Tax Ramifications for Scam Victims
Navigating the tax implications of scams and theft losses can be complex, especially considering legislative changes that generally limit casualty and theft losses to those associated with a disaster. However, if you’ve fallen victim …
Navigating the tax implications of scams and theft losses can be complex, especially considering legislative changes that generally limit casualty and theft losses to those associated with a disaster. However, if you’ve fallen victim to a scam, there is still an important tax avenue available for you.
Traditionally, under tax law, you could deduct theft losses if they weren’t covered by insurance. But while the law changed a few years ago, tightening restrictions and limiting deductions primarily to disaster-related losses, there’s still hope. The tax code recognizes that if you were scammed while engaging in a transaction with a profit motive, you might still be eligible to claim a deduction.
Internal Revenue Code Section 165(c)(2) caters specifically to losses incurred from profit-driven activities. This means if your financial losses from a scam were tied to an endeavor intended to generate profit, you might deduct these losses, without needing a disaster declaration. Understanding this exception can be a crucial lifeline, allowing you to reclaim some financial relief from the losses you’ve endured due to deceitful scams.
Eligibility Criteria for Profit-Driven Casualty Losses: For a theft loss to qualify under the profit-motivated exception, several stringent criteria must be met:
- Profit Motive: The primary intention of the transaction must be to achieve economic advantage. The IRS requires clear evidence that the transaction had a bona fide profit expectation. Case law and IRS rulings substantiate the necessity of this objective, often requiring substantial documentation to support the profit intent.
- Type of Transaction: Eligible transactions commonly include traditional investment vehicles such as securities, real estate, or other income-generating activities. The lack of a profit motive typically disqualifies social or personal activities from this deduction space.
- Nature of Loss: The loss must stem directly from the transaction aimed at profit. This correlation should be clear and demonstrable through financial records and legal documentation. For instance, investment scams or fraudulent financial schemes targeting taxpayer investments often qualify if they meet the profit criteria.
Application of IRS Guidance: The application of the deduction frequently necessitates analyzing IRS memoranda and rulings for clarity on what constitutes a deductible loss. A recent IRS Chief Counsel Memorandum (CCM 202511015)has further elucidated scenarios where such losses are deemed deductible:
- Investment Scams: These are classic examples where losses, though fraudulent in nature, can be deemed deductible if the initial investment was made with a credible expectation of profit. Taxpayers must validate the transaction’s legitimacy and profit intent using documentation such as communications with the scammer, investment contracts, and proof of monetary transfer.
- Theft Losses: Profit-driven theft is uniquely scrutinized. The IRS insists that these losses must manifest in a transaction inviting profit, not merely in personal engagements like casual lending between acquaintances.
Some Not So Good Tax Ramifications: Being scammed out of your IRA or tax-deferred pension funds can have significant tax implications, depending on whether the account was a traditional or Roth type.
In the case of a traditional IRA or tax deferred retirement plan, funds withdrawn prematurely due to a scam are generally considered taxable income. This means the entire amount withdrawn is added to your taxable income for the year, potentially bumping you into a higher tax bracket and increasing your tax liability. Additionally, if you are under 59½, these withdrawals might also be subject to a 10% early withdrawal penalty, further compounding the financial stress.
Conversely, a Roth IRA or Roth qualified plan withdrawal is less punitive in terms of immediate tax consequences, as contributions were made with after-tax dollars. Generally, provided your account has met the five-year holding rule, contributions can be withdrawn tax-free and penalty-free. However, if earnings are withdrawn prematurely and not for a qualifying reason, they may be subject to taxes and penalties.
The following examples illustrate when a scam or theft will or will not qualify for a casually loss and the tax consequences. Generally, the stolen funds are transferred overseas and are irretrievable without a reasonable prospect of recovery, one of the qualifications for a personal casually loss.
Example 1: Impersonator Scam – Qualifies as Personal Casualty Loss
Taxpayer 1 fell victim to a sophisticated scam involving an impersonator claiming to be a “fraud specialist.” The scammer falsely informed Taxpayer 1 that their accounts were compromised, inducing Taxpayer 1 to transfer funds from both IRA and non-IRA accounts into what were purportedly new, secure investment accounts. However, these were controlled by the scammer, who funneled the money into an overseas account.
The key to this scenario being deductible lies in the taxpayer’s intent. Taxpayer 1’s motive was to safeguard and reinvest funds, clearly manifesting a profit-oriented intention. Consequently, the scam losses qualify as a theft loss since they were incurred in a transaction entered for financial gain.
Tax Implications:
a. If the taxpayer can itemize deductions, the loss is deductible on Schedule A.
b. However, the taxpayer is taxed on the traditional IRA distributions, and must recognize the gain or loss on the non-IRA account. In addition, if the taxpayer is under age 59.5 the 10% early distribution penalty for traditional IRAs applies, for which there is no specific exception.
c. If the taxpayer has sufficient resources, other funds can be rolled back into the IRA within 60 days from the date withdrawn, and b. and c. would not apply to the extent of funds rolled into the IRA.
