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Ted Gudorf and Bill Scott discuss the intricacies of tax advisory for family farms, focusing on succession planning, business structures, and the implications of C and S corporations. Bill shares insights on the importance of early succession planning, the complexities of different business structures, and the benefits and downsides of C corporations, including tax implications and employee benefits. The discussion also touches on the relevance of S corporations in the agricultural sector. This conversation delves into the intricacies of business structures for farmers, focusing on S-Corps and LLCs. Danny explains the tax benefits of S-Corps, particularly in relation to self-employment tax savings, and discusses the flexibility and complexities of LLCs and partnerships. The discussion also touches on the importance of proper tax planning and the potential pitfalls of various entity structures, emphasizing the need for farmers to consider their unique circumstances when choosing a business entity.

Takeaways

• Succession planning is critical for family farms.
• Early conversations about succession lead to smoother transitions.
• Complex operations require more detailed planning for succession.
• C Corporations offer liability protection but have tax drawbacks.
• Employee benefits in C Corporations can be fully deductible.
• Double taxation is a significant concern for C Corporations.
• Retaining earnings in a C Corporation can be beneficial for cash flow.
• IRS scrutiny on reasonable compensation is important for tax compliance.
• Land in a C Corporation does not receive a step-up in basis.
• S Corporations are also common in the agricultural sector. S-Corps can provide significant self-employment tax savings for farmers.
• A reasonable salary must be drawn from an S-Corp, similar to a C-Corp.
• Self-employment tax includes FICA and Medicare contributions.
• Business owners can deduct the employer portion of self-employment tax on personal returns.
• S-Corps can lead to substantial tax savings if profits exceed certain thresholds.
• There are additional compliance requirements when operating as an S-Corp.
• Flexibility in income allocation is greater in LLCs compared to S-Corps.
• Partnerships allow for creative income allocations based on economic substance.
• Partnership tax law is complex and requires careful compliance management.
• Farmers should avoid general partnerships due to personal liability risks.

Resources:

• Gudorf Law Group
• The Ohio Estate Planning Guide - Free Book
• Gudorf Law: What We Do and How We Help Webinar
• Don't Go Broke in Nursing Home Workshop
• When a Loved One Dies: A Legal Guide - Free Book
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