Episode 6 - Telling Your Farm Story Through Recordkeeping

In this episode of the FARM Champion Podcast, host Ahlishia Shipley speaks with Jonathan Shepherd, Agricultural Extension Specialist at the University of Kentucky, about farm tax planning and recordkeeping as critical risk management tools. Jonathan reframes Schedule F as a year-round practice and addresses common challenges like system overwhelm. He also shares a producer success story showing how strong records can unlock capital. This conversation highlights how disciplined, consistent recordkeeping strengthens farm business management and long-term resilience.

Transcript

00;00;00;15 - 00;00;46;17
Ahlishia Shipley
You’re listening to the FARM Champion podcast, where we champion farmer and rancher success. In each episode, we sit down with a FARM Champion, a trusted professional committed to helping producers navigate the business side of agriculture. If you're a farmer, rancher, or agriculture professional working to build a stronger, more resilient operation, you're in the right place.

00;00;46;20 - 00;01;12;10
Ahlishia Shipley
I’m Dr. Ahlishia Shipley, your host. In today's episode, we're talking taxes and record keeping for farm operations with Dr. Jonathan Shepherd, an agricultural extension specialist in the Department of Agriculture Economics at the University of Kentucky's Martin-Gatton College of Agriculture, Food and Environment. His extension work is focused on general form management, and he specializes in farm tax management and farm finance. All very important aspects for producers.

00;01;12;10 - 00;01;36;23
Ahlishia Shipley
Jonathan also serves as a state director for the university's Income Tax Education Seminar program, and Jonathan is a FARM Champion. Thank you so much for sitting down with me today, it’s always a treat to share space with one of my fellow UK alums. Absolutely. Right, before we dive into the work that you're doing today, I love for our listeners to get a chance to know a bit more about you, especially since you run a farm operation with your wife.

00;01;36;24 - 00;01;41;24
Ahlishia Shipley
Can you share a bit about your background and your journey into working with farmers and ranchers?

00;01;41;25 - 00;01;58;23
Jonathan Shepherd
Absolutely. So I, when I started college, I didn't know what I wanted to do, and I found myself in the College of Agriculture, really enjoying it. And that's how I ended up in the ag econ space. It was a it was a non-linear path and a lot of stumbles. But I found my home here and found work that I really liked.

00;01;58;24 - 00;02;21;29
Jonathan Shepherd
During that same time, I got married to a wonderful person who was a farmer, and I realized that I did not know anything about farming or about finance or taxes. And so it started naturally from that perspective. I also worked early on in my career with a program called the Kentucky Farm Business Management Program, where I got to work with farmers one on one in the ag tax finance space.

00;02;21;29 - 00;02;29;11
Jonathan Shepherd
And I just I really enjoyed it. I really liked that kind of work, and I decided to specialize in it and never stop learning about it.

00;02;29;17 - 00;02;32;06
Ahlishia Shipley
Okay, awesome, what type of farm operation do you run?

00;02;32;09 - 00;02;39;26
Jonathan Shepherd
My wife and I run a commercial cow calf operation. We have about 70 momma cows and then we run some sheep too. She has about 100 ewes.

00;02;39;26 - 00;03;03;04
Ahlishia Shipley
Thank you so much for sharing that with us. It really gives a sense of the perspective that you're bringing to the work. And so building on that, I love to shift into kind of like your area of expertise and the work that you do. So at the top, I shared that we're talking about farm tax planning and record keeping and the schedule F, which of course can feel overwhelming for a lot of farmers and ranchers. To start is off with that,

00;03;03;04 - 00;03;11;03
Ahlishia Shipley
Could you give like a simple overview of what farm tax planning and record keeping really mean in the context of running a farm operation?

00;03;11;05 - 00;03;31;04
Jonathan Shepherd
Yeah, so I look at it, I know that for most people, it seems like a really complex, overwhelming endeavor. To me, it’s not that complex and overwhelming. I think that we have over complicated some of this. Not saying that the tax code isn't complicated, but for what most people need to to run their business effectively, we can we can meet people where they're at and really build up their confidence.