Example 2: Romance Scam – Non-Qualifying Personal Casualty Loss
Taxpayer 2 became ensnared in a romance scam, believing they were in a genuine relationship with an impersonator. Persuaded by a fabricated story about a relative needing medical help, Taxpayer 2 transferred funds from IRA and non-IRA accounts, into an overseas account controlled by the scammer. The funds were meant to assist another person, rather than seek profit.
The critical distinction here is the absence of a profit motive. The transactions were embarked upon out of personal sentiment and misled compassion, lacking any financial investment intent. Consequently, these losses are classified as personal casualty losses under Section 165(c)(3), which are non-deductible absent a federally declared disaster or qualifying personal casualty gains.
Because the losses do not meet the criteria for profit-driven transactions, the taxpayer’s losses are not deductible.
Tax Implications:
a. No casualty loss deduction allowed.
b. However, the taxpayer is taxed on the traditional IRA distributions, and must recognize the gain or loss on the non-IRA account. In addition, if the taxpayer is under age 59.5 there is a 10% early distribution penalty for traditional IRAs for which there is no specific exception.
c. If the taxpayer has sufficient resources, other funds can be rolled back into the IRA within 60 days, and b. and c. would not apply to the extent of funds rolled into the IRA.
Example 3: Kidnapping Scam – Non-Qualifying Personal Casualty Loss
Taxpayer 3 was the victim of a kidnapping scam involving an impersonator. The scammer contacted the taxpayer by text and phone and claimed to have kidnapped the taxpayer’s grandson for ransom. The taxpayer demanded to speak to the taxpayer’s grandson and heard his voice over the phone begging for help.
Scammer directed Taxpayer 3 to transfer money to an overseas account and not to contact law enforcement. The taxpayer did not realize that the scammer had used artificial intelligence to clone the grandson’s voice and that no kidnapping had taken place.
Under immense duress, Taxpayer 3 authorized distributions from an IRA account and a non-IRA account, then directed those funds to be deposited in the overseas account provided by the scammer, hoping to ensure the safety of the grandson.
Later Taxpayer 3 was able to contact the grandson and learned that no kidnapping had taken place and immediately contacted law enforcement and their financial institution, but was informed that the distribution to the overseas account could not be undone and there was little to no prospect of recovery.
The taxpayer’s motive was not to invest any of the funds distributed from the IRA and non-IRA accounts but, rather, to voluntarily transfer the funds to the scammer, albeit under false pretenses and duress. Notwithstanding the fraudulent inducement and duress, Taxpayer 3 did not have a profit motive; therefore, the losses were NOT incurred in a transaction entered for profit and therefore not tax deductible.
Tax Implications: Same as example #2.
Implications: These examples emphasize the importance of critical assessment of the intent and transaction nature when determining if a scam-related event is a deductible casualty loss.
- Documentation and Intent: Individuals should maintain clear intent documentation, prominently in investment contexts, to support future claims of profit motive.
- Scrutiny and Compliance: Enhanced IRS scrutiny of non-disaster casualty losses necessitates meticulous compliance, with auditors keenly differentiating between qualifying and non-qualifying losses.
It is crucial to consult with our office when receiving questionable or unsolicited texts and emails, especially before authorizing any fund transfers. This office can provide valuable guidance on fraud detection and prevention. Moreover, it is important to educate your family members, particularly the elderly, who are often targeted by scams, about these risks. Encouraging them to reach out for assistance can help prevent losses and provide support if they fall victim to a scam. A proactive approach can protect assets and offer peace of mind.
What Is Advisory — And Is It Right for You?
Most people think their financial professional focuses on the past: last year’s tax numbers, last quarter’s profit, last month’s expenses. That’s the compliance world. It’s essential, of course. But it’s focused on what has …
Most people think their financial professional focuses on the past: last year’s tax numbers, last quarter’s profit, last month’s expenses. That’s the compliance world. It’s essential, of course. But it’s focused on what has already happened.
Advisory is something different.
Advisory is about shaping what comes next.
It’s a shift from “Here’s your report” to “Here’s how we reach your goals.” From reacting to numbers to intentionally influencing them. And if you’ve ever wished money felt less uncertain — or wished for a clearer path toward the life or business you want — advisory may be the upgrade you didn’t know was available.
Why Compliance Alone Leaves People Stuck
Compliance keeps you accurate. Advisory keeps you moving forward.
