8 ms·

Dumb question, as I am neither a farmer nor a businessperson, but is there a way for a farmer to set up, say, an LLC, which holds money from profitable years fo

Dumb question, as I am neither a farmer nor a businessperson, but is there a way for a farmer to set up, say, an LLC, which holds money from profitable years for use in unprofitable years, from which the farmer takes a steady salary each year?

InvisibleCities 9y ago
Wouldn't that just make the overall tax burden worse? You'd have to pay corporate taxes on the farm profits, then pay income taxes on the salary.
- xojp123 9y ago
  I don't think so. I think LLC's allow one to pass through profits without double taxation. C corps, I believe, are the type that suffer from double taxation. Correct me if I am wrong though.
  - brightsize 9y ago
    You are correct. LLCs don't pay federal business income taxes. An LLC can retain earnings inside of the company but the members are still going to be taxed individually as if the earnings had been paid out to them. US S-corps work in a similar way: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations https://www.irs.gov/businesses/small-businesses-self-employe...
  - wahern 9y ago
    Salaries are a deductible expense for any business entity, so that money is never taxed twice by any reckoning. The debate about double taxation of corporate profits relates to taxation of dividends, which are neither exempt nor deductible from a business' taxable income. Because shareholders are one and the same as the corporation according to some strains of legal and economic reasoning, by taxing dividends you've taxed the shareholders' profits twice. If you control a corporation, you could achieve the same tax treatment as pass-through entities merely by paying yourself a salary instead of dividends. But if you did that, pass-through entities are easier because there are fewer formalities involved. The real gripe is that because dividends are taxed at a flat 15-20%, paying yourself in tax-preferred dividends is a tantalizing prospect but-for the supposed double taxation "problem". The debate is admittedly a little more nuanced when discussing passive investments, but that's a different context than family farms.
- danans 9y ago
  An LLC doesn't pay corporate taxes. It just passes profits or losses to shareholders proportionally and are taxed at the individual level. https://www.sba.gov/blogs/6-things-you-need-know-about-your-tax-responsibilities-llc https://www.sba.gov/blogs/6-things-you-need-know-about-your-...
- pavement 9y ago
  Getting extremely creative, one might run a surprisingly unprofitable farm, while paying one's self minimum wage to operate the farm, single-handedly. Getting creative, of course... But you know, a legitimate business would never operate like this, right? They wouldn't take such a "subjective" point of view, when interpreting what are typically held as "objective" values and facts with only one single interpretation of The Truth, right? Oh, wait... https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting
ambicapter 9y ago
Or you could just pay your goddamn taxes and have savings in the bank just like everybody else?
- cesnja 9y ago
  You mean just like everybody else but excluding big corporations and wealthy individuals?
  - linkregister 9y ago
    Are you claiming that a majority of large corporations don't pay income taxes? Is it even 5%?
    - kbenson 9y ago
      I think the claim might be something similar, but not quite that extreme. I don't think it strains credulity to think that the majority of large corporations take advantage of loopholes to drastically reduce their taxes.
      - ams6110 9y ago
        > large corporations take advantage of loopholes Of course they do. They are using legal means to reduce their taxes. Why wouldn't they. Would you decline your mortgage interest deduction, your solar energy or EV deduction, etc. so you could claim you are paying your "fair" share? Go ahead -- nothing is stopping you.
        LockeWatts 9y ago
        Being intentionally obtuse about the use of the word "fair" in that context doesn't help you prove your point to anyone who disagrees with you.
        gozur88 9y ago
danans 9y ago
No, because LLCs have to close their books every year and distribute any profits or losses to their members. You can't keep an untaxed rainy day fund in them. Edit: Yes, I meant distribute for taxation purposes (K1 form), not actually transfer the funds
- zrail 9y ago
  Not true at all. An LLC passes through these things for tax purposes only. Each owner is taxed on their pro-rata share of the business’ income offset by its losses, but the business doesn’t have to distribute anything at all. It’s common to distribute at least enough to cover those taxes but it’s never normally required by state or federal law. Edit: you can’t keep an untaxed rainy day fund, that’s true. If you keep cash in the business from one year and use it on expenses the following, you deduct those expenses for the year they occurred. If that incurs a net operating loss you can carry that loss backwards or forwards if you want.
  - xstartup 9y ago
    What if I take sell $100 product through LLC and book it as profit, pay taxes on it and after that, the customer files a chargeback. Where will the chargeback fees plus the original amount come from?
    - deleted 9y ago
      [deleted]
    - danans 9y ago
      Your scenario seems implies that the original charge and the chargeback happen in different tax years, because if it was the same tax year, the chargeback would just invalidate the original charge. In the cross-tax-year case, you pay the chargeback from the historical profits you have been booking from the LLC and book it as a business expense in the current tax year. If you are running an LLC with zero cash backup to handle such situations, there could be a problem with the business model.
- deleted 9y ago
gonzoflip 9y ago
Almost all of the farms that I dealt with were incorporated.
mediaman 9y ago
LLC are pass-through entities. So, let's say you're a farmer, and you set up Farm, LLC, and then set up Profit, LLC. Profit LLC has to charge Farm LLC enough to eliminate the profits that Farm LLC generates. One way to do this is to have Profit LLC own the land, and Farm LLC pays Profit LLC a lease rate on the land that nicely eliminates the profit from Farm LLC. This is all well and good, but now you've just shifted the profit to Profit LLC, and what to do with it there? If it's an LLC, whoever owns it has to pay income tax on it. So if you, the farmer, own Profit LLC, you're still paying taxes on it. If Farm LLC owns it, then the profit just goes back to Farm LLC, undoing the whole purpose. So maybe you decide to make Profit LLC a C-Corp instead, so it's Profit, Inc., with the idea that now it's no longer a pass-through entity. But now you have to pay corporate income tax on it, even if you don't distribute it. Then, when you distribute it someday, you have to pay regular income tax on it again. Some companies (such as Toys 'R Us) used to get around this by having "Profit LLC" be a company that owns the brand and licenses it to the retail company, to eliminate the retail company's profits. They then locate Profit LLC in a low/no-tax country such as the Cayman Islands. It's not clear how this would work for a farmer, however, because there's not really a brand to license, and any company that owned the land would still fall under US tax jurisdiction.
- walshemj 9y ago
  How do you pay income tax on income not received isn't that the point of having a company to allow it to build up reserves and don't US REITS work that way. Uk REITS and IT's certainly do The US tax system is really insane some times
  - CodeWriter23 9y ago
    Corps have to pay taxes on profit.
- civilian 9y ago
  Interesting. I think it could be argued that some small-ish amount could be paid for the brand. Developing relationships with buyers is not an insignificant part of ranching and farmers, and you could probably justify that as a 10k/year expense. (Not a lawyer, not a tax preparer.)
TheCondor 9y ago
There are financial instruments for this, different insurances and such. Not an LLC exactly but there are ways to do it and there are products you can buy to do just that, annuities and different income yielding investments. If you’ve got issues with any form of taxes due to your culture, you’re not likely a good candidate or disciplined enough to accept these kinds of instruments. Fundamentally it means you have to make less during the great years to pay yourself during the bad years. It has also been my observation that there is a sort of victim mentality that many farmers embrace, they can be legitimate multimillionaires but would rather be seen as poor and bullied by the banks, government and elites.