00;03;31;04 - 00;03;47;05
Jonathan Shepherd
So to me, it's just about understanding all the ins and outs, the pieces and how we use those pieces to make day to day decisions. You know, the record keeping is very important to make management decisions, to know where we're at and where we're going and if we're doing a good job on that front, the tax side is easy.

00;03;47;06 - 00;04;14;17
Ahlishia Shipley
I know for a lot of people, especially coming off of the heels of tax season, that it can be a really, feel really complicated and daunting, but it's really helpful for you to kind of put that more positive frame on it. For, for many farmers, I know that tax planning and record keeping shows up in the day to day in terms of checking expenses and making input decisions and figuring out if the operation is actually really profitable and not just at tax time.

00;04;14;18 - 00;04;23;00
Ahlishia Shipley
Can you speak to why record keeping and tax planning are so important in the success and profitability and sustainability of a farm business?

00;04;23;02 - 00;04;47;28
Jonathan Shepherd
Absolutely. I look at it as as a risk management tool because it affects cash flow and long term stability of the business. Oftentimes, decisions are made just from a tax avoidance perspective, and we can actually do things to save a little bit of money now that may set us up for failure years down the road, as we are trying to make principal and interest payments that maybe we didn't necessarily need or not most efficient for the operation.

00;04;47;28 - 00;05;04;12
Jonathan Shepherd
So I really encourage everybody to think about it as an ongoing, holistic type approach that let's not wait till after the end of the year. Let's not wait till April 13th, you know, to try to figure it all out. Let's let's take a little bites of that problem throughout the year so that we know where we stand at the end of the year.

00;05;04;12 - 00;05;21;21
Jonathan Shepherd
So there's no surprises. We have time to to think and reflect on decisions that we’re going to make. And we're not put into this panic mode of, I've got to do something now to to make this work. At least for me, I do better when I have time to think about things, and I don’t always make the best decisions when I'm when I'm forced under pressure to to make a decision.

00;05;21;21 - 00;05;38;03
Jonathan Shepherd
And just kind of going back to your other question too, you know, I don't want it to come off as though, like I said, taxes are complicated, but I believe I really believe in my heart and soul that if you can operate a farm business, if you can, if you're out there and you can do those things, you can do these things, right.

00;05;38;03 - 00;05;51;05
Jonathan Shepherd
You can you can do the record keeping. Is there going to be frustration? Absolutely. Are you going to feel ill confident sometimes. Absolutely. But you have it in you to do a good job with this. With a little bit of coaching, a little bit of resources, you are capable of doing this.

00;05;51;05 - 00;06;10;28
Ahlishia Shipley
Thank you for that. And we're going to talk about at least one of those resources in in a few moments. So I know that the encouragement and positivity can go a long way when working with producers. So in terms of kind of maybe compacting everything around tax time, I know from your work with producers, you probably seen this play out in real ways on the ground.

00;06;10;28 - 00;06;20;09
Ahlishia Shipley
What are some of the most common challenges or barriers that you see with farmers and ranchers, and what they face when it comes to record keeping and tax planning?

00;06;20;09 - 00;06;38;01
Jonathan Shepherd
I think on the record keeping side, it's just a daunting task. A lot of times we don't know where to start, and we seem to be inundated with different options for record keeping anymore. You know, there's all kinds of online resources. There's some of the classic standbys, the names that we've heard, but there's a lot of new applications, consultants, entering this space.

00;06;38;01 - 00;06;54;00
Jonathan Shepherd
And with all the advertisement too, right, like, they all sound like this is going to be what I need. And so I think it's just a whole lot of, you know, almost analysis paralysis, if you will. It's just it's almost too much at once. Some people don't like doing record keeping. And that's okay. You know, we're all different.

00;06;54;01 - 00;07;19;22
Jonathan Shepherd
I like record keeping. But I think that those are the challenges. Don't know where to start, don't know where to turn to. If I do have a problem, who do I turn to? How much is it going to cost me? And I just like to remind everybody there's a lot of low cost or free resources out there. You know, your your extension services, your land grant opportunities, your nonprofits, your community based organizations. You may have to do a little digging, but there's there's help out there to help you get through some of these obstacles in the record keeping process.