Most individuals and business owners only see the backward-facing side of financial work. That’s why they often run into patterns like:
- Finding out their tax bill when it’s too late to change it
- Making big business decisions without a roadmap
- Setting goals without the structure to reach them
- Reviewing profitability rather than designing profitability
- Feeling like money is unpredictable rather than manageable
These aren’t failures. They’re symptoms of operating with historical data instead of a future-focused strategy.
So… What Exactly Is Advisory?
Advisory is an ongoing, collaborative process that uses forward-looking insights to help you make smarter financial decisions, reduce stress, and progress toward long-term goals.
There are two main types that many people find the most helpful.
1. Tax Advisory
Tax advisory is proactive tax planning — the strategies, timing, and decision-making that help reduce future tax obligations before a return is ever filed.
It tackles questions like:
- “What steps can I take this year to lower my tax bill next year?”
- “Should I consider a different business structure as I grow?”
- “How do I plan for capital gains, retirement withdrawals, or rental income?”
- “What tax strategies apply if I start or sell a business?”
Tax advisory shifts the focus from reporting taxes to designing tax outcomes.
2. CFO Advisory
CFO advisory focuses on the financial direction of your business — not just what happened, but what’s possible.
It helps you explore questions such as:
- “How much cash will I actually have in three or six months?”
- “Does our pricing support the level of profit we need?”
- “Are we ready to hire, or should we outsource a little longer?”
- “What would it take to expand, open a new location, or launch a new service?”
- “How do we build a budget that reflects our goals instead of just our costs?”
CFO advisory gives you a clearer view of how decisions today shape results tomorrow.
It’s not bookkeeping. It’s strategic guidance.
Compliance vs. Advisory: A Clearer Comparison
|
Compliance |
Advisory |
|
Looks at the past |
Plans for the future |
|
Answers “What happened?” |
Answers “What should we do next?” |
|
Necessary for accuracy |
Essential for growth |
|
Often once a year |
Ongoing partnership |
|
Reporting-focused |
Goal- and strategy-focused |
|
Reactive |
Proactive |
The difference isn’t only in services — it’s in mindset. Compliance is about clarity. Advisory is about progress.
Who Benefits the Most From Advisory? Business Owners
Whether you’re just starting or scaling, advisory helps with pricing, cash flow, hiring decisions, profit margins, budgeting, and long-term growth planning.
Individuals With Complex or Growing Financial Lives
Side gigs, rental properties, investments, stock compensation, and multi-source income all benefit from proactive planning.
People Approaching Major Life or Financial Milestones
Retirement, business sales, home purchases, expansions, or college planning often require a long runway to optimize outcomes.
Anyone Who Wants More Control and Less Guesswork
If you want financial clarity instead of surprises, advisory gives you structure and strategy.
The Key Benefits: Why Advisory Pays Off
Advisory often delivers a measurable return on investment because it directly influences taxes, cash flow, and long-term wealth building. The most common benefits include:
1. Better Tax Outcomes Year After Year
Planning ahead opens the door to legal, strategic tax advantages you simply can’t access at filing time.
2. A Clear, Actionable Financial Plan
You’re no longer guessing. You know the steps required to reach your goals — and you have support following them.
3. Improved Profitability and Cash Flow
Businesses often discover hidden profit leaks and inefficiencies that can be corrected quickly.
4. More Confidence in Decisions
You gain clarity on the financial impact of every major move before you make it.
5. Faster Progress Toward Your Milestones
Whether you want to expand your business, retire early, or grow wealth, advisory accelerates the path.
6. A Collaborative Relationship Focused on Your Wins
Instead of one annual meeting, you get a strategic partner committed to helping you move forward throughout the year.
Is Advisory Right for You?
If you want more clarity, more control, more intentional financial planning — and fewer surprises — advisory may be exactly what you need.
It’s not about adding complexity. It’s about replacing uncertainty with direction.
And if you’re ready to explore how proactive planning can improve your financial outcomes, the next step is simple:
If you think advisory might be right for you, reach out to our firm. Let’s talk about your goals and build a plan for where you want to go next.
What To Do When You Get an IRS Notice (And Why You Don’t Need to Panic)
There’s nothing quite like opening the mailbox, seeing an envelope with “Internal Revenue Service” printed on it, and feeling your stomach drop. Even people who are perfectly organized — even people who’ve done everything …
There’s nothing quite like opening the mailbox, seeing an envelope with “Internal Revenue Service” printed on it, and feeling your stomach drop. Even people who are perfectly organized — even people who’ve done everything right — feel the same jolt of panic when they receive an IRS notice.
But here’s the truth:
Most IRS notices are not emergencies.
Many are routine.
And almost all can be resolved calmly and cleanly once you know what you’re dealing with.
So, before you lose sleep, take a breath. Then take the next right steps.
