyond Agriculture, we're talking about one of the biggest myths in farming. Why good bookkeeping matters, how it impacts your relationship with lenders, and why understanding your farm's profitability is critical for long-term success. I'm Cassie Johnson, and today's guest is Ryan Reeves. Ryan is a loan officer in our Richmond branch, and if you've been watching our social media, his hayfield and equipment are, uh, social media famous with us, but he's also a TikTok star himself. Just a little bit. Ryan, you're, uh, like I said, you're a loan officer in our Richmond branch. How long have you been with us?

Ryan Reeves (01:02)
I've been over just a year, probably a year and a— I guess a year and a half now.

Cassie Johnson (01:06)
And what's a little bit— tell us a little bit about your background.

Ryan Reeves (01:08)
So I grew up on a 250-acre tobacco cattle farm. We took out the buyout in the early 2000s, and then we switched over primarily to hay operation with tobacco fields. From there we grew purebred Charolais. Just, you know, really just a little eastern Kentucky farm. Grew up there. And when we went to college, we moved to Richmond, me and my, my wife did. And I fell into farming there and decided we were going to stay there. So the rest from there is history.

Cassie Johnson (01:41)
And you have a beautiful little boy.

Ryan Reeves (01:43)
Yes, I have Beau. He is 3. Um, he is a hoot and a half. He, um, he gets us on our toes and keeps me a lot more wore out having him on the farm. But he's right there with me every step of the day. Um, he gets in the tractor with me and rides around all day and goes and checks the feeders with me every, every night. So it's, it's a fun time. It's definitely, it was, it's hard in the beginning to adjust, but after, after the adjustment, it's a fun time.

Cassie Johnson (02:11)
So today we're going to talk a little bit about bookkeeping and why farmers need to you know, kind of keep an eye and understand their profitability. We're going to start off just talking about the bookkeeping side of it a little bit. Why do you think bookkeeping is often overlooked on farms?

Ryan Reeves (02:28)
A lot of times I think farmers see that they start farming, you know, and they see dollars in the checking account and they say, well, we did pretty good. You know, we, we have X dollars in the bank account, we made it. But when when you get down to it, you know, cash flow doesn't always equal profitability. You got to look at it from the standpoint of we made this much money, but it took this much money in expenses to get here, right? And a lot of times farmers don't really care if they make money or not because they're wanting to use the farm as more of a tax write-off. And like my grandfather, that's what he was after, was to offset his taxable income. So he would claim anything and everything that he could. When I— back when I was in college, I actually went to school for accounting and had a tax internship at a local tax office. I did most of the farm returns, and what they tried to claim on there was really interesting. I had one couple, they were trying to get everything they could. They would claim their TV bill, and they wrote on their bill there that, you know, that was for 12 months and that they only watched RFD-TV.

Ryan Reeves (03:43)
So when I brought that to the practicing manager, I was like, I don't think we could really claim that. And they said, no, we're going, we're going to say try. Yeah, good try. That's what they said. They said, that's a good try, but no, that's not going to fly with the IRS.

Cassie Johnson (03:56)
So have you, like, what are the risks of managing your farm based solely on what's in your checking account?

Ryan Reeves (04:02)
I mean, I think you can. Falsely believe that you're turning profit every year. Uh, and that's— it can lead you down a road to say, well, to invest more into an adventure that's not producing. You know, if say you're doing feeder cattle and you're like, well, we, we spent all this money, but we have bank— we have cash in the bank afterward.

Cassie Johnson (04:25)
Look at this big check. Yeah. Look at this big check we got. Yeah.

Ryan Reeves (04:28)
Uh, if you solely look at that, you're going to think that you're doing great and that you're not overleveraged. But if you kind of turn back, if you look at how much you sold them calves for minus the cost of them calves minus your expenses, you could actually be pretty close to only making like $100 a head, right? And not saying that's bad. Sometimes breakevens— great, is great.

Cassie Johnson (04:51)
Sometimes there's really bad years.

