2014 zoning presentation for Carroll County, Indiana
2013 succession planning business structures sq
1. BUSINESS
STRUCTURES
AND TAXES
March 7, 2013 Legal and Tax Considerations
2. What are your goals?
Ease of operation Self-Employment
Transferability tax
Tax benefits Fringe Benefits
Liability protection Flexibility
Real Estate Basis
3. Other Considerations
Life/stage of Estate planning
business implications
Sources of capital Management or
Inter/intra family control
issues Termination of
Taxes business
Risk management Multiple entities
Key Employees
4.
5.
6.
7.
8. Typical Scenario – Top Choice
Limited Liability Company or S
Corporation
Flexibility, Tax benefits, taxed at owner
rate
Multiple Entities
Equipment and labor pool
Land
Livestock
9. When To Choose Other Entity Types
C Corporation
Need for control at the top
Shareholders who would have trouble
with pass-through income
Special needs shareholders, “stranger”
shareholders
Limits movements of assets and cash
WATCH – Dividends are double-taxed.
10. When To Choose Other Entity Types
Partnership
Well-suited for short-term project
Can be adapted or evolved into LLC
Can be terminated at end of project
Highest liability issues and joint-partner
risk
11. When To Choose Other Entity Types
Sole Proprietor
Greatest liability risk – both business
and personal assets at stake
12. LLC versus S Corp
Structure
Limited Liability Company S Corporation
Tax free in-and-out Prevents de-
(mostly) capitalization of
Easy to change as Corp by young
circumstances owners
change Stronger mgmt
Can have many control in officers
layers
13. LLC versus S Corp SE
Tax
Limited Liability Company S Corporation
GENERAL Can be exempt from
Members pay SE SE Tax if salaries
Tax are paid to SH
LIMITED Members
are exempt from SE
Tax
SOMEONE has to
pay SE Tax
14. LLC and Trusts Land
LLCs and Land Ownership Trusts and Land Ownership
LLCs – “easy- Locked in for
in, easy-out” duration of Trust
flexibility Basis locked at
Basis locked at formation
formation Cannot change
Can change structure
structure at any time Can protect privacy
15. LLCs and Tax Form
Partnership LLC Corporation LLC
Pass-through No pass-through tax
income, Corps taxed at
depreciation, etc. higher level than
Humans usually humans
lower tax rate than
corps
16. Entity Structure and Risk Management
Liability Insurance – adapted for every entity
type, but does not make you “risk-proof”
Entity structure can either “keep in” or “keep
out” risk
You cannot insure against your own bad
behavior
Does not protect against financial liability (bad
debt, bad business decisions, over-extended
credit)
17. Entity Structure and Risk Management
Keep Risk Out Keep Risk In
Liability for outside High-risk elements
events limited to (equipment, labor) in
assets in LLC – one LLC
cannot get at your Liability limited to
personal assets assets in that LLC
Can protect real
estate from
operational liability
18. Entity Choice and FSA/Farm Program
No more “3-entity Rule”
Now – payment limit falls to individual owners
Critical factor is “active participation” by
owners
Careful structure of “cash rent” entities
Watch issues of Seniors and Minors
19. Case Study
Goodacre Farms LLC
A&B Goodacre Farm Management LLC
Goodacre Hogs LLC
Bill & Ann Goodacre
Mary – Tom – Jane
22. Real Estate LLC
• Contract with MGMT LLC
• Liability insulation
• Estate Plan – Ownership to all children
Entity Relationships
Cross
Management LLC Contracts
• Contract Farming
• Production “stake” for sweat equity (Son &
Key Employee
• Liability insulation
Livestock LLC
• Production stake
• Liability insulation from Real Estate
23. Real Estate LLC
• Starting out - Owned by Parents
• Gifted to/inherited by children
• Rental income to owners
• Downside – Basis lock!
Family Relationships
Management LLC
• Starting out - Owned by Parents
• Sweat Equity and gradual “buy in” by farming
child
Livestock LLC
• Opportunity for start-up by Gen 2 (Son)
• Can be co-ownership by parents/son
24. Considerations
Income tax effect of LLC on off-farm owners
K-1 and personal tax rate
Unwelcome complications to Gen 2 taxes
Issue of locked-in basis for real estate
Yes, but is that important? Will there be liquidation?
Estate Tax
Planning for entity discount
Minimizing estate taxes in high value real estate
market
25. Farm Entity Structure
Flexibility is KEY
Goals suggest structure
Estate Planning – Will there be an Estate Tax
Risk?
Transition to Gen 2
Consideration of on-farm and off-farm children
Needs of Gen 1, Gen 2 and Gen 3
Liability protection/insulation of assets
26. Business Structures and Taxes
Questions?
Contact information:
Derek Fisher, Fisher & Associates
Email: derekf@fisheraccounting.net
Miriam Robeson, Attorney at Law
Email: miriamrobeson@lawlatte.com
Website: lawlatte.com