Why the IRS Sends Notices in the First Place
The IRS sends millions of notices every year, and most fall into just a few categories:
- Something didn’t match
This is the most common scenario. The IRS receives a form (like a 1099 or W-2) that doesn’t match what was on your return. This triggers an automatic letter — not an accusation. - They need more information
Sometimes a number wasn’t clear. A form didn’t show up. A math error correction triggered a follow-up. It’s often small. - A payment was short, delayed, or misapplied
Your payment might have gone to the wrong tax year, posted late, or not matched the number on your return. - They’re adjusting something on their end
This could be a refund recalculation or an update to a credit or deduction. - They’re confirming identity
Identity theft protections are much stronger now, and sometimes the IRS asks you to verify you’re… you.
In most cases, the notice is informational — not a threat.
The Most Important Thing: Don’t Respond Alone
The biggest mistake people make is replying to the IRS too fast or without guidance.
You may be tempted to:
- Pay whatever number the letter shows
- Call the IRS immediately
- Send documents without context
- Ignore it and hope it goes away
Those reactions almost always make things harder.
The IRS letter is talking to you — but you should talk to your financial professional first.
They’ll help you understand:
- Whether the notice is accurate
- Whether you actually owe anything
- Whether the IRS made an error
- Whether this is a simple fix or needs representation
- What documentation (if any) needs to be provided
- Whether you should respond at all
You are not meant to navigate this alone.
What Your Notice Actually Means
Every notice has a code (such as CP2000, CP14, or CP75). Those codes help identify the issue quickly.
Here’s a quick guide to the most common ones:
CP2000 — Underreported Income
This is the big one. It means the IRS thinks your income was higher than what you filed. This does not mean you did something wrong. Often, a vendor filed a form late or incorrectly.
CP14 — Balance Due
This shows a balance the IRS thinks you owe. It could be accurate… or it could be the result of a timing issue.
CP75 — Audit Documentation Request
The IRS wants proof related to a credit or deduction. Again, not a panic situation — just a request.
Letter 5071C — Identity Verification
This is part of fraud prevention. It’s not about your return being “wrong.”
Notice of Intent to Levy (LT11/CP504)
This is more serious and requires prompt action — but still not panic. Professionals resolve these daily.
Whatever the code, context matters more. And that’s where guidance helps.
What NOT To Do When You Receive an IRS Notice
A calm, correct response almost always leads to a clean resolution. But these common mistakes make things significantly worse:
Don’t ignore the notice. Deadlines matter.
Don’t call the IRS before reviewing the notice with a professional. You may accidentally agree to something you shouldn’t.
Don’t pay the amount automatically. The number may be wrong — sometimes by a lot.
Don’t send documents without explanation. The IRS reads what you send literally. Context is everything.
Don’t assume this means you’re being audited. Most notices have nothing to do with audits.
How the Process Usually Goes
Here’s what a calm, correct resolution typically looks like:
- You contact your financial professional and share the notice.
- They review your return and the IRS data to see what triggered the letter.
- They determine whether the IRS is correct or incorrect.
- They prepare the appropriate response — or advise that no response is needed.
- If money is owed, they ensure the amount is accurate and the payment is sent to the correct tax year.
- If the IRS is mistaken, they prepare a clear explanation and supporting documents.
Most cases resolve with a single letter. Some take a few rounds. But almost all are manageable.
Why Having Professional Support Makes a Huge Difference
IRS notices feel intimidating, but a professional sees these all the time. They know:
- How to interpret the codes
- How to match the notice to your return
- Where IRS errors commonly happen
- How to fix misapplied payments
- How to communicate with the IRS clearly and effectively
- When to escalate an issue
- When notto respond at all
And most importantly… they know how to keep you calm and protected through the process.
If You Got a Notice, You Don’t Have to Solve It Alone
The most important thing you can do is reach out sooner rather than later.
If you’ve received an IRS notice — whether it’s confusing, alarming, or just unexpected — contact our firm. We’ll review it with you, explain what it means, and help you resolve it the right way.
No panic.
No guesswork.
Just clarity, support, and a clean path forward.
Tax Alert: Prepare for the New 1099-DA Crypto Reporting
Form 1099-DA, “Digital Asset Proceeds from Broker Transactions,” is a new Internal Revenue Service (IRS) tax form that certain brokers must use to report digital asset transactions. It is designed to enhance transparency and …
Form 1099-DA, “Digital Asset Proceeds from Broker Transactions,” is a new Internal Revenue Service (IRS) tax form that certain brokers must use to report digital asset transactions. It is designed to enhance transparency and compliance in the rapidly evolving digital asset space, requiring information on transactions involving cryptocurrencies, non-fungible tokens (NFTs), and other digital assets.
The reporting requirements for Form 1099-DA officially take effect for the 2025 tax year, with brokers sending the forms to taxpayers and the IRS in early 2026. Before this change, reporting digital asset transactions was largely dependent on self-reported data, which often led to inconsistencies and underreporting.