Ryan Reeves (04:53)
You know, we're, we're looking at like right now with the cattle market coming down. Some guys are going to be looking at that breakeven mark and that's going to be a successful year. But having good bookkeeping is going to allow you to see, okay, we actually only made $50 a head even though we have all this cash in the bank. We need to look at what did we spend it on. And your bookkeeping tells you, did we buy too high? Did the market go down? Did we spend too much in feed? Did we have a really sick year? You know, it tells you a lot more than just saying we're green in the bank.

Cassie Johnson (05:28)
Let's go, right?

Ryan Reeves (05:29)
Let's do it again.

Cassie Johnson (05:29)
Yep.

Ryan Reeves (05:30)
In the same way of grain, it's the same way. And I think a lot of times with cattle farmers too, if it's a cow-calf operation, they don't really have that investment like feeders do. Feeders really have to watch what they're doing. And with, but with cow-calf, especially right now with increased cattle prices, the feeders are being affected more than your cow-calf operations. With this, the cycle of the cattle market. So when they get that big check for their, you know, spring or fall calves, they, they don't think about, well, how much did my hay cost me this year? How much did I have in winter feed? Did I have any sickness? How many did I lose? How many, like, how much could I have possibly made if I didn't have any death loss, right? So, um, it, it would— it helps to know those small details so that you can look at your next year and plan for something different. Like every year I look at my stuff and I see what did I spend more on? What do I need to do better next year? Like with me, with hay is my primary income.

Ryan Reeves (06:29)
Uh, I do a lot of mixed grass round bales and square bales. I do, um, a little bit of specialty alfalfa and orchard grass. Uh, and that's kind of like my little project. The alfalfa is, is to see, am I getting a return on what I'm making? You know, do I need to do more round bales and alfalfa or square bales? Where's my profit margin laying? And with the feeders, it's just right now it's survive, you know. But, you know, it's looking at, am I making money even in a downturn? Do I need to look at purchasing like LRP insurance for the years coming?

Cassie Johnson (07:04)
Right.

Ryan Reeves (07:05)
What does LRP insurance do to my bottom end? Is it worth— is the, the protection of that worth the decrease. You know, you have to look at those things. Um, but with the, with my, I mean, I use a, uh, I use a website called wave.com that does all of my, uh, bookkeeping for me. I tie in my farm bank account and it tells me exactly what I'm doing. Um, and it's really good for taking a snapshot in the middle of the year because I can pull out my P&L and see what I'm doing right in the middle.. And, you know, you know, Grant, you know, when you buy your feeders, it's going to make it look like you've lost a bunch of money at that time. Uh, but you kind of got to just take it with a grain of salt and be like, okay, you know, if we reverse some of this out and look at it, I'm doing well. And what I'm projecting to finish the year at, I'm going to be okay. And that lets me make decisions. Do I need to go ahead? If I've run up like on a deal on a piece of equipment, can I go ahead and cash flow that?

Ryan Reeves (08:02)
Do I need to take a little money out for that? Or do I need to wait for the next year? Right.

Cassie Johnson (08:08)
So speaking of buying equipment, farmers, you know, we always talk about, uh, you know, the myth of losing money for tax purposes.

Ryan Reeves (08:16)
Yeah.

Cassie Johnson (08:17)
So where do you think the idea came from that farmers should always show a loss?

Ryan Reeves (08:24)
I think with tax code, that's where it came from. So farmers are allowed to show a loss 5 years before they are penalized by the IRS. After 5 years, you run the risk of your farm being seen as a hobby farm, and then you lose your tax benefits. So what it does, and what people try to do, is if they have a W-2 job, or maybe a business income, their, their own business, they will use the farm as the offsetter to that income. So, you know, the W-2 jobs or the business will make their money to support their family and all that stuff. The farm can lose money or look like it's losing money through purchasing equipment with depreciation schedules, uh, to offset their income that they're making on the stuff to basically not have to pay as much taxes. Um, I saw a lot when I was in the tax office of people who had rental businesses. And, you know, after a couple years, rentals basically will cash flow themselves and you're going to make money, right? So to offset, to offset that rental income, they would run their farms at a loss or buy a tractor every year, buy— do just do something to show a negative dollar amount on their Schedule F, and that would offset the taxes they had to pay on the rental properties and out of their W-2 income if they were doing that.

