Author: Kevin Burkett

The term ‘fair market value’ or (FMV) is often used in conversation or as part of a calculation. The term itself conveys some meaning, but what is the true definition? Fair market value is the price any asset (land, machinery, equipment, etc.) would sell for in an open market where the buyer and seller are knowledgeable about the facts and reach an agreed-upon price. It is also assumed that the seller is not under a strong compulsion to sell (i.e., that the seller is experiencing liquidity problems and is selling an asset quickly to get cash), which could lead to adverse outcomes. In those instances, it may be that the seller advertises the asset at a price to quickly attract a buyer that does not reflect the full value of the property. The same is true of the buyer, that they are not under an unnecessary compulsion to buy.  

Fair market value appears in numerous contexts. It can arise in estate planning, tax preparation, contracts, or other legal situations. It can play an important role in all of these. Not always does a sale have to occur for FMV determination to be necessary. One example would be when a farm passes through an estate to heirs. The heirs can receive the farm assets at FMV (with what is known as a step-up in basis) without paying tax, but that means the FMV of the assets passing through must be determined. 

Buyers and sellers often conduct some due diligence before engaging in the marketplace. They may check public records of sale, online listings, databases, or local markets to get an idea of what an assets value may be. These can all be examples of fair market value. In certain situations, it may be necessary for the fair market value to be a more ‘official’ number, which can be obtained through a qualified appraisal. Depending on the assets involved, specific appraisals may be required. For instance, an appraiser with experience in antiquities would not be the right person for valuing rural land. An appraiser will consider factors such as comparable assets or sales, the ability of the asset to generate income, and its current replacement cost. It is not an exact science, so results may vary, or the process may provide a range of values. 

During such discussions, other terms such as original cost or basis may appear. At the time of purchase, the 1) original cost, 2) FMV, and 3) basis are all essentially the same. Usually, this is the only time that happens. That is because after acquiring the asset, the cost will stay the same, but the FMV of the asset in the marketplace can change (either higher or lower), and the asset (except for land) will be depreciated or expensed. An example would be a farmer purchases a field implement for $10,000, which on that day is the cost, the FMV, and the basis in the asset. After 5 years, they are planning to sell the implement. The original cost is still $10,000, but let’s assume the FMV of the asset has declined to $7,000 (what it would currently sell for in the marketplace between a willing buyer and seller), and they have fully depreciated the item, giving them a basis of $0. This shows that while sometimes these terms are connected, they are different and used for different purposes. 

For farms, it is important to be able to understand and determine fair market values in the case of sales, purchases, transitions, negotiations, and planning. Farms can request help on these issues through trusted advisors such as lawyers, accountants, tax professionals, appraisers, and consultants. 

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Burkett, Kevin. “No lowballs, I know what I’ve got…” Southern Ag Today 5(49.1). December 1, 2025. Permalink

In light of the recent Independence Day holiday and remembering the founding fathers, there are many attributes from them that can be appreciated. 

It is well known that many of the founding fathers had backgrounds in agriculture. Ben Franklin and James Madison were early proponents of sustainable farming. Thomas Jefferson had a penchant for plants and scientific experimentation. George Washington dabbled in all of those but was also known to be a meticulous bookkeeper. These records were considered essential in determining the success of his enterprises. 

Due to these records and historical preservation efforts, we catch a glimpse of Washington’s efforts in farm management. They were without the digital technologies we enjoy so the records were kept entirely by hand. Day-to-day activities often got recorded in “waste books, pocketbooks, day books or memorandum books”, not unlike a typical pocket notebook farmers may utilize today. Later, the notes from these books would make it into a more formal recording known as a “journal of accounts”. If enterprises became large or complex enough, there were ledgers of accounts and even an accountant to handle these tasks. Washington, however, recorded all the transactions himself. He did so following accounting manuals such as John Mair’s Book-Keeping Methodiz’d. 

While referring to his records and correspondence, Washington noted that after dinner “I resolve …[to] retire to my writing table and acknowledge the letters I have received; but when the lights are brought, I feel tired, and disinclined to engage in this work, conceiving that the next night will do as well; the next comes, and with it the same causes for postponement, & effect; and so on.” A sentiment that perhaps many a farmer can understand. However, it is evident Washington did find time for these tasks as he required large desks and bookcases to accommodate all his files. 

