4 ms·

> An enterprise valued at more than $5 million, with lots of employees, is not a "family farm" What? Plenty of small businesses can generate more than $5 milli

by Alupis 10y ago

> An enterprise valued at more than $5 million, with lots of employees, is not a "family farm" What? Plenty of small businesses can generate more than $5 million in revenue annually, but still be a small family business. $5 million sounds like a lot for an individual, but for a business, not so much... especially after all the expenses that come with operating a business and having employees. We're talking about farms here, farming equipment alone could be valued several million dollars by itself. The $5 million figure is the value of the business, which includes assets and projected revenues (not profits!)... it's quite possible for someone to inherit a family farm and immediately be financially ruined... buried under a large income tax bill.

maxerickson 10y ago
Yes, I understand what "value" is. You are muddying the distinction between revenue and value in your first paragraph and correcting my understanding in the 2nd. Why? There is an argument to be made, that the valuations used are unfair, but if you inherit an actual $6 million operation and are forced to liquidate to pay the $200,000 tax bill, I doubt you are financially ruined. In fact, I expect you are a cash millionaire.
- protomyth 10y ago
  > if you inherit an actual $6 million operation and are forced to liquidate to pay the $200,000 tax bill, I doubt you are financially ruined. In fact, I expect you are a cash millionaire. You make the assumption that you are able to sell the operation for the tax value which is a pretty wrong one. Plus, ignoring the people who depended on the continuing operation of the family business is not a good thing. Never mind the psychological damage of destroying what the family has worked for at a time when you need help not the tax man ripping down what you built.
  - maxerickson 10y ago
    You'd still be a millionaire if you managed 1/6th of the taxable value. And of course, if we fixed the system for valuing the property, it sounds like no tax would be paid. I get that you think it is unfair to tax wealth at death. That's fine. Land and tractors aren't special wealth, that's where my "full of shit" came from. As far as the timing of the tax, there's plenty of people that go through the death of relatives while being completely financially insecure.
    - Alupis 10y ago
      Selling something like this, even at a firesale price, is likely to take a very long time. So long that you're likely to get a knock from Uncle Sam before you get all this cash you're talking about. Inheriting something like this is not a bed full of roses. It can become quite a nightmare, and it can indeed ruin people who are not prepared to take on that kind of tax liability all at once without any up-front funds to pay it off.
      - maxerickson 10y ago
        Yes, it is quite fascinating that people are building up $6-7 million operations without having any cash in reserve at all.
        Alupis 10y ago
        The part you seem to be missing is that the business might be valued at $6-7 million on paper, but it does not generate anywhere near that in annual revenue, let alone profits. We already acknowledged what makes up that on-paper value. Most of these family farms are more-or-less "lifestyle businesses"... ie. the family owns and operates the farm for a living, and profits only a normal salary annually after all expenses (equipment, repairs, employees, materials, etc)... which is spent on regular things such as toothpaste, toilet paper, shoes, food, etc. Just like most people, they aren't banking millions per year... Farming in America is incredibly expensive... but not incredibly lucrative. There are exceptions to this, with mega-corp-farms and what-have-you... but that's not who we're talking about here.
        maxerickson 10y ago
        The federal estate tax on a $6 million farm would be roughly $200,000. You don't need to be making enormous profits to plan for that. You'd certainly need to be making a decent return, but it doesn't take such a huge amount of annual profit to set aside enough to cover it. What you seem to be missing is that I am really skeptical that people are gathering $6 million of paper wealth without plowing hundreds of thousands of dollars of profits into growing their operations. Maybe some unlucky lucky guy inherited a lot of land that then appreciated a great deal. The horror.
  - AnimalMuppet 10y ago
    > Plus, ignoring the people who depended on the continuing operation of the family business is not a good thing. I presume you mean something like the people who work on the farm, and who repair the tractors, and such. But if the family has to sell, the person buying it probably wants it for a farm, not just for a B&B with a really big back yard. So they're probably going to need about the same number of people to work on that farm, and someone to repair the tractors, and so on.

by Alupis 10y ago

maxerickson 10y ago

Yes, I understand what "value" is. You are muddying the distinction between revenue and value in your first paragraph and correcting my understanding in the 2nd. Why? There is an argument to be made, that the valuations used are unfair, but if you inherit an actual $6 million operation and are forced to liquidate to pay the $200,000 tax bill, I doubt you are financially ruined. In fact, I expect you are a cash millionaire.

protomyth 10y ago
> if you inherit an actual $6 million operation and are forced to liquidate to pay the $200,000 tax bill, I doubt you are financially ruined. In fact, I expect you are a cash millionaire. You make the assumption that you are able to sell the operation for the tax value which is a pretty wrong one. Plus, ignoring the people who depended on the continuing operation of the family business is not a good thing. Never mind the psychological damage of destroying what the family has worked for at a time when you need help not the tax man ripping down what you built.
- maxerickson 10y ago
  You'd still be a millionaire if you managed 1/6th of the taxable value. And of course, if we fixed the system for valuing the property, it sounds like no tax would be paid. I get that you think it is unfair to tax wealth at death. That's fine. Land and tractors aren't special wealth, that's where my "full of shit" came from. As far as the timing of the tax, there's plenty of people that go through the death of relatives while being completely financially insecure.
  - Alupis 10y ago
    Selling something like this, even at a firesale price, is likely to take a very long time. So long that you're likely to get a knock from Uncle Sam before you get all this cash you're talking about. Inheriting something like this is not a bed full of roses. It can become quite a nightmare, and it can indeed ruin people who are not prepared to take on that kind of tax liability all at once without any up-front funds to pay it off.
    - maxerickson 10y ago
      Yes, it is quite fascinating that people are building up $6-7 million operations without having any cash in reserve at all.
      - Alupis 10y ago
        The part you seem to be missing is that the business might be valued at $6-7 million on paper, but it does not generate anywhere near that in annual revenue, let alone profits. We already acknowledged what makes up that on-paper value. Most of these family farms are more-or-less "lifestyle businesses"... ie. the family owns and operates the farm for a living, and profits only a normal salary annually after all expenses (equipment, repairs, employees, materials, etc)... which is spent on regular things such as toothpaste, toilet paper, shoes, food, etc. Just like most people, they aren't banking millions per year... Farming in America is incredibly expensive... but not incredibly lucrative. There are exceptions to this, with mega-corp-farms and what-have-you... but that's not who we're talking about here.
        maxerickson 10y ago
        The federal estate tax on a $6 million farm would be roughly $200,000. You don't need to be making enormous profits to plan for that. You'd certainly need to be making a decent return, but it doesn't take such a huge amount of annual profit to set aside enough to cover it. What you seem to be missing is that I am really skeptical that people are gathering $6 million of paper wealth without plowing hundreds of thousands of dollars of profits into growing their operations. Maybe some unlucky lucky guy inherited a lot of land that then appreciated a great deal. The horror.
- AnimalMuppet 10y ago
  > Plus, ignoring the people who depended on the continuing operation of the family business is not a good thing. I presume you mean something like the people who work on the farm, and who repair the tractors, and such. But if the family has to sell, the person buying it probably wants it for a farm, not just for a B&B with a really big back yard. So they're probably going to need about the same number of people to work on that farm, and someone to repair the tractors, and so on.