The Purpose and Impact of Form 1099-DA: Form 1099-DA aims to increase tax compliance and improve reporting accuracy in the digital asset space by requiring brokers to report transactions. This standardizes reporting and can simplify tax filing for some investors but also necessitates diligent record-keeping to ensure accurate reporting.
Who Must Issue Form 1099-DA? The reporting obligation for Form 1099-DA falls on “brokers” who facilitate the sale or exchange of digital assets. The IRS’s definition of a broker is broad and includes digital asset trading platforms, payment processors, and hosted wallet providers. However, decentralized finance (DeFi) platforms and non-custodial wallets are not generally required to issue this form.
Who Will Receive Form 1099-DA? U.S. taxpayers who sell, trade, or dispose of digital assets through a qualifying broker should expect to receive a Form 1099-DA in early 2026 (for 2025 transactions). This includes individuals and businesses involved in buying, selling, trading, mining, or staking digital assets. Real estate reporting entities must also report if digital assets are used in real estate transactions.
What Information is Included on Form 1099-DA? Form 1099-DA requires brokers to report detailed information about each digital asset transaction, including:
- Payer and Recipient Identification.
- Transaction details like asset name, quantity, date, time, and gross proceeds.
- Cost basis (mandatory for “covered securities” acquired after January 1, 2026). Broker reporting of basis is voluntary for the 2025 tax year.
- Holding period.
- Transaction type.
- Fair Market Value (FMV).
- Transaction fees.
- Wash sales for tokenized securities.
The information reported on Form 1099-DA varies depending on the tax year.
- 2025 Tax Year (forms sent in early 2026)– For 2025 transactions, brokers are required to report the gross proceeds from the sale, exchange, or other disposition of a digital asset. Reporting of the cost basis is voluntary for brokers in 2025.
- 2026 Tax Year and beyond (forms sent in early 2027 and later) – Starting with the 2026 tax year, brokers will be required to report more comprehensive information, including gross proceeds, cost basis (for “covered securities”), acquisition and disposition dates, holding period, and transaction details like the type and quantity of the digital asset.
Understanding the Cost Basis Challenge for 2025: A significant point for the 2025 tax year is the voluntary cost basis reporting by brokers. If the cost basis is not reported on Form 1099-DA, the IRS may assume it’s zero, which could lead to tax notices for underreported income. To prevent this, taxpayers must keep detailed personal records of their digital asset transactions, including acquisition dates and costs, fees, disposition dates, and sales proceeds. These records are necessary for accurately completing Forms 8949 and Schedule D.
Special Reporting Rules for Stablecoins and Non-Fungible Token (NFTs): There are specific reporting rules for certain digital asset types.
- Qualifying Stablecoins: For 2025 and later, brokers can report qualifying stablecoin transactions in aggregate if they exceed $10,000 annually.
- Specified NFTs: Starting in 2025, if total sales of specified NFTs exceed $600 for the year, brokers must report them, potentially in aggregate.
How Form 1099-DA is Used File Taxes: The information on Form 1099-DA is used when preparing tax returns similar to the way stock transactions reported on Form 1099-B are transferred to Form 8949 and Schedule D. This involves reconciling the 1099-DA with a taxpayer’s records, calculating capital gains or losses, and reporting the final amount on Form 1040.
Best Practices for Crypto Investors: Given these changes, digital asset investors should maintain detailed records of all transactions, consider using crypto tax software for tracking and calculations, and be aware of potential limitations in broker reporting, especially regarding cost basis in 2025. It is also important to remember that transactions not reported on a 1099-DA must still be reported. Staying informed and consulting a tax professional can help navigate this evolving landscape.
Answering the IRS Question about Digital Assets: For the last several years, a “yes”/”no” question on Form 1040 has been: “At any time during [return year], did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?” Now that brokers will be issuing Form 1099-DA for the sale or exchange of digital assets, the IRS will be able to verify how taxpayers answer the question in light of the Form 1099-DA that was filed by the broker. When signing the tax return, the taxpayer signs under penalty of perjury that the information in the return is true, correct and complete. Care needs to be taken to correctly answer the IRS’ question.
Contact our office with questions and assistance in properly including your crypto transactions on your return.
Employee Spotlight: Megan Joseph
Since joining De Boer, Baumann & Company in 2023, Megan Joseph has quickly become a trusted figure on our CAAS team. As a CAAS Manager, she brings both technical strength and a calm, steady …
Since joining De Boer, Baumann & Company in 2023, Megan Joseph has quickly become a trusted figure on our CAAS team. As a CAAS Manager, she brings both technical strength and a calm, steady approach that helps clients feel confident in where they stand financially and where they are headed next.
