Table of Contents
A farmer, like other taxpayers, must keep records to prepare an accurate income tax return and determine the correct amount of tax. This chapter explains the benefits of keeping records, what kinds of records you must keep, and how long you must keep them for federal tax purposes.
Tax records are not the only type of records you need to keep for your farming business. You should also keep records that measure your farm's financial performance. This publication only discusses tax records.
The Farm Financial Standards Council has produced a publication that provides a detailed explanation of the recommendations of the Council for financial reporting and analysis. For information on recordkeeping, you may download Financial Guidelines for Agricultural Producers at www.ffsc.org. For more information, contact Countryside Marketing, Inc. in the following manner.
-
Call 262-253-6902.
-
Send a fax to 262-253-6903.
-
Write to:
Farm Financial Standards Council
N78 W14573 Appleton Ave #287
Menomonee Falls, WI 53051.
-
Benefits of recordkeeping
-
Kinds of records to keep
-
How long to keep records
Publication
-
51 (Circular A), Agricultural Employer's Tax Guide
-
463 Travel, Entertainment, Gift, and Car Expenses
See chapter 16 for information about getting publications.
Everyone in business, including farmers, must keep appropriate records. Recordkeeping will help you do the following.
Except in a few cases, the law does not require any specific kind of records. You can choose any recordkeeping system suited to your farming business that clearly shows, for example, your income and expenses.
You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. See chapter 2. If you are in more than one business, you should keep a complete and separate set of records for each business. A corporation should keep minutes of board of directors' meetings.
Your recordkeeping system should include a summary of your business transactions. This summary is ordinarily made in accounting journals and ledgers. For example, they must show your gross income, as well as your deductions and credits. In addition, you must keep supporting documents. Purchases, sales, payroll, and other transactions you have in your business generate supporting documents such as invoices and receipts. These documents contain the information you need to record in your journals and ledgers.
It is important to keep these documents because they support the entries in your journals and ledgers and on your tax return. Keep them in an orderly fashion and in a safe place. For instance, organize them by year and type of income or expense.
-
When and how you acquired the asset.
-
Purchase price.
-
Cost of any improvements.
-
Section 179 deduction taken.
-
Deductions taken for depreciation.
-
Deductions taken for casualty losses, such as losses resulting from fires or storms.
-
How you used the asset.
-
When and how you disposed of the asset.
-
Selling price.
-
Expenses of sale.
-
Purchase and sales invoices.
-
Real estate closing statements.
-
Canceled checks.
-
Bank statements.
IF payment is by... | THEN the statement must show the... |
Check |
|
Electronic funds transfer |
|
Credit card |
|
You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. Generally, you must keep your records for at least 3 years from when your tax return was due or filed or within 2 years of the date the tax was paid, whichever is later. However, certain records must be kept for a longer period of time, as discussed below.
More Online Publications |