00;07;19;22 - 00;07;41;02
Ahlishia Shipley
Thank you. Thank you for that. So I really I really would like for our listeners to kind of really also understand like what happens on the reverse if you if you don't have the systems in place, how can that affect a producer’s business kind of with inconsistent record keeping. Like what does that look like on the ground? Kind of like financially, operationally,

00;07;41;02 - 00;07;47;11
Ahlishia Shipley
and even, you know, when a producer may attempt to access some capital or other programs.

00;07;47;11 - 00;08;08;19
Jonathan Shepherd
My mantra is your record keeping is you telling your story. So I like to, I like to shift the whole narrative around record keeping that, you know, it's your story to tell as the producer. It's not for the bank to make assumptions or a potential partner to make assumptions. I want producers to be empowered to tell that story and tell that story well, because they're the only ones that know that story, right?

00;08;08;20 - 00;08;30;27
Jonathan Shepherd
Nobody knows it like the producer themselves. Horror stories abound with, you know, failure to do good record keeping, you know, from missed opportunities because you can't access capital, can't access grants sometimes because you don't have the correct pieces in place. And then on the tax liability side, I've seen several cases where assumptions had to be made or income wasn't broken out correctly or not.

00;08;30;27 - 00;08;41;03
Jonathan Shepherd
All the expenses were accounted for, and tax liability was significant when it when it shouldn't have been and you know, had to go back into in returns and and all the things that cost more time.

00;08;41;03 - 00;08;58;19
Ahlishia Shipley
Thank you for that. Because one of the things that I kind of just glean from what you just said is missed opportunity and not being able to kind of seize on the the resources and the programs that are out there when you don't have the good systems in place and kind of, you know, doing that over time in an effective way.

00;08;58;19 - 00;09;17;21
Ahlishia Shipley
So what you're sharing is a great lead into my next question, and it's about a key element of this tax planning and kind of goes into the record keeping, which is the Schedule F. And so a lot of our listeners are going to be very, very, very familiar with the Schedule F, but could you share with us exactly what that is and how it fits into tax reporting?

00;09;17;22 - 00;09;42;07
Jonathan Shepherd
Yeah, absolutely. So the Schedule F is where farmers report their income and expenses associated with their business. As farmers we get our own special and everybody else has to use a schedule C, but we get to use the Schedule F. And if you pull up the Schedule F and look at it, it looks complicated. There's a bunch of different lines that say a bunch of different things, but at the end of the day, all we're really doing is taking total income and total expense and finding out what net profit is.

00;09;42;07 - 00;10;01;11
Jonathan Shepherd
So if you keep that in mind, it really simplifies the process. Yes. Are there some very important intrinsic details involved in that where certain income is reported on a certain line? Sure. Certain expenses on a certain line, sure. But at the end of the day, there's nothing magical about it. It's really, at the end of the day, it's going to be your total income minus your total expense.

00;10;01;11 - 00;10;03;13
Jonathan Shepherd
And the difference will either be a profit or loss.

00;10;03;14 - 00;10;11;02
Ahlishia Shipley
And so I guess the magic in the hard work comes in with actually getting accurate totals of your income and your expenses.

00;10;11;03 - 00;10;11;20
Jonathan Shepherd
Absolutely.

00;10;11;21 - 00;10;32;03
Ahlishia Shipley
So, I like, I like the way you talk about this. You make it, you know, sound very something that's doable and accessible for producers. You had mentioned resources that there are a lot of resources out there. And one of the things we like to do on the show is to highlight resources that our FARM champions have created and present, are available to farmers and ranchers.

00;10;32;03 - 00;10;42;10
Ahlishia Shipley
So you've created a resource about the Schedule F, could you share, you know, how this resource would help a producer navigate and understand the process for a Schedule F?

