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20 MAY 2017 ■ www.CPAPracticeAdvisor.com NICHE PRACTICE BUILDING YOUR By Pam Olinger, CPA How to Turn Agricultural Clients into AgriBusiness Clients Farm Loan Methods and Cautions By Judy Gilbertson, CPA Our firm's agricultural committee has created a standard chart of accounts for agricultural clients to use within their QuickBooks file. This get clients' electronic record keeping systems set up quickly and uniformly. Having a uniform chart allows our accounting support to take questions from agricultural clients and answer them effectively and effi- ciently. Our standard chart of accounts follows more of a manufacturing style with cost of goods sold to keep track of direct input costs, as they relate to both grain and cattle production. Our goal is to turn agricultural pro- ducers into agribusiness producers. We want to help the agribusiness producer think and make decisions as a business owner. We strive to challenge them from decision-making based on emotions or tax consequences, which tends to drive many agricultural producers' decisions. Taking this a step farther, we want to challenge agri-business producers to look at both the cash basis (which is what we use for tax basis) and accrual basis, which is much more business based. By reviewing accrual basis numbers, the producers have the opportunity to evaluate the costs versus income for the year. This provides them with a more accurate picture of how their operations have performed. This process is a little tougher to perform in QuickBooks while maintaining an efficient way to perform the accrual basis reporting to cash basis reporting for tax planning and prepara- tion purposes. This is due to the fact that true accrual basis books would classify the prepaid expenses as assets (not expenses), record inventory, and record deferred income. Ideally, the accrual basis reporting would record book depreciation instead of tax depreciation. When we set up a QuickBooks client (whether desktop or QuickBooks Online), we work the client to establish an accu- rate balance sheet. This is especially important to help them understand the dynamics of their balance sheet and to help advise and manage their agribusiness. This is also important for the client to review and manage their liabilities, both in the terms of amount and structure. We utilize QuickBooks products due to the ease of use and training, ease of transfer to accountants, and the cost effectiveness. QuickBooks Online has brought another dimension in the seamlessly integration with banking institutions and credit card companies. It has also made client support more efficient by having access to real-time information and eliminating backups and back and forth information with our staff. ■ Pam Olinger, CPA, is a partner with ELO CPAs based in Mitchell, S.D. income. The first time you take out a CCC loan, you and your tax specialist will need to analyze the best choice for your operation and either treat the loan as a loan or treat the loan as income. Once the precedent has been set you will by default treat all CCC loans the same way. If in a future year it would benefit your operation more to treat CCC loans with the other method, an election can be made and filed with your tax return to switch methods. If you have chosen to treat the CCC loan as a loan, there is no difference in the reporting of the loan or the subsequent sale of crop than if you had taken a loan with your usual loan officer – regardless of the fact that you pledged all or part of your production to secure the CCC loan. If you have chosen to treat the CCC loan as income, you record the loan proceeds you receive as income on line 5a of your Schedule F. This establishes your tax basis in the crop. In the year when you market your crop, the actual prices received are offset against your tax basis and only the gain or loss is recorded on your Schedule F. This process has effectively accelerated the bulk of the crop income to the low year where you needed it. The income method is elected by attaching a statement to your return showing the details of the CCC loan. You do not need IRS approval or any other forms to make this election. Example : In tax year 2016, Joe Farmer took out a CCC loan on his wheat for $100,000. These loan proceeds are MANY AGRIBUSINESS CLIENTS are often surprised to hear their gross receipts are higher than many other businesses in our area. This leads to the discussion of gross receipts versus bottom line profitability. Without a good method of record keeping it is impos- sible for agribusinesses to know how their operations are really performing. Agricultural income is often distorted by prepaid expenses, large machinery purchases, and deferred revenues. COMMODITY CREDIT CORPORATION (CCC) Loans are a viable option for accelerating income in times of low farm income. As a rule, loans are not included in Schedule F income. One of the benefits of a CCC loan is that an election can be made to treat the loan as Building Your Niche Practice is sponsored by Intuit QuickBooks. Each month we explore the advantages and intricacies of developing and growing a niche practice. This month we're examining what it takes to serve the niche of farming/agriculture. RESOURCES FOR THE AGRIBUSINESS ACCOUNTANT • CliftonLarsonAllen Agribusiness Blog: Farm CPA Today - http://www. farmcpatoday.com/ • Farmwell Blog: https:// blog.farmwell.com/ • QuickBooks: A powerful tool for your financial farm reporting and managing needs - http://bit.ly/1jVSHYc • Agricultural Employees Under the Fair Labor Standards Act (FLSA): http://bit.ly/2qkmwIv FARM INCOME TAXATION: REAPING WHAT GOOD LOBBYING HAS SOWN By Mark Mullin, J.D. Farms are as American as apple pie. Thus, they have become one of American politicians' favorite businesses. Unsurprisingly, they get tax advantages unavailable to most other businesses. http://cpapracticeadvisor.com/ 12334881