Ryan Reeves (09:50)
Growth. You see that a lot. And, you know, you'll always see someone who has rental property, they always talk about their farm, and you're like, why are they farming? Because, you know, they have all this rental property. That's what they're doing.

Cassie Johnson (10:01)
So, you know, there's smart tax planning and there's intentionally losing money, right? But you've also, you know, can you explain how, you know, they say, well, spending a dollar to save a dime, how maybe that doesn't quite always work?

Ryan Reeves (10:16)
Yeah, so I actually did a little example of this, and we were talking about this before we started. Say you have someone, and we're just going to make the assumption that it's an individual. They're going to do, um, they're going to claim taxes on single, and they made $50,000 in W-2 income. Their taxable liability will be about $3,800 at this point. Tax law changes every year, tax, and it's You know, your taxable income this year will be different from next year, and it's all just, it's really confusing, honestly. But say they have a farm and they were like, oh, we've got to buy a $10,000 piece of equipment, so we have a loss on our farm. So we got $50,000 income. Their Schedule F will show a negative $10,000. So what that does is that will cause their income their taxable income to be $40,000. So we're just taking that $50,000 minus the loss equals $40,000. That makes their taxable liability at that point $1,000.

Cassie Johnson (11:23)
Okay.

Ryan Reeves (11:24)
So we have spent $10,000 to reduce taxes of $2,800. So why would we not just paid that $2,800 instead of having to go spend that $10,000 out of the bank account or we've had to take a loan, which we've now— we're out $10,000 plus interest on the loan.

Cassie Johnson (11:43)
Well, because we don't want to pay the money. You know that, right?

Ryan Reeves (11:47)
Yeah. Just to give you an idea, if we're going with this same scenario and we flip it around and they made $10,000 instead of losing it, their AGI is now $60,000. AGI stands for adjusted gross income. That is $60,000. Their taxable liability only goes up $1,000. So if we're in that situation, we now gotta spend more money to get that Schedule F down than just paying $1,000.

Cassie Johnson (12:19)
The goal really isn't necessarily but to pay less tax by losing more money all the time, right?

Ryan Reeves (12:27)
Yes.

Cassie Johnson (12:27)
It's more of making money that taxes become a sign of success.

Ryan Reeves (12:32)
Correct.

Cassie Johnson (12:33)
Which would be beneficial.

Ryan Reeves (12:35)
The, the farmer's ideology of we got to buy this equipment to not pay taxes should really be molded into I had to pay taxes this year because I had a really good year. Not I've had a really good year, I need to offload some money and go buy that new John Deere 5105M that we've been eyeing for 3 years. And they said we get a hat if we buy it today.

Cassie Johnson (12:57)
But it's so bright and shiny and it looks so cool in our driveway.

Ryan Reeves (13:00)
You know what they say, you buy the hat, you get a free piece of equipment.

Cassie Johnson (13:03)
Is that how it works?

Ryan Reeves (13:04)
Yes, that's how it works.

Cassie Johnson (13:04)
Those hats are just really expensive, huh?

Ryan Reeves (13:06)
Oh yeah. Oh yeah. That's, I mean, our AgCredit hats, they come with a free loan.

Cassie Johnson (13:11)
They do come with a free loan, right? Oh, that's why everybody wants one of those. So let's switch gears a little bit and talk about, um, bookkeeping and your relationship with your lender. Now that we've talked about how, you know, showing success sometimes is a good thing on the tax returns. What financial documents do lenders typically want to see? Because I mean, obviously lenders don't just loan money based on their reputation.

Ryan Reeves (13:41)
Yeah, the days of lending on merit are gone. You know, the farm crisis in the '80s really started that. And then we had the Great Recession of 2008 really, you know, stressed that we've got to, we got to hang our hat on some financials. If you're able to produce, and it doesn't have to be clean, it doesn't have to be pretty. If you can produce some type of P&L showing that you are, I should say profit and loss, that you are tracking your income, tracking your expenses, and seeing how much you're making every year, that pays so much dividends in your first conversation with your lender. If you can go farther and make some type of balance sheet for them to let them, let them know what assets and liabilities you have. That shows your lender that you're looking at this as a purchase or a loan to grow your operation, not a, can I have this much money because I can afford that payment? Um, it's, it's so good and refreshing to meet people who know their their finances to a T and I don't have to go pull their credit score or their CBI to see what they owe people.

