Why receipt tracking matters for your farm

By Emily Zuver, Senior Assistant Accountant, Holbrook & Manter

Hopefully, you aren’t experiencing much tax season panic as you prepare to have your returns prepared and filed. This time of year always presents an opportunity to reflect on how to organize things better moving forward. Something as simple as keeping better track of receipts, and I mean every single one of them, can make a significant difference. Let’s talk about that this month.

Every time you buy a bag of seed, a replacement part for the tractor, or even a simple box of staples for the office, you get a paper or electronic receipt, and you must keep them organized. Tracking receipts isn’t just about satisfying the IRS. It is a critical component of running a profitable agricultural business. Plus, many of those receipts are your tickets for valuable tax deductions.

The IRS requires proof of every deduction you claim. A credit card statement often isn’t enough; it shows you paid a vendor, but it doesn’t always prove what you bought.

Also, if you are audited, you need documentation of all purchases. Without the original receipt showing the date, amount, and item description, an auditor can disallow the expense. This could lead to back taxes, penalties, and interest.

Compliance and loan applications

Lenders love documentation. If you need an operating loan or want to finance new equipment, the bank wants to see organized financial records. Clean books signal that you are a professional operator who takes the business side of farming seriously.

Furthermore, certain government grants or insurance programs may require specific proof of purchase for inputs like seed or chemicals. Having these receipts accessible makes compliance simple.

Practical tips for managing farm receipts

While paper receipts still exist, managing them doesn’t have to be a headache. You can easily streamline the process. For example, when you do receive a paper receipt, write what the purchase was for on it in a very specific manner if the receipt is not descriptive enough.  Then take a picture of it with your phone so you have a digital copy if the original is lost or damaged. Several apps are also designed specifically for expense tracking. Consult your accountant to determine which one works best for you.

How long should you keep receipts?

For most ordinary business expenses (feed, fuel, minor repairs), the IRS statute of limitations for an audit is generally three years from the date you file your return. However, if you underreport your income by more than 25%, they can go back six years.

To be safe, most accountants recommend keeping standard expense receipts for seven years.

You need to treat receipts for major assets differently. This includes tractors, trucks, barns, land improvements (like drainage tile), and major equipment.

You must keep these records for as long as you own the asset, plus the standard audit period after you sell it. This is because receipts establish your “basis” (the original value) of the asset. When you eventually sell or trade that tractor, you need to know the original cost to calculate the capital gain or loss correctly. If you claimed depreciation on the asset, you need those records to prove the depreciation schedule was correct.

I know I threw a lot of information your way this month, but getting started now is hard. Pick a system—digital or physical—and stick to it. Your future self (and your accountant) will thank you.  As always, reach out to us with any questions you may have.