00;10;42;11 - 00;11;07;29
Jonathan Shepherd
Yeah. So this resource just basically kind of addresses what a schedule F is and talks through, you know, just understanding what that form is, but also getting into conversations about common mistakes that we see in the record keeping process that then translates over to the Schedule F reporting. You know, things like how you report livestock that you've purchased for resale and how you report the sale of breeding livestock that you've held over a certain period of time.

00;11;07;29 - 00;11;31;12
Jonathan Shepherd
And even talking about, you know, what are some expenses that we miss sometimes there's no reason to leave any money on the table, so to speak. So the tax code is what it is. We need to utilize it to our fullest advantage and be strategic about it. So just kind of highlighting some of those things. We're also getting ready to release a resource talking about how to choose a tax preparer, understanding different credentials associated with tax preparers.

00;11;31;12 - 00;11;50;26
Jonathan Shepherd
But ultimately, you know, I'll give you sneak preview here. Ultimately, it comes down to finding somebody that you trust, that you can work with, and most importantly, will give you the time and answer your questions. If your tax preparer tries to hide behind their education or expertise, I would strongly encourage you to find somebody else, because you should be able to turn to your tax return.

00;11;50;27 - 00;12;07;18
Jonathan Shepherd
Look at any figure, ask the tax preparer what it is, what it means, and where it came from, and you should be able to get that that answer. And so those are two resources. One's getting ready to drop. And then we're going to be dropping some others dealing with some very specialized tax topics both for the producer side and the practitioner side.

00;12;07;19 - 00;12;14;13
Ahlishia Shipley
Thank you for giving us the in on what's to come. And so the title of the presentation that you mentioned, what is it?

00;12;14;13 - 00;12;16;25
Jonathan Shepherd
That one's just Tax Planning and Tax Tips.

00;12;16;26 - 00;12;45;29
Ahlishia Shipley
Okay. Well for our listeners that resource will be available on the AgFTAP website. And then we're also going to create links for the existing resource and the new resource that's coming out soon in the link to this podcast episode. So you can check that out when this episode airs. One of the other things that we do is we would like to elevate farmer success stories, because we think it's very, very important to celebrate the winds that farmer-serving professionals have with producers.

00;12;45;29 - 00;12;59;13
Ahlishia Shipley
So could you share an example, our story of a farmer who improved the operation through better record keeping or tax planning, and kind of like what change for them as a result of of that guidance and assistance you provide?

00;12;59;14 - 00;13;29;00
Jonathan Shepherd
Yeah, absolutely. It's always fun to talk about these type of success stories because, you know, sometimes they take time and it may take a year or two before you see, you know, big changes. But one that comes to mind. In particular, I was working with the farm family that was doing some value added stuff and agriculture, some agritourism, and they needed to access some capital, and their record keeping system wasn't well enough to to prove to the lenders and the investors what a great job they were really doing.

00;13;29;02 - 00;13;48;18
Jonathan Shepherd
And so after meeting with them and understanding what their business plan was, I could see the dream. I could see the potential. We just needed a little bit of money to to get this thing up and running. And so, you know, we focused really hard on the record keeping, making sure that we are counting all the income and separating things out for this agritourism side of things.

00;13;48;18 - 00;14;09;20
Jonathan Shepherd
It's separate from the farm to really tell the two different stories that they had. And ultimately what happened, we were actually able to go to an investment bank, a community investment bank, and it was a slam dunk, no stress type of a situation because we had developed that record keeping. We could tell the story and we got the lending in place in very short order.

00;14;09;20 - 00;14;25;03
Jonathan Shepherd
After that, the the other banks that weren't investment, community investment banks, kind of took notice and then they were ready to start lending too. But, you know, it just shows how once you get things in place and you're taking that power and telling your story accurately, how you can really shape your own destiny, really.

00;14;25;03 - 00;14;48;04
Ahlishia Shipley
I love that you have framed it as telling a story, like with the record keeping and the tax planning and, you know, telling a story actually became part of this farmer success story and it seemed like it had ripple effects. So congratulations to you and that family for being able to navigate this and actually put those systems in place to make it something really impactful for their business.

