Financial Mistakes Farmers Make - Two of Them and Their Fix

Jose Alvarez, CFP®, MBA
May 6
4 min read

Updated: Jul 23

Providing financial planning for farmers isn't easy. It's a complex, emotional relationship that often comes with a long history of doing things a certain way. But when I get the chance to work with farmers who’ve built large, successful farms, there’s a real opportunity to make a difference - not just for them, but for their next generation, too.

There are two big mistakes I see again and again:

Trying to avoid taxes by running up year-end expenses
Forgetting to pay themselves

These two are usually tied together. Here's how.

Mistake #1: Avoiding Taxes by Spending Too Much

A common situation looks like this:

It’s the end of the year and your farm turned a profit. Great news, right? But then I hear: "Well, I don’t want to pay taxes, so I need to buy something."

That "something" is usually another tractor, a truck, a trailer, a barn addition, or a fix/update in the parlor. It’s not that these aren’t needed - they usually are - but they’re often bought quickly, with financing, and too often, just to shrink the tax bill.

Yes, the loan interest may be tax-deductible. But that new debt still eats into your cash flow. And when cash is tight, guess who doesn't get paid? You.

This is part of why agriculture makes up just 1% of the U.S. economy - many farms operate at or near break-even for decades.

Mistake #2: Not Paying Yourself

Look, having a farm you’re proud of and can pass down is an honorable goal. But if you’re financially tied to it because you never built income outside of the farm, passing it on and getting to enjoy your "work optional" years gets much, much harder.

As someone who runs both a financial planning firm and a beef operation, I get it. The desire to build something that lasts is real. But you still need to pay yourself in a way that builds security for your future.

Let’s talk about how.

Shift Your Mindset First

It’s okay to pay taxes. Really. Reducing taxes can be a financial goal - but not if it leaves you broke later. Having a profitable, well run farm mean paying some tax. Why? Because those profits build your Social Security record, which directly impacts how much social security income you get in retirement.

Many farmers retire with tiny Social Security checks because they ran at a loss or break-even for most of their lives. That can hurt when it's time to step away from the farm.

Then, Start Paying Yourself Right

You can do this a few ways:

1. Set up a retirement plan

There are several options available depending on your farm’s size and setup:

SEP IRA – Simple, flexible, good for small farms
SIMPLE IRA – Easy to manage, good if you have a few employees
Defined Benefit Plan (Pension) – Ideal for older farmers who want to supercharge retirement savings late in the game
SIMPLE 401(k) – A step up in complexity but gives you more control
401(k) – Good for larger farms or those structured as co-ops

You don’t have to figure this out alone. A professional can help you choose the right plan and keep it running smoothly.

2. Open a taxable brokerage account

This one's underused in agriculture. A brokerage account gives you flexibility, growth potential, and access to your money without retirement-age restrictions.

It can also be powerful if you're thinking about selling the farm someday. Why? Because you can accumulate capital losses in that account over time to help offset capital gains when you sell the farm. It’s not a retirement account, but it helps with tax planning and wealth building.

Diversify Your Financial Life

If all your wealth is tied up in the farm, you're in a risky spot. What if land values drop? What if input costs surge? What if you can't find a successor?

You wouldn’t put all your money into one stock. Don’t put all of it into your business either. Diversification isn’t just for Wall Street - it applies to farmers, too.

I’ve seen too many families get to retirement and realize they can’t afford to leave the farm, even when their bodies can barely take the work anymore. They didn't pay themselves, they didn’t save, and now they’re stuck.

That’s the kind of outcome I want to help you avoid.

Let’s walk the property. Let’s talk through your operation. Let’s build a plan that honors your work and takes care of your future.

Reach out to schedule an introduction meeting and farm visit. You’ll be glad you did.

Jose Alvarez

Founding Advisor

Harvest Horizon Wealth Strategies

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The information presented in this blog is the opinion of the author and does not reflect the views of any other person or entity unless specified. The author may hold positions in any securities discussed in this blog. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. Images included in this blog are created by artificial intelligence. Any resemblance to any existing persons, past or present, is purely coincidental. The information provided is for informational, entertainment, and educational purposes and should not be construed as advice. Advisory services are offered through Harvest Horizon Wealth Strategies LLC, an investment adviser registered with the state of Wisconsin.