Ryan Reeves (14:59)
It's really worrying when I get some stuff in and I go pull their credit report. I'm like, hey, do you realize you still owe on— oh yeah, forgot about that. It's like, that's a little concerning that, right? Because they're like, oh, I had that on autopay. It's, it's fine. I'm like, No, you need to know like what you owe on your stuff. You need to know your finances at least enough that if someone came to you and said, you need— I need to know what you owe, you can kind of rattle off a pretty good ballpark number because, you know, nobody really knows to a dollar amount without looking at their financials or report.

Cassie Johnson (15:33)
Right. So why do you think it is that people just don't like doing that?

Ryan Reeves (15:40)
Well, for farmers, Would you rather sit in your office and put all your stuff in, or would you rather be out cutting hay or tending cattle?

Cassie Johnson (15:47)
Well, now that it's cooled off and it's, uh, the humidity's kind of escaped us for a little while, I'd rather be outside.

Ryan Reeves (15:53)
Exactly. That's, that's the whole reason we do not prioritize reporting as much as we prioritize the next day's to-do list. We, we as farmers need to be better about setting off time for that. I mean, I will, I'll take a Sunday sometimes, you know, I try not to work on Sunday and try to go to church and that's about it. I'll just take a Sunday and do a bank reconciliation right quick, just to make sure I've got all my expenses in there categorized. And just while I'm sitting there, just take a little snapshot, see where we're at, see what I need to be thinking about next week. Like, do I need to really reel in some stuff? Do I need to rethink my feeder ration to kind of lower some numbers and just things like that. Now, granted, I'm a little bit of a nerd and I love running numbers all day. Uh, that's why I like being a lender is, you know, we can, we can twist a loan a thousand different ways to make it work. Um, but for some people it is pulling teeth to get them to sit down and look at their finances.

Ryan Reeves (16:49)
And that's just how it comes to, because why, why would you want to sit in your office all day when you can be out in the tractor?

Cassie Johnson (16:53)
Right. So as a lender, what are some of the common like mistakes that you see, um, from a bookkeeping standpoint?

Ryan Reeves (17:03)
A lot of times I see people that don't really know what they can and can't claim as expenses. Um, you know, like for tax, on your taxes, you can claim mileage on your vehicles for farming. If you don't have like a designated farm vehicle, um, people don't realize you can do that. And it's not so much a bad thing if they're coming for a loan, I don't see mileage on their porch or anything, but it's just, there's a lot they may leave out that that's a true expense that should maybe be added in to give a better picture of their operation. And in situations like that, we may, if we don't have like a history of a Schedule F, or maybe we don't feel like it's a good scope of what expenses their operation is going to have, we might use an expense ratio and assume that maybe 75% of income is going to be wrapped up in expenses somehow. And that's how we would do like an analysis on their, their farming.

Cassie Johnson (17:57)
So have you ever been in a situation where an operation has actually been profitable, but they couldn't prove it with the records?

Ryan Reeves (18:05)
Oh, yeah. Plenty of times. It's really, it comes down to, I know people who just don't keep up records. I know they've been farming for years and they turn profit. I know they turn profit. They, they know it to a T in their head. They just don't have it on paper.

Cassie Johnson (18:21)
How does that affect their lending capability?

