Farm Record Keeping: What to Track and Why It Matters

Every farmer knows the sinking feeling: tax time approaches, and records are scattered across shoeboxes, truck dashboards, and half-remembered mental notes.

The consequences are real. According to IRS Publication 225, farmers must maintain accurate records to prepare correct tax returns. Poor records don't just mean audit stress—they mean missed deductions, bad business decisions, and no clear picture of profitability.

The good news: effective record keeping isn't complicated. It requires a system, consistency, and knowing what actually matters.

This guide covers exactly what to track, how long to keep it, and systems that work for working farmers.

What You'll Learn

• What the IRS requires you to track
• How long to keep different types of records
• The records that save money at tax time
• Paper vs. spreadsheet vs. software (honest comparison)
• Getting started without overwhelm

Why Records Matter (Beyond Taxes)

Yes, good records save you at tax time. But the benefits extend far beyond:

Know Your True Profitability

You might think tomatoes are your best crop. But until you track all costs—seeds, transplants, labor, irrigation, pest control, packaging—you're guessing. Many farmers discover their "best" crops barely break even once they track actual costs.

Make Better Decisions

Should you expand the CSA or focus on farmers markets? Add a greenhouse or improve irrigation? These decisions should be based on data, not gut feeling.

Qualify for Loans and Grants

Lenders and grant programs require organized financials. Messy records disqualify you immediately, regardless of your actual farm performance.

Catch Problems Early

Expenses creeping up? Certain products underperforming? Good records let you spot trends before they become crises.

Know Your Break-Even Point

You can't price products correctly without knowing what they cost to produce. And you can't know costs without tracking them.

What the IRS Requires

Let's start with the legal requirements. IRS Publication 225 (Farmer's Tax Guide) specifies what farmers must maintain.

Required Documentation

Your recordkeeping system must include:

Summary of business transactions:

• Gross income from all sources
• Deductions and credits claimed
• How you arrived at reported figures

Supporting documents:

• Invoices and receipts for purchases
• Sales records
• Payroll records
• Bank statements
• Other transaction evidence

The IRS doesn't specify the format—paper, spreadsheet, or software all work. But the records must exist and be retrievable.

Record Retention Requirements

How long must you keep records? According to FarmRaise and IRS guidelines:

Seven years is the safe standard. Some advisors recommend keeping property records permanently.

Income Records: What to Track

Track all income sources completely. Missing income is a red flag for audits; underreporting is illegal.

Income Categories to Track

Product sales:

• Farmers market sales (by market)
• CSA subscription payments
• Wholesale transactions
• Farm stand/on-farm sales
• Online orders

Livestock:

• Animal sales
• Breeding fees
• Lease income

Government and insurance:

• Crop insurance payouts
• Disaster payments
• Conservation program payments
• Any USDA payments

Other:

• Agritourism revenue
• Custom services (for other farms)
• Equipment rental income
• Farm tour fees

Best Practice

Record income when received, with:

• Date
• Amount
• Source
• Description
• Payment method

Expense Records: Schedule F Alignment

Expenses directly reduce taxable income. Missing deductions means overpaying taxes.

Deductible Expense Categories

Local Line's tax guide and FarmRaise identify common deductible categories aligned with IRS Schedule F:

Inputs:

• Seeds and plants
• Fertilizers and lime
• Chemicals (pesticides, herbicides)
• Feed purchased
• Livestock purchased
• Supplies

Operations:

• Labor hired
• Custom hire (machine work)
• Fuel and oil
• Repairs and maintenance
• Utilities
• Insurance (farm-related)

Fixed costs:

• Rent (land and equipment)
• Interest (on farm loans)
• Taxes (property, not income)
• Depreciation

Other:

• Marketing and advertising
• Professional services (accountant, lawyer)
• Office supplies
• Travel (farm-related)
• Continuing education

The Labor Reality

According to extension research, labor typically represents 30-40% of total production costs. If you're not tracking labor (including your own time), you're missing a huge piece of the picture.

For your own labor, assign a reasonable hourly rate and track hours by activity. This doesn't create a tax deduction (you can't deduct paying yourself in a sole proprietorship), but it's essential for understanding true costs.

