Miner & Lemon Blog

Tax Savings Series Part 1 - "Business Planning and Wealth Preservation for Farmers"

A Penny Saved -Business Planning and Wealth Preservation for Farmers 

You Wouldn’t Use Sandbags to Stop a Tornado and You Wouldn’t Hide in the Basement to Escape Flooding, So Why Are You Using a Sole-Proprietorship or a General Partnership to Run Your Farm Instead of a Limited Liability Company? 

            Indiana farmers in the central and southern parts of the state are struggling this season against flooding, and, as a result, farm profits are literally being “swept away.”  Although, what many Hoosier farmers do not realize is that while natural disasters may be costly, the government is second to none at sweeping away profits, and, much like acts of God, taxation cannot be avoided entirely, but its effects can certainly be mitigated through careful planning.

            Farms face numerous calamities: wild fires, swarming insect populations, floods, tornadoes, and the list goes on.  Similarly, farmers are subject to a number of different taxes: income and self-employment tax, property tax, gift and estate tax, and unfortunately this list goes on as well.  But fortunately there are tools for confronting almost every adversity faced by farmers, including taxes.  In this post I will summarize the various tools available for minimizing tax, and in future posts I will provide a more thorough explanation as to the way in which each technique is to be implemented.

            The amount of income tax due can be lowered by utilizing the most advantageous accounting method, postponing income, and taking all applicable exclusions, deductions, exemptions, and credits.  And as to the related topic of self-employment tax, the principal method for lowering this burden is to minimize the amount of net earnings from self-employment, which can be accomplished through intelligent business structuring.

            Property tax has been a source of enmity in the Hoosier state for the last several years, and the debate has lost none of its initial virulence.  While a challenge to the assessed value of property is a possibility, the first line of attack should be diligence in assuring that all applicable credits and deductions are received.

            Gift and estate taxes can be a significant hurdle for family farmers who wish to provide for the continuing involvement of their children.  But there are methods for successfully transferring management and ownership of the family farm from the present generation on to the next.  These include: special use valuation, installment payments, creation of conservation easements, implementation of various types of trusts, life-time gifting, organization of limited liability companies, and execution of buy-sell agreements.

            Please join me next time for: A Short Explanation of the Income Tax System or A Day Trip Through Dante’s Inferno.