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Frequent Reader

Business Entity?

What type of business entity is your operation. Pros and cons, tax implications, just looking for more info.

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5 Replies
Contributor

Re: Business Entity?

Land in multiple S corps, so can liquidate stepped up basis after death, and match that against land sales of single pieces of property..............operations in C corp.

 

Allows avoidance of self employment taxes on money used for internal financing, employee benefits not available otherwise----such as section 119 meals and lodging-------and no SE tax on principal payments used for land financing.

 

In lean years, allows carryover/back of net operating losses dollar/dollar, and not lose the benefit of standard/itemized deductions on personal return.

 

Allows evening out of high and low years, keeping all in same tax bracket.

 

Allows best method of keeping funds turned back into the business at lowest taxed rates.

 

In high income years, coordination with personal return allows essentially two tax brackets of 15% totaling about 115,000............depending upon how you want to count it.

 

That is the best arrangement by far.

 

From that point, there might be unique circumstances.........very unique................that might cause variations from that..........but in each case, you will be giving up something.

 

 

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Frequent Reader

Re: Business Entity?

Thanks for the info. I leaning towards a c corp but my wife is a little reluctant, doesn't like the idea a forming an entity and getting our money trapped in it without being double taxed.

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Contributor

Re: Business Entity? Unless your wife is a tax guru......

I would be listening to a good tax person....a CPA with extensive tax background.

 

I have seen too many well-intentioned novices over the years make decisions because of emotionally-based issues, and end up shooting themselves in the foot.

 

If you are just now starting out, and not making much money, it is a prime time to be incorporated-------capture the losses, roll them forward to use when you need them, keep salaries low to personal return and benefit from the earned income credit, get on the meals/lodging bandwagon, etc etc etc.

 

 

Go see a real live tax person..........someone who does something more than merely prepare returns........see someone who actually practices tax 365 days per year.

 

I repeat.........unless your wife is a tax guru, and brings something more to the table than her emotions.........letting her make an important financial decision such as incorporating is merely giving in to the loudest noise.

 

 

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Senior Advisor

Re: Business Entity? Unless your wife is a tax guru......

He might not like sharing a bed with his CPA.. Maybe he shouldn't ignore her all together. Tax bill may not be as costly as division of assets.

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Senior Contributor

Re: Business Entity?

Sounds like a good arrangement and advice, but it can be tweaked better.

 

You should have two (2) operating entities. One , a c-corp, and the other some form of individual based entity. The sole proprietorship can double the section 179 limits, can hire minor family members without paying SE tax, and gives you more flexibility in getting at the "sweet" spots in taxation.

 

When you die, you can have your grain bins full of products you raised while actively farming, and your heirs can get the proceeds free of any income taxes.

 

 

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