Special Records

Some categories require extra attention.

Mileage and Vehicle Use

Farm vehicle expenses are deductible—but only the farm-use portion.

Requirements:

• Total miles driven
• Farm-related miles
• How you calculated the split
• Purpose of farm trips

Methods:

• Standard mileage rate ($0.67/mile for 2024)
• Actual expenses (gas, maintenance, depreciation)

You must document how you determined the farm vs. personal split. "About 80%" won't survive an audit.

Depreciation

Large purchases (equipment, buildings, improvements) are tax assets depreciated over time.

Track for each asset:

• Purchase date
• Purchase price
• Description
• Placed-in-service date
• Depreciation method
• Accumulated depreciation

Section 179: Allows full deduction of qualifying property in the year purchased (up to limits). This can significantly reduce current-year taxes but requires careful documentation.

Conservation Expenses

Conservation practices are often deductible. Track:

• Practice implemented
• Date and location
• Costs incurred
• Any cost-share received
• Program requirements

Inventory

If you maintain significant inventory (stored crops, livestock, supplies), track:

• Beginning inventory value
• Purchases added
• Items sold/used
• Ending inventory value

This affects cost of goods sold calculations.

Paper vs. Spreadsheet vs. Software

Every system has trade-offs. Choose based on your operation size, comfort level, and needs.

Paper Records

Pros:

• No technology required
• Simple to start
• Works anywhere

Cons:

• Can be lost, damaged, or faded
• No backup
• Hard to analyze
• Time-consuming for reports
• Difficult to share with accountant

Best for: Very small operations, technology-averse farmers, backup system

Spreadsheets (Excel, Google Sheets)

Pros:

• Free or low cost
• Flexible and customizable
• Can create formulas and reports
• Searchable
• Easy to share

Cons:

• Manual data entry
• Version control issues
• No automation
• Requires spreadsheet skills
• Can break with errors

Best for: Small to medium operations, farmers comfortable with computers, tight budgets

Farm Management Software

Pros:

• Automated calculations
• Built-in reporting
• Cloud backup
• Mobile access
• Integrations (banking, sales)
• Purpose-built for farms

Cons:

• Monthly cost ($20-100+/month)
• Learning curve
• Requires internet access
• Switching costs

Best for: Growing operations, farms seeking efficiency, operations with employees

The Hybrid Approach

Many successful farms use a hybrid:

• Software for daily transactions
• Spreadsheets for analysis and planning
• Paper receipts scanned and filed digitally

The key is consistency—whatever system you choose, use it consistently.

Best Practices That Save Time

1. Separate Personal and Farm Finances

This is critical, especially for LLCs. Mixing personal and business accounts:

• Complicates bookkeeping
• Raises audit red flags
• Can pierce liability protection

Minimum separation:

• Dedicated farm checking account
• Dedicated farm credit card
• All farm expenses through farm accounts

2. Digitize Receipts Immediately

Paper receipts fade and disappear. When you receive a receipt:

• Photograph it immediately
• Upload to cloud storage or accounting software
• Note what it was for

Apps like Expensify, Dext, or even your phone's camera work fine.

3. Record Transactions Weekly

The longer you wait, the harder reconstruction becomes. Set a weekly appointment with yourself to:

• Record any transactions
• Match receipts to expenses
• Reconcile accounts
• Note anything unusual

4. Align with Schedule F

Structure your records to match IRS Schedule F categories. This makes tax preparation faster and more accurate.

Tip: Give your recordkeeping categories the same names as Schedule F lines. Your accountant will thank you.

5. Maintain Rolling P&L

Don't wait until year-end to know where you stand. A simple monthly profit and loss statement shows:

• Income vs. expenses
• Trends over time
• Problems before they compound

Common Mistakes to Avoid

1. Mixing Business and Personal

Already covered, but worth emphasizing. This is the #1 mistake and the most easily avoided.

2. Throwing Away Receipts

No receipt = potentially no deduction. When in doubt, keep it. Digital storage is cheap; lost deductions are expensive.