Ryan Reeves (18:23)
It makes it hard. I mean, when we do loans, we are— when we write up a loan and look at the analysis, we're justifying why we are lending you money. And if we have nothing that we can hang our hat on and to tell you, like, we expect repayment to happen because of XYZ, we don't have anything we can go off of. I tell people all the time, the best thing you can do is start early. Just keeping records of some way. You know, if you can tell me that you have a plan to, you know, I've baled 50 bales this year, I plan to go up to 75, I'm getting $40 a bale, I know I've already got people who will buy that from me. And I've got it figured out that it costs me $200 in fuel. We'll say $200 in twine, and I've got a little bit of labor that helps me. And I'm going to probably make about $5,000 this year. So just something like that. Having that pays so much dividends in the long run because it, one, starts you thinking that way. And two, you're able to just lay it all out for a lender to be able to say like, hey, they have a hay business that's working and it's maybe it's not making a lot of money right now, but they are going to be able to scale and do better because we've already got the foundation set that we're looking at.

Ryan Reeves (19:45)
Profit and expenses, right?

Cassie Johnson (19:48)
So what about, you know, what about if you have like a young or beginning farmer that's wanting to get started and needs a, you know, beginning farmer loan? What advice, um, would you give them if they're seeking for like the first operating loan?

Ryan Reeves (20:07)
I always say the best thing you can do is if you want to get into farming is to go be a workhand for someone. Uh, that's what I did. Uh, you know, I grew up on a farm, but I wanted to know how other farms work. So when I was in college, I got hooked up with an opportunity to work for a guy who just did feeder calves. He did 500 head a year off 3 farms. I think we, we had those over 1,200 acres of ground in Madison County. Um, he was a wealth of information. He could rattle off and tell me— I could tell him a tag number, he could almost tell me how much he had in that calf alone and pull it out. Wow. And being able to see that kind of did two things. One, it let me know this is what I want to do. I want to be a farmer. I want to have my own land. And it also let me see the financial side of it and to see You know, we spent this much on them, we had the doctor on this much, which cost this much, and then we made this much profit.

Ryan Reeves (21:08)
So starting there, I think, is a good point for anybody who, who is a young farmer and wants to get into it. If they're already established, I would just say if you just take a piece of notebook paper and you write out what you made, what you spent, and just come out to a dollar amount that's the best start you can do because, you know, you're going to have labor. If you went and worked for someone, you might sell some hay yourself, you might, um, work out a deal with a buddy and split some calves, you know, stuff like that. If you can just show like, I'm starting, you know, I'm gonna go ahead and claim this on my taxes, stuff like that, get that Schedule F started on your taxes and stuff. That's kind of the best groundwork you can start. But just going out there and doing it and you know, you've got your, your money from your day job helping you out, it muddies the water. I can't tell, right, if your farming is making money or just because you have a good day job, it's paying for everything.

Cassie Johnson (22:09)
So moral of the story is good bookkeeping doesn't just help you, it will help your lender as well.

Ryan Reeves (22:16)
Yes.

Cassie Johnson (22:16)
When you need to go to them for, uh, for a loan. You had mentioned earlier that you had worked with, uh, uh, accounting firm.

Ryan Reeves (22:27)
Yes.

Cassie Johnson (22:28)
And you talked a little bit about some software, right?

Ryan Reeves (22:32)
Yep.

Cassie Johnson (22:32)
And we've had you actually come and talk to our Annie's Project group and our Cultivate group about this, but let's just start from the beginning. Do you have specific software you like to use and what's your reasoning for that?

Ryan Reeves (22:46)
So, uh, You can use any of them. They'll all do the job because farming at the end of the day is just like a business in a sense of we make money, we have expenses, we have a balance sheet showing assets and liabilities. So, you know, if you have one that you like, as Dr. Isaac said in Cultivate one time with cattle records, the best one is the one that you use every day. Right. So what works for me may not work for you, and that's totally okay. Just as long as you're doing something right. Um, I personally use Wave.com. I found them probably back in '22. Uh, I looked up free accounting software because I didn't want to pay for QuickBooks, and they were out there. So since then, they've kind of changed their business model a little bit, and they have a free version and a paid version. I've switched over to the paid version because it's like $100 and I think $160 a year. For it, so it's not too bad, right? But what I gained with that was, uh, my farm account is connected to this software. So any charge that I put through my farm account— you cut a check, scan the debit card, whatever, uh, cash go into that bank account— it flows over to a transaction list in Wave.

