Year-End Farm Finances: Taking Stock, Gaining Clarity, and Planning Ahead
As the year comes to a close, it is a good time to step back and take a careful look at farm finances—not just for tax purposes, but to better understand how the operation is really performing and where it may be headed.
For many farmers, late December and early January are when receipts finally get sorted, spreadsheets are updated, and the numbers begin to tell the story of the year that just ended. That process alone—consolidating expenses and revenues—is valuable. But the real benefit comes when those numbers are used to inform decisions, not just record them.
Year-end financial work is not simply bookkeeping. It is one of the few opportunities during the year to regain a sense of control over the operation, identify quiet problem areas, and create options for the future rather than reacting to circumstances as they arise.
Bookkeeping Tools: What I Use and Why
The first place to start is with the tools used to track farm finances. Rather than Microsoft Excel, I use LibreOffice, a free, open-source software suite that includes a spreadsheet program, a word processor, presentation software, a drawing tool, and a database application.
LibreOffice can be downloaded and used at no cost. Because it is community-supported, users are encouraged—but not required—to make a donation. Each time I install or upgrade the software, I donate $25. Compared to the ongoing cost of a Microsoft subscription, this approach is significantly more affordable.
Just as important, LibreOffice files can be saved in Microsoft Excel format. When tax time arrives, I bring my spreadsheets to my tax consultant in Excel format, and he is able to import them directly into his tax software without issue. There is no loss of functionality and no added friction.
Using AI to Analyze Farm Numbers
Once the books are closed for the year, it may be worth taking the next step and running your completed spreadsheet through one of the AI tools that are now widely available, many of them free.
I am currently in the process of uploading roughly ten years of farm financial data into ChatGPT to analyze revenue and expenses over time. While that project is still ongoing, even early results have helped identify long-term trends, cost creep, and areas that deserve closer attention.
One important distinction that often becomes clearer through this kind of analysis is the difference between profitability and cash flow. A farm can be profitable on paper and still experience cash shortages due to timing—when expenses are paid versus when income is received. AI tools can help highlight seasonal cash bottlenecks and recurring pressure points that may not be obvious from a single year’s numbers.
Another useful application, particularly for farmers who work with a tax preparer, is asking an AI tool to review the data for potential tax considerations specific to agriculture. In my experience, many tax consultants rely heavily on software and are not always deeply familiar with the finer points of farm deductions, depreciation strategies, or income-smoothing options. Going into a tax appointment with a better understanding of what might be available can lead to a more productive conversation.
Retirement: A Topic Many Farmers Postpone Too Long
Retirement planning is an area many farmers—including myself for years—tend to delay or avoid altogether.
There is a common assumption that the farm itself will serve as the retirement plan. While land and buildings are valuable assets, relying solely on the farm as future income can create real problems later on, especially if market conditions or personal health change unexpectedly.
Currently, farmers who are 49 years old or younger can contribute up to $7,000 per year to an IRA. Those 50 and older can contribute up to $8,000 per year. While these amounts may feel out of reach for some operations, contributing something—however modest—can still make a meaningful difference over time. Compounding rewards consistency more than size.
Withdrawals from traditional retirement accounts are not required until age 73, meaning even farmers in their late 50s or early 60s still have time for these accounts to grow.
Traditional IRA vs. Roth IRA
A Traditional IRA allows contributions to be made with pre-tax dollars, potentially reducing taxable income today. Taxes are paid later, when money is withdrawn in retirement.
A Roth IRA is funded with after-tax dollars, but qualified withdrawals in retirement are tax-free.
In simple terms, a Traditional IRA defers taxes until later, while a Roth IRA pays taxes now to avoid them later. Which option makes more sense depends on current income, expected future income, and individual tax circumstances.
Understanding ETFs and Index Funds
Earlier in my investing years, I used individual stocks and mutual funds. As retirement has come into clearer focus, I now invest primarily in exchange-traded funds, or ETFs.
An ETF is a collection of investments—stocks, bonds, or other assets—that trades on an exchange like a stock. ETFs tend to be low-cost, diversified, and easy to buy or sell.
Many ETFs are also index funds, meaning they simply track a market index such as the S&P 500 or a total stock market index. Rather than trying to outperform the market, index funds aim to match it at minimal cost. Over long periods, this approach has proven effective for many investors.
There is a great deal of free educational material available on these topics. I recommend focusing on information produced by established firms such as Fidelity, Schwab, or Vanguard, which tend to present clear, practical guidance rather than sales-driven advice.
Taking Inventory of the Farm as an Asset
Another important but often overlooked exercise is taking a serious inventory of the farm and farmstead as financial assets.
This includes land, buildings, housing, and infrastructure such as roads, fencing, and utilities. Understanding current market value provides clarity, whether the goal is retirement planning, succession, or a potential future sale.
Deferred maintenance on the farmstead—roofing, heating systems, paint, or structural repairs—can significantly reduce value later. Addressing these items gradually allows improvements to be spread over time rather than coming out of sale proceeds all at once.
On the farm side, improvements such as better access roads, upgraded fencing, or improved pasture layout can increase both productivity and market appeal.
Even for farmers who do not plan to sell, this process is valuable. A farm that is organized, maintained, and realistically valued is generally easier to manage, easier to transfer, and easier to adapt as circumstances change.
Capital Improvements and Risk Management
Once expenses and revenues are clearly understood, it becomes easier to evaluate capital improvements that could increase profitability.
These might include subdividing pastures, upgrading fencing or water systems, purchasing labor-saving equipment, or investing in improved livestock genetics. Good records turn these decisions from guesses into informed choices.
Equally important is managing risk. Farms that rely heavily on a single enterprise, buyer, or income source are more vulnerable to market swings and disruptions. As farmers approach retirement, reducing exposure to single-point failures often becomes more important than maximizing upside.
Diversifying Income Streams
Many farms can benefit from modest diversification that fits existing resources and labor availability.
On our farm, adding a small campsite through Hipcamp created a steady supplemental income stream with minimal labor. Other low-scale options—particularly for older farmers—include beekeeping. Honey and hive products tend to have strong, consistent demand, relatively low startup costs, and manageable labor requirements.
Diversification can also involve adjusting the core enterprise—expanding or reducing herd size, or introducing genetics better suited to the land and management system. The farm’s own historical data is often the best guide.
Closing Thoughts
This time of year provides a valuable opportunity to review what worked, identify what did not, and make thoughtful adjustments before the next production cycle begins. Better records lead to better decisions, and better decisions create more options.
I am not a financial advisor. I am simply sharing what we do on our farm and what has proven helpful for us. That said, working with a financial advisor who understands agriculture can also be a worthwhile investment.
As a starting point, choose one financial area—records, retirement, or capital planning—and spend a few focused hours improving it. Small, deliberate steps taken consistently can have a lasting impact.
If you have questions or would like to discuss any of these topics further, feel free to reach out.
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