Washington’s records were thorough, as evidenced by the number of documents still available and the detailed entries found on the pages. The documents are being reviewed and catalogued as part of preservation efforts through George Washington’s estate, Mount Vernon. This includes the ‘Washington as Bookkeeper’ article and The George Washington Financial Papers Project used as references for this article. That Washington continued to keep his own books and records when, almost certainly later in life, he could have had someone handle these tasks indicates the level of importance Washington placed on the contents. 

Washington made comments throughout his decorated career on desiring to return to Mount Vernon, “I had rather be on my farm than be emperor of the world”. That Washington desired to relinquish his political power and return to humbler occupations is one reason we admire him today. To think that he would spend a considerable portion of his time recording day-to-day activities at Mount Vernon seems almost unfathomable. Let us admire his dedication, and that we can benefit from his records and example in present day.   

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Burkett, Kevin. “Founding Farmer.” Southern Ag Today 5(29.1). July 14, 2025. Permalink

Several articles have been written for Southern Ag Today on how farms can manage their tax obligations. This time of year, farm management specialists begin to receive questions of all kinds regarding taxes, especially for farms that try to meet the March 1 filing deadline available for qualifying farmers. Tax management is only one part of managing a farm but can be crucial. We wanted to relay a handful of resources that producers and other agribusiness specialists may find useful this time of year.

The Internal Revenue Service (IRS) website, www.IRS.gov, is often the first and best place to begin looking for information. The site contains a vast amount of information and resources, which can also make it a bit daunting. You can find copies of individual tax forms, form instructions, news updates, and educational resources such as Publication 225 – Farmers Tax Guide. The Interactive Tax Assistant (ITA) is designed to answer many basic questions that a taxpayer may have. It includes basic tax return information like filing status, dependents, due dates, and so on, but it can also answer questions regarding tax deductions, credits, income, and payment-related questions. Typically, the assistant will ask questions related to your situation that will help determine which rules may impact you. 

The other section of the IRS website that farm owners may find helpful is the Small Business Self-Employed Tax Center. This section provides information for self-employed individuals with Schedule C (small business) and/or Schedule F (farming) activities relevant for most farm owners. One of the best sections is the IRS Video Portal and Small Business Virtual Tax Workshop, which includes short video explanations on various tax rules. Other tools within the IRS website help taxpayers and preparers, including free filing options, year-to-date withholding amounts, payment options, and finding transcripts of a taxpayer’s account.

Outside of the IRS, there are several other sources of information. The USDA website, www.farmers.gov, has a section specifically on tax education. On this website, you will find webinars on timely topics, frequently asked questions regarding farm taxation, and other resources to help farmers (especially newer farmers) navigate some of these issues. 

Another site, www.RuralTax.org, is maintained by land-grant university professionals throughout the country who work in farm management and tax education. There are dozens of articles available on newer, timely topics, as well as archived information and a small farms tax guide producers may find helpful. Other sources of local help include lenders, fellow producers, your local Extension office, and certainly a designated tax professional. If you need to find a tax preparer, there are guides available through the IRS and Rural Tax. This article is not intended as professional tax advice but general knowledge for agricultural businesses who may benefit by having a bit more information and resources at their disposal. We encourage you to work with a professional who knows you and your farm and can best advise you on your situation.

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Burkett, Kevin. “Death and …” Southern Ag Today 5(10.1). March 3, 2025. Permalink

This time of year is busy as summer comes to a close, children have returned to school, harvest is in full swing, and we anticipate busy days in the fall and winter months. Another item for your to-do list is meeting with your tax professional. This appointment is often scheduled for the early part of the year, but there can be advantages to carving out some time now. 

One of the main advantages is that even though a large majority of the year has passed, there is opportunity for tax planning and management relative to where things currently stand. This allows you (or you and the preparer together) to determine what you would like to see happen by the end of the year. 