Ryan Reeves (24:02)
And from there I can designate what that was. So if I had $300 come in, I can say, oh, I sold hay. And I can go as much— I can go as little detail or as much detail as I want with those transactions. And the taking time with those systems and setting it up. So I have like my income setup. I've got hay sales, I've got custom hay where I bale for people. I have hay sales for square bales and round bales separated so I can see how much I was making in round bales, how much I was making square bales. Uh, I have my, uh, cattle sales for, uh, I had a lease where my payment was part calves. So I would, uh, I'd had that separated from like my feeders that I do on the side as well. And then expenses, uh, you can go through and customize. And like, for example, for my feeder calves, I have a line item that makes that a cost of goods sold. So I can see that up there and see what my, uh, profit is after we take out cost of goods sold. Um, you can get, like I said, as detailed as you want or as simplistic as you want.

Ryan Reeves (25:08)
It just depends on how much anal— analyzation you want to do when you go look at like a profit and loss or a balance sheet. Uh, QuickBooks is a very common one. I'm seeing some stuff about like Ambrox is another one I see a lot of. I've not worked with that or really looked at it, but some people have reported pretty good. I think here in Annie's Project someone said they were using it, pretty happy with it. Um, But, you know, if pen and paper is what you're comfortable with, right, pen and paper, right, that's, that's just as good as these. Uh, like I said, where I was an accountant prior to being a loan officer, bookkeeping was kind of my thing. I was an accounting manager for an O&P firm and ran the cash flow and books for them. Uh, so being in that software all day was pretty much what I did. So being able to kind kind of turn and use that for farming. It was easy for me, but, you know, if it's something I've never picked up, I'd probably have to pay for it.

Cassie Johnson (26:02)
Yep. So how much time should a farmer dedicate to bookkeeping each month if they, if they want to stay accurate?

Ryan Reeves (26:10)
I mean, I always say the best thing you can do if you don't want to spend a lot of time with it but you want to make sure you're staying on top of it, just pull out your bank statement every month, take a, take a day, not even a full day, just go through that bank statement. Just look at everything. Maybe if you're doing pen and paper, just try to add up what all your expenses were, what they were to for that month, and just go from there. You spent this much in fuel, this much in repairs, this much in, um, swine, you know, XYZ. Um, I would— I mean, one Sunday afternoon a month, I think, for a decent-scale farm would be enough. You know, bigger farms may need to look at it weekly, right? Maybe every 3 days. It just depends on your operation. But I mean, if you're, if you're someone who has a day job, you're farming on the side or in the afternoons, like I said, the day job pays for the night job. You can, you could probably get by the day. I spend maybe with Wave, it makes it pretty easy.

Ryan Reeves (27:13)
I maybe spend an hour a week looking at my stuff and then maybe 30 minutes at the end of the month to do a bank reconciliation.

Cassie Johnson (27:21)
So you mentioned working with farmers a little bit in your previous job. What, uh, what kind of bookkeeping and tax preparation work did you do for them?

Ryan Reeves (27:30)
So the firm I worked for offered bookkeeping for farmers. They basically would just ask for their bank statements and they would put it through QuickBooks and produce P&Ls and balance sheets and things of that nature, which would then give the, give the tax office what they needed to do their taxes. It's kind of a hand-in-hand deal. We also just did tax returns for farmers who would bring in their own stuff. That was always interesting. Like with that TV bill, people, people's way of keeping books are all different. There was no two returns the same. Because everybody just kind of kept, kept up with things different. I had scrap sheets of paper and napkins telling me how much we made in cattle, and I had a back of a bill telling me how much we spent. So, uh, and then I had people who used QuickBooks at home, and they would just print down their profit and loss, their balance sheet, and write me a little narrative of what they did for the year in terms of what they sold and maybe some assets that maybe got changed out. So they did a little, they did pretty much everything for farmers and, you know, bigger operations.

Ryan Reeves (28:43)
They helped with their tax schedules and maybe some estimated payments if they were needing to pay in.

Cassie Johnson (28:48)
How often, um, would tax laws change in ways that would impact farmers?

