Farm and Finance

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

It can happen for a number of reasons, a business owner mixes the funds for their business with their personal finances. Especially during these trying times, it can be easy to let those funds intermingle. But the can of worms this can open is usually not worth the short-term fix this practice can offer. I asked some of the members of our Business Services & Solutions Team at Holbrook & Manter to weigh in on the following prompt: Explain the dangers a business owner faces by mixing personal funds with the funds for their business.

Read their responses and tips below.

When a small business owner comingles their personal funds and their business funds, accounting for the business can be difficult and sloppy. This often leads to business financials incorporating personal expenses or excluding business expenses, which then portrays an inaccurate financial position of the company.… Continue reading

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

Tax planning and tax compliance are going to be more important than ever for any business owner continuing to weather the COVID-19 storm. Those that received a PPP loan may need to step extra lightly.

The PPP loan program presented an attractive option to business owners at a volatile time, allowing them access the needed funds to cover everything from payroll costs to mortgage interest. Hundreds of billions of dollars were loaned out. However, we learned early in the loan process that the use of these funds may cancel out other benefits afforded to the business owner.

As it stands now, loan recipients will not be able to deduct the expenses if they used PPP loan dollars, that will be forgiven, to cover those expenses. Under Section 1106(b) of the CARES Act, a recipient of a covered loan can receive forgiveness of debt on the loan in the amount equal to the sum of payments made for expenses during an 8-week period beginning on the covered loan’s origination date.… Continue reading

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

Farmers are no strangers to challenging times. From volatile markets and weather extremes to rising costs of inputs, it takes a lot of grit and determination to run a successful farming business. Part of being successful is managing your cash flow. Below are tips from our team members at Holbrook and Manter who were asked to address this very issue and share one or two things that business owners do that has a negative impact on their cash flow.

Some of our team members give very simple answers while others go into great detail. As you read through you will see themes of the things we see often. Read through the answers here and begin correcting the behavior that kills cash flow. Here are their responses:

They blend company funds with personal — deposit company funds into their personal checking account or pay personal expenses with a company credit card — fully meaning to separate it all out properly, eventually.… Continue reading

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

So, you have applied for and received a loan under the Paycheck Protection Program (PPP Loan). What should you do next to ensure that you are tracking and using the funds on eligible expenses to qualify for loan forgiveness?

Loan forgiveness

The borrower is eligible for full forgiveness of the loan principal if the funds are used on payroll costs, interest payments on mortgages, payments of rent on any lease and utility payments. Due to high demand for the PPP loans, 75% of the forgiven amount must be used for payroll costs.

Forgiveness is based on the employer maintaining or rehiring employees and maintaining wage levels by June 30, 2020. The amount forgiven will be reduced if you decrease your full-time employee count compared to the prior year and/or by the reduction in pay of any employee beyond 25% of their prior year compensation.… Continue reading

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

I hope everyone is well. Staying healthy and safe during these challenging times. For this installment, I have enlisted the help of some of my colleagues at Holbrook & Manter. Below, they share with you exercises to be doing now, to benefit you and your business when operations return to normal. Until they do, take note of the items below and feel free to reach out to me with any questions or concerns you may have.

Something business owners can do now, when work is slow, is thoroughly review current processes and procedures to determine if there is a more efficient way of doing things. For example, is there anything that could be done to streamline the collections or payables process, etc. — Natalie Bruns

Stay on top invoicing and AR. Cash flow can and will be difficult so it is imperative that they are talking to their vendors/clients daily to check the “climate” as to how and if their businesses will stay alive and able to pay their bills, and how we help each other of course.… Continue reading

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

As a principal at the accounting firm I have been at for over 25 years, I get to work with several very talented accounting professionals each day. Our team is well-versed in so many things, QuickBooks accounting software being one of them. This software is very popular among business owners. Perhaps you use it. If so, this is the article for you.

Many members of our team are highly proficient in the software and shared some of their favorite features with me. I have outlines them for you below. So, get out a pen and prepare to take some notes for things to try the next time you log on to QuickBooks.

• QuickBooks is a tool that can make financial management for your business dramatically easier. Yet, learning all the ins and outs takes time. Hopefully, these quick tips can help you get started, advance your knowledge and save time on critical tasks. 

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

I know it’s hard to believe since most of us wouldn’t even think about stealing from others, but, sadly, fraud and employee fraud continue to be on the rise. It appears that fraud is the “new normal” with thousands of incidents occurring every single day. The fraud methods are becoming more sophisticated and the number of incidences is increasing, so I think the best practices below are a good reminder.
Crucial to limiting any chances of loss are prevention and detection. As a business owner, you should have a plan in place for preventing fraud. It is much easier to implement and follow through with strict policies, than to deal with the aftermath of fraud. These best practices are easy to do and will become a routine practice once you start doing them. These should be implemented by everyone in your organization:

• Monitor your accounts frequently and set up alerts online to identify suspicious activity.

