What's the proper way? I cant find much anywhere, the service manual isn't super elaborate. How am I suppose to get a dial indicator against the gear teeth when I need diff closed up to check?

 

By feel I can tell it's too tight, the manual says add or reduce ring shims, but nothing about the thrust washer that sits on the inside of the ring, since mine is too tight I should just order some thicker thrust washers and play around with it? Not sure why it doesn't mention playing with thrust washers in the manual, if I needed the gears tighter, I would add ring gear shim size and size down the thrust washer correct? But I need the opposite effect(less tight), more thrust and less ring shim, correct me if I'm wrong..... they sell multiple sizes of thrust on partzilla I see too.

 

Kubota B21 rear diff
The proper way is to stain the ring & pinion gears, assemble the housing, turn them, disassemble, then look at the contact pattern. Add or remove shims from either or both ring or pinion shafts to move the contact area to the center of the teeth.

Dykem Blue is a common marking ink, but you can just use a Sharpie. This photo shows ring/pinion on a Kubota tractor I did. I bought aftermarket ring/pinion pair for my current Honda FourTrax, and had to go thru the same process.