If it is a lower-income year so far, consider making additional sales to generate revenue when your income tax rate is lower. This could include making sales of business assets you are considering disposing of as the depreciation recapture or possible capital gains treatment rates could be lower. For expenses, we often think about taking as much expense as possible, but if income is already low, it may be advantageous to save those expenses for another time period. This may mean using depreciation sparingly, not pre-paying farm expenses, or otherwise cutting back on discretionary farm expenditures.

In times of high income, the opposite strategies would be appropriate. We may hold off on making additional sales during the year to slow down revenue recognition. This could include installment sales, deferred payment contracts, deferring any disaster payments, and holding off on selling any assets from the business. To lower our taxable income, we may look to recognize additional expenses through depreciation, pre-paid inputs, or otherwise try to find ways to re-invest in the business or take personal deductions. If high income still seems likely, Schedule J income averaging may be another tax planning opportunity for the farm.

A tax preparer may also clean up your business’ accounting records. Generally, late fall would be a slower time for CPA and accounting firms, which may provide focused attention on your operation when things are not so hectic. Again, getting a clear picture of revenues and expenses at this stage can help with decision-making, tax or otherwise. For a preparer, clients who are easy to work with and make the business run smoother are going to receive better outcomes and better service. Likely, you have ideas or plans between now and the end of the year. Sharing those with your tax advisor can alert you to any possible negative tax outcomes. Too often, preparers get a call after the fact, making the accounting/tax work more difficult and more expensive for you. 

Each year will be unique, with new challenges and new opportunities.  Spending a bit more time communicating with your preparer, especially before year-end, may pay dividends for all involved.  

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Burkett, Kevin. “Preparing For Your Preparer.” Southern Ag Today 4(41.1). October 7, 2024. Permalink

It may seem that barely covering expenses with little positive net farm income means a business is “treading water.” Ideally, a farm would generate revenues that exceed total expenses each year and have cash and other resources to reinvest into the business. However, agriculture can be highly variable from farm to farm and year to year. Reaching incremental financial goals can help producers hit economic targets and minimize risk. To think of financial well-being as a ladder, the bottom rung is financial loss, and the highest rung is maximum profitability. Each rung that is attained is a higher position and further away from financial harm. 

It may not be flashy, but a farm that can generate revenues to break-even and pay down debts has indeed climbed several rungs on the financial ladder. It may not afford much extra cash or the ability to expand the operation, but the business is still making progress. To think of the equation total farm assets – total farm liabilities = farm equity, covering all variable and fixed expenses means the farms equity is continuing to grow. Over time, the owner(s) continues to own more of the business until an ownership change or business dissolution. Either way the owner has accrued increased net worth over time. 

Of course, there are other items that impact total farm assets or total farm liabilities. Asset values can change from year to year. In some cases, they could be quite volatile depending on the valuation method. For discussion, we’ll assume an adjusted cost basis with no major adjustments. Fixed asset accounts can decrease because of depreciation, but we assume this expense is a fixed cost of the business. Liabilities are useful and, in some cases, necessary, but a farm taking on unnecessary liabilities can tip the scales away from the owner, allowing creditors to own more of the operation. Liabilities such as bank loans allow the business to leverage resources to increase production, profitability, efficiency, and other measures. If the farm incurs aliability but the increase in assets is greater than the liability + interest over time, then it will add to the farms’ equity. It’s not always possible to understand the impact of a decision right away, it may take several cycles before seeing the resulting change in farm equity. For an asset purchase with a loan, the initial impact on equity will likely be zero. $100,000 farm asset increase – $100,000 farm liability increase = $0 change in farm equity. However, the influx of cash resulting from the asset’s productivity, allowing the business to cover the depreciation of the item, interest, and debt payments, can have a positive impact on farm equity.

It is important to consider context, too. A farm with successive losses but is now at break-even would seem to be making progress. A farm that has had big years but is now at break-even could signal a downward trend, or it could be merely a speedbump resulting in a short-term modest return.  In general, a business that is paying down debts is contributing positively to farm equity and adds financial resiliency to the business. Should the operation need to borrow again in the future, end up with a financial loss one year, or eventually sell out, the farm will be in better financial position because of the previous farm equity contributions made. 

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Burkett, Kevin. “Building Equity.” Southern Ag Today 4(23.3). June 5, 2024. Permalink.