InvisibleCities 9y ago

Wouldn't that just make the overall tax burden worse? You'd have to pay corporate taxes on the farm profits, then pay income taxes on the salary.

xojp123 9y ago
I don't think so. I think LLC's allow one to pass through profits without double taxation. C corps, I believe, are the type that suffer from double taxation. Correct me if I am wrong though.
- brightsize 9y ago
  You are correct. LLCs don't pay federal business income taxes. An LLC can retain earnings inside of the company but the members are still going to be taxed individually as if the earnings had been paid out to them. US S-corps work in a similar way: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations https://www.irs.gov/businesses/small-businesses-self-employe...
- wahern 9y ago
  Salaries are a deductible expense for any business entity, so that money is never taxed twice by any reckoning. The debate about double taxation of corporate profits relates to taxation of dividends, which are neither exempt nor deductible from a business' taxable income. Because shareholders are one and the same as the corporation according to some strains of legal and economic reasoning, by taxing dividends you've taxed the shareholders' profits twice. If you control a corporation, you could achieve the same tax treatment as pass-through entities merely by paying yourself a salary instead of dividends. But if you did that, pass-through entities are easier because there are fewer formalities involved. The real gripe is that because dividends are taxed at a flat 15-20%, paying yourself in tax-preferred dividends is a tantalizing prospect but-for the supposed double taxation "problem". The debate is admittedly a little more nuanced when discussing passive investments, but that's a different context than family farms.
danans 9y ago
An LLC doesn't pay corporate taxes. It just passes profits or losses to shareholders proportionally and are taxed at the individual level. https://www.sba.gov/blogs/6-things-you-need-know-about-your-tax-responsibilities-llc https://www.sba.gov/blogs/6-things-you-need-know-about-your-...
pavement 9y ago
Getting extremely creative, one might run a surprisingly unprofitable farm, while paying one's self minimum wage to operate the farm, single-handedly. Getting creative, of course... But you know, a legitimate business would never operate like this, right? They wouldn't take such a "subjective" point of view, when interpreting what are typically held as "objective" values and facts with only one single interpretation of The Truth, right? Oh, wait... https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting

ambicapter 9y ago

Or you could just pay your goddamn taxes and have savings in the bank just like everybody else?