Megan earned her Bachelor’s degree in Accounting from Miami University, where she built the foundation for her love of numbers and problem solving. Today, she works closely with clients across a variety of industries, offering thoughtful guidance, clear communication, and reliable support. Whether she is digging into the details or helping clients see the bigger picture, Megan approaches her work with care, consistency, and a genuine commitment to the people she serves.
Family plays a central role in Megan’s life. She has been married for 36 years to her husband, whom she met while working in Chicago, and together they have two daughters, Jennifer and Carleigh. Megan is also a proud grandmother to her 15-month-old grandson, Julian. When asked about her greatest accomplishment, she points without hesitation to being a mother and grandmother, a role that brings her immense pride and joy.
Outside of work and family, Megan appreciates experiences that create lasting memories. One of her fondest memories is her trip to Thailand, where she had the opportunity to step outside of her every day routine and experience a completely different culture. That sense of curiosity and appreciation for perspective shows up in subtle ways, including how she approaches her work and the relationships she builds.
Megan’s influence can be seen throughout the firm, not just in the work she does but in the way she consistently reflects the values we uphold. Her thoughtful presence and commitment to supporting others help create a culture rooted in trust and collaboration. We’re proud to spotlight Megan and the difference she continues to make every day.
Building Your Farm’s Professional Advisory Team
Running a successful farm requires more than strong production skills. It also depends on having the right people around you to support decision making, protect the business, and help you plan for the future. …
Running a successful farm requires more than strong production skills. It also depends on having the right people around you to support decision making, protect the business, and help you plan for the future. A well-built advisory team allows you to focus on farming while trusted professionals handle the areas that demand specialized expertise.
No two farms need the exact same team, but the most effective operations intentionally surround themselves with advisors who understand agriculture and work toward shared goals.
Understanding the Roles on Your Team
Every farm relies on a mix of contributors who move the business forward and protect what has been built. Some advisors focus directly on profitability and production, while others play a critical role in managing risk and long-term stability.
Operational advisors often include lenders, agronomists, nutritionists, marketing professionals, seed and chemical representatives, veterinarians, and production employees. Their work directly affects yields, efficiency, and cash flow.
Protective advisors help safeguard the business and family. These typically include accountants, attorneys, insurance providers, succession planners, and trusted service professionals. While their impact may be less visible day to day, their role is essential to preserving assets and preventing costly mistakes.
In addition to formal advisors, many farms rely on a broader support network that includes family members, Extension specialists, mentors, neighbors, and peer producers. These relationships often provide perspective and practical insight when it matters most.
Finding the Right Fit Matters
The value of an advisory team depends on how well its members align with your operation and goals. Credentials alone are not enough. Advisors must understand agriculture and be willing to engage with your specific challenges.
Many producers discover that an advisor who served a previous generation well may not be the best fit for the next phase of growth. As operations expand, take on more risk, or change structure, their advisory needs naturally evolve. Reassessing your team is not a sign of disloyalty; it is a necessary step in managing a sophisticated, growing business.
Strong advisors communicate clearly, return calls, ask thoughtful questions, and show confidence in your vision. They should challenge assumptions when needed and support informed decision making rather than simply reacting to problems.
The Time Saving Value of a Strong Team
One of the most overlooked benefits of a well-built advisory team is time. When responsibilities are clearly delegated and supported by capable professionals, owners gain both mental space and hours in the day.
Clear systems, shared platforms, and proactive communication reduce last minute stress. Tax planning becomes less disruptive. Legal and financial issues are addressed before they become urgent. Equipment breakdowns, labor challenges, and operational risks are managed more efficiently because the right people are already in place.
This support is especially important for multi-generational operations where responsibilities are shared among family members and employees. A strong team helps prevent burnout and allows the business to function smoothly even during peak seasons.
Making Sure Advisors Are Aligned
A common challenge in farm operations is working with advisors who operate independently without coordination. Financial plans, legal documents, lending structures, and succession strategies may each make sense on their own but fail to work together.
Alignment across advisors is critical. When your accountant, attorney, and lender are not communicating, gaps and conflicts can emerge. Coordinated planning helps ensure decisions support both short-term operations and long-term goals.
Having a central point of coordination, whether that is an internal leader or a trusted advisor, helps keep everyone focused on the same objectives and reduces the risk of conflicting strategies.
Knowing When to Make a Change
If a professional relationship is not working, it is important to recognize that you are the client. Advisors are there to serve the goals of the farm. If communication is poor, understanding is lacking, or progress feels stalled, it may be time to seek a second opinion or make a change.
Moving on from an advisor does not require conflict. Often, it simply reflects a shift in needs or direction. Giving yourself permission to adjust your team helps ensure the business remains supported as it grows and changes.
Building And Maintaining Your Roster
Recommendations from trusted peers, lenders, and current advisors are often the best way to find new team members. Asking who has helped others navigate similar situations can lead to better matches than asking general questions about who is “good” at their job.
