It’s rare that a farm family today doesn’t have at least one job in town contributing to the household pot.
In 2019, the USDA reported that 96% of American farm households derived some income from off-farm sources, such as wages or salary from an off-farm job, pensions or investment income. In 2022, about 88% of all U.S. farms reported gross cash farm income of less than $350,000, according to the USDA.
And the smaller the farm, the more the farm family relies on that off-farm income for household expenses.
As Tax Day rolls ever closer, families might be taking the time to review how they’re making the most of those off-farm paychecks for their needs today as well as their retirement needs in the future.
Adams Brown, Strategic Allies and CPAs is a certified public accounting firm headquartered in Wichita, Kan. Principals and agriculture industry leaders Bill Glazner and Turner Polzin shared a few things farm families may want to keep in mind in regard to their off-farm income streams.
Fund today
A direct deposit every other week in the family checking account is one thing, but if a family isn’t planning how to best use that paycheck to cover their living expenses, they may be leaving money and benefits on the table, Glazner and Polzin say.
Consider first what family living expenses need to be covered by that paycheck, like health insurance and child care.
Polzin says you first should understand what health insurance plan options are available and what they bring to your family. “Are they weighing their options?” Polzin says. “Do we want to sign up for the high-deductible health plan or the low deductible? And do you understand that if you do sign up for the high deductible, then you have an HSA option?”
Funding that HSA can come with federal, state and payroll tax benefits. Understanding what to choose from employer health care plan options is critical to not leaving money on the table, Polzin and Glazner say.
Child care is expensive, and some employers may offer a flexible spending account that puts aside pre-tax dollars to pay for child care expenses. Maxing out that employer plan is more often than not a better option than paying for child care out of pocket with after-tax dollars and taking a deduction on your personal tax return, Polzin says.
Plan for tomorrow
“Contrary to popular belief, some farmers do actually retire,” Glazner says. Whether they spend that retirement traveling or they need to plan for long-term care, there will come a day when the farm couple won’t be actively farming.
But farmers often put off planning for retirement because the cash needs of the farm come first.
However, if your employer offers a 401(k) safe harbor match, the return on the pre-tax funds you put in your 401(k) would likely be much more beneficial in the long run, Polzin says.