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

In the farming industry, a 1031 real estate exchange is a common strategy to allow a farmer “defer” paying the capital gains and/or ordinary income taxes on an investment property when it is sold, as long as the “like-kind property” is purchased with the profit gained by the sale of the first property.

Over the years, I have seen where folks have common misconceptions about this very complicated and technical section of tax law. Here is a list of various misconceptions I’ve found that folks have about 1031 Exchanges:

1. “Like-kind” means I must exchange the same type of property, such as an apartment building, for another apartment building.

FALSE
The term “like-kind” refers to the nature or character of the property not its grade or quality. For this reason nearly all real property is like-kind to each other.… Continue reading

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

One provision of the 2017 Tax Cuts and Jobs Act (TCJA) that has generated considerable concern among business owners is the new limitation on deductions for business interest expenses.

Prior to the provision, interest paid on business loans or credit lines could be deducted as an ordinary business expense. One section of the Internal Revenue Code — Section 163(j) —limited the deductions for certain types of interest expense that some C corporations paid, but most businesses were able to fully deduct business interest expense in the year it was accrued or paid.

The TCJA significantly changed that. The act expanded Section 163(j) to apply to all types of business interest expense, and it broadened the section’s scope to encompass all businesses, including pass-through entities such as partnerships, S corporations, and sole proprietorships.

Fortunately, many businesses — particularly small businesses — are still exempt from the Section 163(j) limitation.… Continue reading

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

As the 2019 calendar draws to a close, thoughts of charitable giving may be on your mind. With recent new tax law changes enacted under the Tax Cut & Jobs Act, itemizing deductions (which includes charitable contributions) on individual tax returns, has resulted in higher standard deduction thresholds. Married filing jointly couples need more than $24,000 ($12,000 for a single taxpayer) in itemized deductions to take advantage of additional deductions against adjusted gross income.

For farmers that are below the thresholds (less than $24,0000 for itemized deductions of medical, state and local taxes, mortgage interest and charitable giving), charitable gifting in the form of grain may be more appealing than cash donations. The gifting of the grain is a reduction of farm income, while still taking advantage of the $24,000 of itemized deductions.

Here is what you will need to know as a farmer who wants to make a charitable gift before the end of 2019:

• The farmer can exclude the sale of the cash crop from income and deduct cost of growing the crop.

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

Regardless of your opinion about cryptocurrencies like Bitcoin, one thing is for certain — they are here to stay. Since their beginnings a decade ago, much mystery has surrounded cryptocurrencies regarding their origins, value and purposes. As cryptocurrencies have become more established and accepted as payment, it is more important to understand what the treatment and consequences of purchasing, selling, paying with and accepting as payment cryptocurrencies from a tax perspective.

Per IRS Notice 2014-21, cryptocurrencies are not legal tender, but are generally regarded as property comparable to that of a stock, bond or other investments. Treating cryptocurrencies in this manner means whenever a cryptocurrency is purchased as an investment, the basis in the cryptocurrency is the purchase price plus any permitted transaction fees just like other stock that is traded on an exchange. This also means that whenever the cryptocurrency is sold, a capital gain or loss will result from its sale.… Continue reading

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

As you prepare for the upcoming tax season, now is a good time to review the lessons learned from last year’s first exposure to the provisions of the Tax Cuts and Jobs Act (TCJA). Here are seven end-of-year steps that agricultural owners in closely held businesses should take now to prepare.

1. Maximize pass through deductions

One of the most significant provisions of tax reform for sole proprietorships, partnerships, and S corporations is the qualified business income (QBI) deduction, also known as the section 199A deduction. This allows business owners to deduct up to 20% of pass-through business income, and it also provides for a 20% reduction of certain types of rental income.

But, as many taxpayers discovered last year, the deduction is subject to some complex limitations. If you have not done so already, you should review how your business is structured and how profits are distributed to see if there are changes you could make that would apply this deduction more effectively.… Continue reading

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

For decades, worker classification has been a controversial topic between the IRS and taxpayers. According to the IRS, millions of workers are misclassified as independent contractors each year. The distinction is important because it determines if an employer must withhold income taxes and pay employer payroll taxes such as social security, Medicare, and unemployment. As the tax laws continue to change, we expect for the problem to continue to grow as businesses look for ways to reduce their tax bills. With an understanding of the worker classification rules, your business can develop policies and procedures to ensure that workers are properly treated as employees or independent contractors.

To determine how to classify a worker, the IRS provides three tests:

1. Behavioral Control: A worker is considered to be an employee when the business has the right to direct and control the work performed by the worker.

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

Most of us have heard the quote from Benjamin Franklin, “In this world, nothing is certain except death and taxes.”

It would be safe to say that no one enjoys paying taxes and not many really want to think about death either. But both require planning and thought.