Technology has also expanded access to specialized expertise. Geographic location is no longer a barrier to working with professionals who understand agriculture and your specific challenges.
Once your team is in place, regular check-ins help keep everyone aligned. Reviewing goals, updating plans, and evaluating progress ensures advisors remain focused on supporting the direction of the farm rather than reacting to isolated issues.
How De Boer, Baumann & Company Can Help
Strong advisory teams do not form by accident. They are built intentionally around the goals and structure of the operation. De Boer, Baumann & Company works with agricultural producers to coordinate financial planning, tax strategy, succession planning, and long-term decision making. Our team helps connect the dots between advisors so farm owners can move forward with clarity and confidence.
To read the full article by Lisa Foust Prater, please visit https://www.agriculture.com/draft-your-farms-professional-dream-team-8708459.
Factoring Living Expenses Into Farm Compensation Planning
As farm families review year-end financials and prepare for another season, compensation conversations often rise to the surface. Wages, salaries, and major capital investments tend to get the most attention. One area that is …
As farm families review year-end financials and prepare for another season, compensation conversations often rise to the surface. Wages, salaries, and major capital investments tend to get the most attention. One area that is frequently overlooked, however, is family living expenses.
While these costs may seem modest compared to land, equipment, or operating inputs, they can significantly affect cash flow and profitability, especially when multiple families rely on the business for support. When living expenses are not clearly understood or documented, they can also become a source of tension within family operations.
Why Living Expenses Matter More Than You Think
Family living expenses often flow through the farm business in ways that are not always obvious. Housing, utilities, vehicles, insurance, and other benefits may be paid by the operation and deducted for tax purposes. While these arrangements can be tax efficient, they can also blur the line between compensation and business expenses.
When these costs are not clearly identified, it becomes difficult to answer a basic question: what is each person actually living on? Without that clarity, compensation discussions are incomplete and comparisons between roles can feel unfair, even when no one intends them to be.
Understanding the full cost of supporting family members through the business is an important step toward more transparent financial planning.
Separating Compensation From What the Business Can Afford
In many family operations, compensation discussions get tangled with concerns about cash flow. Rather than setting compensation based on the value of the work being performed, families often ask what the business can afford in a given year.
In a nonfamily business, compensation decisions are typically made based on market value for a role. If the business cannot afford that cost, staffing changes are considered. Family businesses rarely operate this way. Instead, they often reduce pay, defer compensation, or rely on operating loans to cover gaps. Over time, this can lead to resentment and confusion, especially if expectations are not clearly communicated.
Developing a formal compensation plan helps shift the focus from short-term affordability to long-term sustainability and fairness.
Accounting for Hidden Compensation
Many farms provide benefits that function as compensation but are not always recognized as such. Housing, vehicles, insurance coverage, meals, or even animal boarding can represent a significant portion of an individual’s total compensation package.
When these benefits are not quantified, individuals may underestimate what they are receiving from the business. A role that appears to pay a modest salary may actually provide a much higher level of total compensation once these benefits are considered.
Quantifying both wages and benefits allows families to see the full picture. It also provides a foundation for addressing perceived inequities and making informed adjustments.
Building a Market-Based Compensation Plan
A strong compensation plan often starts with a market-based assessment. Consider what a similar role would command if the farm had to hire a nonfamily employee. This approach helps establish a fair baseline for labor and management compensation.
Once total compensation is defined, benefits can be allocated based on individual circumstances. One family member may need health insurance through the farm, while another may receive coverage elsewhere. Flexibility within the compensation structure allows benefits to be adjusted while maintaining overall fairness.
Clear documentation ensures everyone understands how compensation is determined and what it includes.
Separating Returns to Labor From Returns to Ownership
Another common challenge in family farms is distinguishing between compensation for work performed and returns generated by ownership. Without clear policies, profits may be distributed unevenly or used to supplement wages in strong years, only to be reduced when conditions change.
Establishing a policy that prioritizes fair, competitive compensation first helps create consistency. Profits earned beyond compensation can then be distributed based on ownership interests. This separation supports more stable planning and reduces emotional decision making tied to short-term performance.
Clear distinctions are especially important as farms bring in the next generation or involve multiple family branches.
Establishing Expense And Reimbursement Policies
Expense management is another area where clarity matters. Personal expenses can easily be buried in operating categories, whether intentionally or unintentionally. Over time, this practice distorts financial reporting and complicates compensation discussions.
Clear policies should define which expenses may be charged to the business and how reimbursements are handled. Regular review of expenses encourages accountability and promotes more disciplined spending.
Some farms benefit from structured discussions around expenses, while others rely on documented policies and periodic reviews. The right approach varies, but consistency is key.