3. Not Tracking Your Own Labor

Your time has value. If you don't track it, you can't price products correctly or understand true profitability.

4. Waiting Until Tax Time

Reconstructing a year of transactions in April is stressful, error-prone, and misses opportunities. Weekly recording takes minutes; annual reconstruction takes days.

5. Skipping Professional Advice

Farm taxes are complicated. A tax professional specializing in agriculture often saves more than they cost through strategies you'd never discover alone.

6. Keeping Everything Forever

Seven years is the standard. Keeping 30 years of receipts creates storage nightmares without legal benefit. Purge old records systematically.

Getting Started: Minimum Viable Tracking

Overwhelmed? Start with the essentials and build from there.

Week 1: Set Up Accounts

• Open dedicated farm checking account
• Get dedicated farm credit card
• Set up simple tracking system (even a notebook)

Week 2-4: Track Income

• Record every sale
• Note source, amount, date, description
• Keep all deposit slips/records

Week 5-8: Track Expenses

• Record every purchase
• Save every receipt
• Categorize by Schedule F category

Ongoing: Weekly Review

• 15-30 minutes weekly
• Record any transactions
• Match receipts to expenses
• Note questions for accountant

Before Tax Time

• Reconcile all accounts
• Organize records by category
• Calculate totals
• Meet with tax professional

Using Records for Better Decisions

Records aren't just for taxes. They power better decisions.

Cost Per Product

Calculate what each product actually costs to produce:

Cost per Unit = (Direct Costs + Allocated Overhead) / Units Produced

This enables accurate pricing and identifies which products are actually profitable.

Break-Even Analysis

Know the minimum you must charge:

Break-Even Price = Total Costs / Expected Units

Anything below this price loses money.

Trend Analysis

Compare year-over-year:

• Which expenses are growing fastest?
• Which products are most profitable?
• Are margins improving or shrinking?

What-If Planning

With good records, you can model scenarios:

• What if input costs rise 10%?
• What if we add a greenhouse?
• What if we double the CSA?

FAQ: Farm Record Keeping Questions

What if I'm just starting and have no records?

Start now. Going forward matters more than reconstructing the past. Create your system and use it consistently from today.

Can I do my own taxes?

Simple operations can use Schedule F themselves. But farm taxes get complicated quickly. Most farmers benefit from professional help, at least initially.

How detailed should records be?

Detailed enough to reconstruct transactions and support deductions. A receipt showing "$47.83 at Farm Supply" is fine. "$47.83 somewhere" is not.

What about electronic records?

The IRS accepts electronic records if they're accurate, accessible, and backed up. Keep them organized and searchable.

How do I handle cash sales?

Record them just like any other sale. A daily cash log showing individual transactions protects you if questioned.

Resources

Free Templates

• MSU Extension Farm Records Book - Excel templates
• NC State Extension - Farm planning spreadsheets
• FBN Annual Farm Budget Template

IRS Resources

• IRS Publication 225 - Farmer's Tax Guide
• Schedule F Instructions

Professional Help

• Extension farm business specialists (free)
• Agricultural accountants
• Farm financial counselors

Start Where You Are

Perfect records aren't the goal—useful records are. Start with what you can maintain consistently and build from there.

The farmers who thrive aren't necessarily those with the most sophisticated systems. They're the ones who know their numbers, make decisions based on data, and never face tax time with a shoebox of mystery receipts.

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Ready to get organized? SmartFarmPilot makes farm record keeping simple—track expenses, manage inventory, and generate reports that make tax time easier. Built for farmers, not accountants.

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Sources

• IRS Publication 225 - Farmer's Tax Guide (2025)
• Local Line - 6 Farm Recordkeeping Strategies for Tax Season
• Local Line - Farm Record Keeping Tips and Best Practices
• FarmRaise - How to Maximize Farm Tax Deductions with Schedule F
• FarmRaise - How to Avoid an IRS Audit: Farm Record Keeping Best Practices
• Ambrook - How to Make Farm Recordkeeping More Efficient
• UNH Extension - Farm Business Records & Tax Planning
• Local Line - 11 Farm Tax Tips for 2026