Ryan Reeves (28:54)
Every year tax law changes in some way, uh, to farmers. It wouldn't surprise me if a tax law that maybe affects something in W-2 work could, could affect the farm in a different way. The ideology of the Schedule F hasn't changed in years, but there's things possibly that you can get a deduction on that can change every year. Just like this last year with the big beautiful bill, new car interest is now deductible. And I didn't know that until my tax person called me and asked the truck that I bought, was it a new one? I said no, it was used. And she said, well, if you'd bought a new one, you could have deducted all the interest that you paid off of your taxes. So that's good to know now, right, after I've already bought it. But, uh, things like that, that would affect the farm in that way. I mean, if you buy a new truck, you know, if you were trying to lower your taxable income or needed something on your depreciation schedule, uh, that would affect you that way. But the kind of the The building blocks of how the Schedule F is built, I don't think changes very often, but there is little add-ins like that that could affect what you can and can't claim.

Cassie Johnson (30:05)
So really, beyond filing taxes, the value the CPA can bring to you is that they will know where you can get some of this benefit from.

Ryan Reeves (30:14)
So CPA every year has to have 120 hours of continuing education, uh, that can be in workshops or tax law updates. They also get every single notification that the IRS gives out. If there's any change in, if a bill passes and gets signed into law, they send out a notice for that. And the place I worked for, I got to work with them between January and March during 2020. So I got cut short because of COVID but they spent, I feel like it was the, the last of January. Just meeting, saying, this is a new tax law that we have in, this is how it will affect our clients. And the people who were like, they had people who kind of specialized in stuff. Like someone was kind of like more, um, self-employment, uh, business rentals, things like that. Some were farmers and then some were just your regular W-2 workers. So they, they would sit down and be like, okay, this law passed, it can affect your clientele this way.

Cassie Johnson (31:18)
So when do you think it's like time, or when it makes sense for someone to hire a CPA to file their taxes?

Ryan Reeves (31:26)
If it's something that confuses you or you don't feel confident in your abilities, it's never a bad thing to bring in a professional. Uh, you, you, you as a producer kind of have to see, is the time that you're going, or the cost of their time and what you pay them, is that worth what you're getting? You know, uh, because it would— for some of those, uh, farmers, you know, they would have to type in manually all their bank statement stuff, and, you know, they were charging by the hour on that stuff. So if, you know, you get a bill in and they're doing your, uh, you can, you know, obviously ask them what they would charge. Some may charge a flat rate, some may charge by the hour. Um, but if it's, you know, however much and you're comfortable with that, I would say go ahead. If it's something you don't want to do, if you want to be in your books all the time, then I would say do it yourself. But, you know, it is not, it is nice to be able to call someone and say, hey, I'm thinking about doing this.

Ryan Reeves (32:27)
What does my books look like? What can I do? Should I do that? And it also kind of opens the conversation of would this help me with my taxes? you know, not only will it help my business and maybe make me profitable, or is this a big cost that I'm trying to lower taxes? Um, like for example, for me this year I had a pretty heavy buying year in equipment. Uh, and my tax person said, what are you doing next year? I was like, well, I hope not to buy anything. Right. And she's like, well, that kind of opened the conversation. Should we just depreciate this all this year? Or do you need stuff to kind of lower your taxes next year? Because a CPA doesn't want you to pay taxes as much as you don't want to pay taxes, but they want to make sure you're covered enough that you're not, you're not going to have to pay something. So, um, we had that, we had that conversation of should we put this on a depreciation schedule? Because when you buy equipment, you can put it on a, like, a 5-year, 7-year depreciation line.

Ryan Reeves (33:27)
You can do double depreciation. There's a lot of options with it. Or you can do what all farmers love and utilize Section 179 and depreciate it all in the current year.

Cassie Johnson (33:36)
If somebody is thinking about getting a CPA, um, what qualities should farmers look for when choosing one?

Ryan Reeves (33:44)
One that knows farming right off the bat. If you're in a farming community, you can probably throw a stone and talk to someone who knows CPA. That, that's pretty much all they do.