Having The Right Conversations At The Right Time
Discussions about compensation and expenses are not easy, but avoiding them creates greater risk over time. These conversations are best handled intentionally, separate from holidays or emotionally charged family gatherings.
Trusted advisors can play an important role in these discussions. Accountants and lenders bring objectivity and financial insight that can help families evaluate options and make informed decisions grounded in data rather than assumptions.
How De Boer, Baumann & Company Can Help
Compensation planning in family farm operations requires more than setting wages. It involves understanding living expenses, valuing benefits, separating ownership returns, and aligning policies with long-term goals. De Boer, Baumann & Company works with agricultural producers to develop clear, practical compensation and expense structures that support fairness, transparency, and financial sustainability.
To read the original article by Katie Micik Dehlinger, please visit https://www.dtnpf.com/agriculture/web/ag/news/article/2025/12/01/hidden-benefits.
A Conversation Is Not a Contract: Why Farm Succession Plans Must Be Put in Writing
Many farm families talk openly about the future. They discuss who will run the operation, how responsibilities will shift, and what retirement might look like for the senior generation. These conversations are important, but …
Many farm families talk openly about the future. They discuss who will run the operation, how responsibilities will shift, and what retirement might look like for the senior generation. These conversations are important, but they are not enough.
Without written agreements and legal documentation, even the best intentions remain uncertain. A farm succession plan that exists only in conversation leaves too much room for misunderstanding, delay, and conflict. For the next generation, that uncertainty can become a significant source of stress.
When Responsibility Grows but Certainty Does Not
In many family farm operations, the next generation gradually takes on more responsibility. They manage day-to-day operations, oversee production decisions, and help stabilize the business so the senior generation can step back. Over time, this shift often allows parents to travel more, reduce stress, and enjoy life beyond the farm.
The challenge arises when increased responsibility is not matched with clarity about the future. Assumptions replace assurances. Verbal comments like “you’re doing great,” “we will take care of it,” or “that sounds fair” feel encouraging, but they do not define ownership, authority, or timelines.
As years pass, uncertainty grows. The next generation may wonder what their long-term role will be, how assets will transition, and whether their commitment is truly recognized. Strong working relationships can mask these concerns until frustration quietly builds.
Why Verbal Agreements Fall Short
Families often avoid formal planning because conversations feel easier than documentation. Topics like ownership transfer, compensation, and estate planning can feel uncomfortable, especially when relationships are positive.
The problem is that verbal alignment does not guarantee shared understanding. People may interpret the same conversation very differently. What sounds like agreement to one person may feel like a loose idea to another.
Without written documentation, expectations remain untested. Decisions are delayed. When a triggering event occurs, such as illness, death, or burnout, the lack of clarity can quickly turn into conflict. In many cases, this is when farms are divided, sold, or lost entirely.
What Successful Transitions Have in Common
Farms that transition successfully do not rely on assumptions. They take the time to document how the business operates today and how it is expected to operate in the future. With family, more clarity is required, not less.
Written plans help protect relationships by removing ambiguity. They provide a shared reference point and create accountability for follow through. Most importantly, they give the next generation confidence that their future is being taken seriously.
Key Items That Should Be Documented
A comprehensive succession plan typically includes clear documentation across multiple areas of the business:
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Ownership documents such as titles, deeds, and asset records
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Business structure documentation for corporations, LLCs, or partnerships, including operating and organizational agreements
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Exit strategies, including buy-sell agreements and transfer provisions
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Leases and contracts tied to land, equipment, or facilities
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Compliance and regulatory documentation
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Defined signature authority and decision-making responsibilities
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Accurate meeting minutes and formal records
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Core business documents such as mission statements, goals, standards, and financial reports
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Conflict resolution processes
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Employee documentation including job descriptions, compensation, and benefits
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A written succession plan outlining leadership and ownership transition
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Estate planning documents when individually-owned assets affect business continuity
Each of these elements helps ensure the farm can continue operating smoothly while ownership and leadership evolve.
Starting the Conversation the Right Way
When relationships are strong, the next generation has earned the right to ask meaningful questions about the future. Asking for clarity is not a sign of impatience or entitlement. It is a necessary step in protecting both the business and the family.
Setting aside dedicated time to discuss concerns and expectations can help move conversations into action. Written plans do not need to answer every question immediately, but they should establish direction, structure, and next steps.
How De Boer, Baumann & Company Can Help
Farm succession planning involves more than estate documents. It requires alignment between ownership, management, tax planning, and long-term business goals. De Boer, Baumann & Company works with farm families to bring structure and clarity to succession planning conversations. Our team helps clients document expectations, evaluate financial impacts, and build practical plans that support continuity while preserving family relationships.
To read the original article by Jolene Brown, please visit https://www.agriculture.com/a-conversation-isn-t-a-contract-put-your-farm-succession-plan-in-writing-11825340