00;14;48;06 - 00;15;12;12
Ahlishia Shipley
I want to ask you a question about just practical tips. So say for instance, you have a newer or beginning farmer rancher in Johnson County, Kentucky, who really wants to, you know, they may be taking over their family farm. So, you know, what are what are 1 or 2 practical tips that you would tell this producer about record keeping and tax planning?

00;15;12;12 - 00;15;16;19
Ahlishia Shipley
The things that are just like, you feel like are so foundational that you are screaming from the rooftops.

00;15;16;19 - 00;15;36;28
Jonathan Shepherd
It takes time that that would be my first thing. Just go into the process trying to be as disciplined as you can. And I mean, structured to the point that you set aside an hour a week or a couple hours every two weeks. And that's what your focus is going to be, is you're going to either, in this case, set up the record keeping system or take over the record keeping system.

00;15;36;28 - 00;16;03;11
Jonathan Shepherd
And one of the things that I find frustrating in this space is, you know, with technology and AI, things are being kind of promoted as, this is going to save you all this time and basically be hands off, right? All your record keeping can be done for you. There's a lot that's lost in that process. So I feel even if you're hiring somebody to do the record keeping for you, you should still have your hands in it, your fingers on it on a regular basis, otherwise you lose touch.

00;16;03;15 - 00;16;21;19
Jonathan Shepherd
So that would be my first piece of advice, is just accept that it's going to take time. Set that time aside. Even if you don't get anything accomplished in that time you set aside. Be intentional. Right? Sit there. Force yourself to look at something. Look over some invoices, look through the chart of account, whatever. But just develop that discipline.

00;16;21;19 - 00;16;41;09
Jonathan Shepherd
That would be my biggest piece of advice because it's going to take time, but as you work through it, you'll be more efficient. You're on a continuum, essentially, and we all are on a continuum when it comes to record keeping. And we all start somewhere and we all continually improve. So just take that time, be disciplined and set yourself up for success at the beginning.

00;16;41;09 - 00;17;04;25
Ahlishia Shipley
Thank you. That's very helpful. I love that. It takes time, be disciplined and be intentional. Wonderful. So I’ve really enjoyed this conversation. But before before we close, we would like to end each episode with what we call our resilience reflection, which is a brief moment where we ask our guests to kind of step back from the details and reflect on the the bigger picture of building strong farm businesses.

00;17;04;25 - 00;17;19;28
Ahlishia Shipley
So in the context that producers find themselves in, with kind of a lot of complex challenges that they're facing. Jonathan, what keeps you committed to this work when there is so much complexity in the challenges that producers are facing?

00;17;19;29 - 00;17;43;27
Jonathan Shepherd
Yeah, I believe in our farmers and our producers. That kind of sounds like a throwaway thing. But, you know, these are folks that are working hard every day, and I really believe in their abilities. And it can be challenging. There's certain sectors of the economy, the ag economy right now facing significant headwinds and challenges, but it's good to be there for somebody when they have questions or when they're in need.

00;17;43;28 - 00;18;03;19
Jonathan Shepherd
We're kind of all in this together in the agricultural world. Sometimes we feel like we're not, but we're all in this thing together. We're all facing the same challenges, the same kind of workload concerns. And so just being there for somebody in their time of need, when they have questions, when they're facing headwinds and trying to just remind them that, you know, we can manage through this in a lot of cases.

00;18;03;20 - 00;18;07;00
Jonathan Shepherd
We can get through this. That's what, that's what keeps me going.

00;18;07;01 - 00;18;32;07
Ahlishia Shipley
That's beautiful. And I can hear that it's coming from your heart. So I appreciate you sharing that. Thank you for the work that you do to strengthen farm businesses and support producers who are, you know, navigating how to run a successful farm operation. To explore tools and resources that support farm business success, please visit agftap.org and learn how to connect with a FARM Champion in your area.

00;18;32;07 - 00;18;38;19
Ahlishia Shipley
And don't forget to follow and subscribe to the FARM Champion podcast. Thank you and see you all next time!