Thank back to the beginning of the year. Maybe you made some resolutions and then promptly forget them. The end of January rolled around and you received mail marked “Important Tax Document Enclosed” and realized that you needed to get some documents together for your taxes to be prepared — that’s worse than going to the dentist! And, while we should see our dentist regularly, we should also be proactive with our tax planning. It is always a good idea to follow up with your tax preparer if your tax situation changes; you have a move, a new baby, a different, job, an inheritance, or other life altering event.… Continue reading

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

As I have stated in other articles, weather here in Ohio can be quite fickle and the 2019 planting has taken the cake. While certain areas may still flourish, other areas will have poor (or no) production or be deemed disaster areas. Those not so lucky may be receiving crop insurance proceeds later in 2019. If you believe you may receive crop insurance proceeds this year , before you file your tax return, you might want to consider the following.

Deferral of certain crop insurance and disaster income proceeds

Typically, most farmers are cash basis taxpayers and proceeds from the destruction or damage of crops is included in income in the year of receipt; however, federal law allows certain insurance proceeds to be deferred one year, if certain requirement are met.

Under a special provision, a farmer may elect to include crop insurance and disaster in income in the taxable year after the year of the crop loss if it’s the farmer’s practice to report income from the sale of the crop in a later year.  … Continue reading

By Brian E. Ravencraft

The Tax Cuts and Jobs Act passed in late 2017 amended code section 1031 by superseding the word “property” and replacing it with “real property.” This means that like-kind exchange treatment is still alive and well for real property, but personal property will no longer qualify for a like-kind exchanges and, therefore, will result in a taxable event.

With no code section1031 treatment available to personal property after 2017, equipment or livestock “trades” will be treated as taxable events, with taxpayers computing gain or loss

based upon the difference between the amount realized on the sale of the relinquished asset and the party’s adjusted basis in the asset. As a result, no tax deferrals are available for §1231 gains or §1245 depreciation recapture.

Increased expensing and bonus depreciation options must now be considered in assessing the overall impact of the loss of the 1031 exchange for personal property.… Continue reading

By Brian E. Ravencraft

Timely audits are important for organizations. Timely financial statements can help an organization plan for the coming year. Timely financial statements will also allow organizations to make smarter budget and financial decisions. Second, timely internal control reports and management letter comments can help organizations correct issues before they create bigger problems. Auditors often have very helpful recommendations on how to correct various issues and save the organization time, money, and resources in the process.

How does an organization receive a timely audit report?

First, it is important to have everything reconciled and ready for the auditor as soon as possible after year end. Auditors, like many others, schedule out their work or audits a few months out at a time. If you are not ready when you are scheduled to be, this can cause scheduling problems and make it hard for the auditor to complete your audit.… Continue reading

By Brian E. Ravencraft

As we all know too well, farming incomes can fluctuate from year to year depending on yields, market conditions, and of course the Ohio weather. In certain years a farmer could have large profits subject to higher tax rates, while in the following year have a loss or little profit that results in a minimal tax liability. Due to the uncertain variables that affect farming, farmers should consider using farm income averaging.

What is farm Income Averaging (FIA)?

Farm income averaging (FIA) is a tax management tool that can be elected after the end of the tax year. In simple terms, farm income averaging allows you to spread a certain amount of your farm income over three years. If you are in a higher tax bracket in the current year and the three preceding years in a lower tax bracket, you will be able to reduce this year’s federal tax liability.… Continue reading

By Brian E. Ravencraft

If you have ever purchased a farm, a house, a tractor, or any other item that required financing, you know that there are many documents that must be signed when financing a purchase. Chances are you have signed documents with all kinds of terms related to principal amounts, interest rates, due dates and penalties. Although reading these documents can be somewhat terrifying, especially when reading the penalty provisions, these documents serve a purpose.

For farming businesses that make loans to other family member or customers, these documents are the legal proof that establishes that they are entitled to money and how they are to be repaid. When a business goes to court to get a judgment against someone who has not paid them, they are expected to produce those documents to prove that they are owed money from a specific person. And the truth is we would not have it any other way.… Continue reading

By Brian E. Ravencraft

“Benchmarking” is a concept that is used to analyze and better understand the farm as a business. Diagnosing performance means understanding business concepts such as profitability and efficiency, identifying the problems that prevent the farm from achieving its potential and formulating strategies and actions to improve its business performance.

Many organizations talk about benchmarking but few actually do it. It is important for you to understand the basics of benchmarking and how you can take advantage of the process.

What is benchmarking? Robert Camp defines benchmarking as the “search for industry best practices that lead to superior performance.” Put simply it is the process of identifying, understanding and adapting outstanding best practices and high performance from organizations anywhere in the world and then measuring actual business processes against your organization to help it improve it’s performance.

When using benchmarking in farming, it involves gathering data about the best performing farms and comparing them with other farms.… Continue reading