cesnja 9y ago
You mean just like everybody else but excluding big corporations and wealthy individuals?
- linkregister 9y ago
  Are you claiming that a majority of large corporations don't pay income taxes? Is it even 5%?
  - kbenson 9y ago
    I think the claim might be something similar, but not quite that extreme. I don't think it strains credulity to think that the majority of large corporations take advantage of loopholes to drastically reduce their taxes.
    - ams6110 9y ago
      > large corporations take advantage of loopholes Of course they do. They are using legal means to reduce their taxes. Why wouldn't they. Would you decline your mortgage interest deduction, your solar energy or EV deduction, etc. so you could claim you are paying your "fair" share? Go ahead -- nothing is stopping you.
      - LockeWatts 9y ago
        Being intentionally obtuse about the use of the word "fair" in that context doesn't help you prove your point to anyone who disagrees with you.
        gozur88 9y ago

danans 9y ago

No, because LLCs have to close their books every year and distribute any profits or losses to their members. You can't keep an untaxed rainy day fund in them. Edit: Yes, I meant distribute for taxation purposes (K1 form), not actually transfer the funds

zrail 9y ago
Not true at all. An LLC passes through these things for tax purposes only. Each owner is taxed on their pro-rata share of the business’ income offset by its losses, but the business doesn’t have to distribute anything at all. It’s common to distribute at least enough to cover those taxes but it’s never normally required by state or federal law. Edit: you can’t keep an untaxed rainy day fund, that’s true. If you keep cash in the business from one year and use it on expenses the following, you deduct those expenses for the year they occurred. If that incurs a net operating loss you can carry that loss backwards or forwards if you want.
- xstartup 9y ago
  What if I take sell $100 product through LLC and book it as profit, pay taxes on it and after that, the customer files a chargeback. Where will the chargeback fees plus the original amount come from?
  - deleted 9y ago
    [deleted]
  - danans 9y ago
    Your scenario seems implies that the original charge and the chargeback happen in different tax years, because if it was the same tax year, the chargeback would just invalidate the original charge. In the cross-tax-year case, you pay the chargeback from the historical profits you have been booking from the LLC and book it as a business expense in the current tax year. If you are running an LLC with zero cash backup to handle such situations, there could be a problem with the business model.
deleted 9y ago

gonzoflip 9y ago

Almost all of the farms that I dealt with were incorporated.

mediaman 9y ago

LLC are pass-through entities. So, let's say you're a farmer, and you set up Farm, LLC, and then set up Profit, LLC. Profit LLC has to charge Farm LLC enough to eliminate the profits that Farm LLC generates. One way to do this is to have Profit LLC own the land, and Farm LLC pays Profit LLC a lease rate on the land that nicely eliminates the profit from Farm LLC. This is all well and good, but now you've just shifted the profit to Profit LLC, and what to do with it there? If it's an LLC, whoever owns it has to pay income tax on it. So if you, the farmer, own Profit LLC, you're still paying taxes on it. If Farm LLC owns it, then the profit just goes back to Farm LLC, undoing the whole purpose. So maybe you decide to make Profit LLC a C-Corp instead, so it's Profit, Inc., with the idea that now it's no longer a pass-through entity. But now you have to pay corporate income tax on it, even if you don't distribute it. Then, when you distribute it someday, you have to pay regular income tax on it again. Some companies (such as Toys 'R Us) used to get around this by having "Profit LLC" be a company that owns the brand and licenses it to the retail company, to eliminate the retail company's profits. They then locate Profit LLC in a low/no-tax country such as the Cayman Islands. It's not clear how this would work for a farmer, however, because there's not really a brand to license, and any company that owned the land would still fall under US tax jurisdiction.

walshemj 9y ago
How do you pay income tax on income not received isn't that the point of having a company to allow it to build up reserves and don't US REITS work that way. Uk REITS and IT's certainly do The US tax system is really insane some times
- CodeWriter23 9y ago
  Corps have to pay taxes on profit.
civilian 9y ago
Interesting. I think it could be argued that some small-ish amount could be paid for the brand. Developing relationships with buyers is not an insignificant part of ranching and farmers, and you could probably justify that as a 10k/year expense. (Not a lawyer, not a tax preparer.)

TheCondor 9y ago

There are financial instruments for this, different insurances and such. Not an LLC exactly but there are ways to do it and there are products you can buy to do just that, annuities and different income yielding investments. If you’ve got issues with any form of taxes due to your culture, you’re not likely a good candidate or disciplined enough to accept these kinds of instruments. Fundamentally it means you have to make less during the great years to pay yourself during the bad years. It has also been my observation that there is a sort of victim mentality that many farmers embrace, they can be legitimate multimillionaires but would rather be seen as poor and bullied by the banks, government and elites.