Cassie Johnson (33:57)
It's—

Ryan Reeves (33:57)
there is people in every county that knows farming, that knows how farm taxes work and knows what's going to affect them and stuff like that. That's really what you got to look for. You know, you can't have someone looking at your books that doesn't understand cattle or doesn't understand how farms work or never stepped on one before. It'd be like trusting a child.

Cassie Johnson (34:24)
Right, right. CPA isn't just for filling out forms. They're obviously a business advisor who can save you far more money than what they would potentially cost you. And now that we're getting ready to wrap this up, 5, you know, 5 things every farmer should do or try to do this month. One of them I think would be probably need to separate their personal and their farm accounts.

Ryan Reeves (34:50)
Yes. If, if you are trying to run your farm and understand the ins and outs of it, You need to separate your finances. A lot of your local banks, if you want to build a relationship with them, they'll give you an account for free. Go open it. Most accounts, you know, if you're trying to use like the online stuff, get them to connect. You could talk to your— to that bank before and ask them, you know, like, I'm going to use this software, do you guys do integration like that? And they can tell you yes or no, and that might make your decision on the bank. When you do the farm account, solely let it be a farm account. Don't let it be a Right. A, a situation where, well, we need a little money in the personal account. We're just going to take a little bit out, but we'll put it back. No, don't do that. Don't get in that habit. You're setting yourself up to rob Peter to pay Paul.

Cassie Johnson (35:36)
Right. Um, another one is choose a bookkeeping system, whether it be pen and paper, an Excel spreadsheet, uh, QuickBooks, or even Wave. Yep. Uh, reconcile accounts monthly.

Ryan Reeves (35:50)
At least try to. I mean, you know, if you don't have a lot going through there, that might be overkill. At least look at it every quarter, um, at a bare minimum. And, but, you know, just take a couple hours. It doesn't take long. It's more just devoting time.

Cassie Johnson (36:04)
And while you're doing that, maybe review the profitability by enterprise if you have more than one, if you got hay and maybe some feeders out there. Yep. And then if you don't, um, or if you haven't, maybe meet with a CPA before tax season.

Ryan Reeves (36:18)
Yes, CPAs, uh, From February to usually end of April, do not want to meet with you unless it is to get a check for your taxes. Uh, they have the whole year to meet with you. It is never too early to talk about next tax season. Uh, don't try to go in January either because they've got a bunch of— they've got 1099s they're working on right then. So basically January to May, don't even think about going to CPA office. Do it in the other, the off season for them.

Cassie Johnson (36:51)
So if a young farmer walked up to you tomorrow and asked for one piece of financial advice that you, um, that they could improve their operation over the next 10 years, what would you tell them?

Ryan Reeves (37:04)
Start writing down everything. Start writing down what you're making. Start writing down what is costing you money. Just start keeping some type of record. It pays so much dividends to look and know how much money you've spent versus what you've made at the end of season. And it doesn't matter if you spent $10 and, uh, made $20 and you got $10 profit, you at least know, because you'll say, oh, I'll remember that. And you never do.

Cassie Johnson (37:32)
Right. Yep. Well, Ryan, it has been a pleasure having you, um, on the podcast today. You did tell me before we did this podcast to, uh, be watching it, cause it might be one of our best ones yet.

Ryan Reeves (37:44)
Oh yeah. I mean, I'm expecting a million views.

Cassie Johnson (37:49)
So stay tuned and we'll let you know how that is.

Ryan Reeves (37:51)
Yeah.

Cassie Johnson (37:52)
In closing, successful farmers know their field, know their livestock, and know their markets. The most successful farmers also know their numbers. Today's conversation wasn't really about bookkeeping. It was about making better decisions. It's about knowing if a new enterprise is profitable, building stronger lender relationships, preparing for growth, and making sure the next generation inherits a stronger operation than the one we started with. Thanks for listening, and remember, farming is hard enough without guessing at the numbers. Know your business, know your operation, and know your numbers. We'll see you next time.

Outro (38:30)
This episode of Beyond Agriculture is brought to you by Central Kentucky Ag Credit. Thanks for listening to the podcast. Be sure to visit us online at AgCreditOnline.com. Don't forget to hit the subscribe button so you can join us next time for Beyond Agriculture.