farm corporations?

[caseman]

a year ago my accountant suggested that I should put my farm into a company. did a tax preview in dec. and it looks like its time to do that.

seems expensive, was told it could cost 10 to 20 grand to set it up. if I do this it has to happen quickly as I want to put my canola sales under the new company name by late feb. to pay bills.

Anyone know of a Law firm that would do this in Moose Jaw? maybe less expensive than the one my accountant is suggesting in Saskatoon.

[Richard5]

Are you in a partnership, because incorporating now would be pointless if not

[Guest]

haven't set one up for a few years , but it was , I think $3k . nowhere near that ? any lawyer has numbered co's on the shelf , can be done real quick . we have never even put a name to them, just numbers . you're audit will cost you a little more each year than now , but not bad . best thing we ever did , grow your farm on 13% taxed money instead of 40% .(at least until new govt screws that up ) most people find they need them when they retire just to get out , anyways. but I am no expert . we run 3 co's on our little farm .would never go back

[hobbyfrmr]

Who does the books? My operation is always a convoluted gong show with repairs receipts flying off the dash of trucks and receipts from the liquor store for farm tours and staff parties.

[Grahamp]

My grandfather incorporated in the 60's and I incorporated about 7 years ago. The tax advantages are very good. I am sure your accountant knows all these things but if you can avoid siblings and land inside the corp, (unless you have already used capital gains exemption.)

Finally have found the limited liability aspect of.corporations exaggerated, holds true in a lawsuit maybe, but virtually every lender demands personal guarantees on farm loans now.

[caseman]

farm is under my personal name ,approx 4000 ac.

[Richard5]

My advice, get a new accountant or at least a second opinion by someone who does lots of farm work.

Its not that a company doesn't make sense for you its just incorporating a personal farm is only an rrsp and when you take money out for personal use or personal land pmts you will pay personal taxes of at least the difference of the corporate rate and where you are at now.

If a bacheolor, create a partnership with your own company for a couple years

Help me out here guys, others must be familiar with this.

[farmaholic]

To me incorporating equals money management. I agree with paying off assets with 87 cent dollars. Unfortunately we did put the land in the Corp...but (a good reason at the time). Pipeline payments for new builds classified as income with the land in the corp has worked well.
Also agree with R5... money taken as dividends is almost taxed the same if it was earned personally when you take into account the Corp tax rate plus the dividend tax rate paid personally would be equal(about) if it was all just
made personally....but the ability to grow the operation with those larger after tax dollars is
wherethe corp really shines.

Use your head when you unwind it, if you do or have to, and I "beleive" you will be no further behind.
Manage your money....

[STR1]

I farm under a corporation, wouldn't go back to personal unless Justin changes something.
I think the reason they told you 10-20K is in order to pay bills for next years crop is you have to roll assets including grain into your new Corp, which takes some accounting and lawyer time.
With set up fees for a new Corp, legal and accounting bills I would think they are not far off on what it would cost if you want it finished quickly. It's a much easier process if your corporation had already been farming with you for a couple years.

[Richard5]

Good points also

Google farm partnerships, its all about using your capital gains exemption differently than what most people think of using it for - land. When you do the partnership way, you wouldnt pay that dividend tax rate on the value moved to the company at that time.

Even with no capital gains exemption, your land gain would only be taxed at 1/2 the gain. In addition, many people will gift the land to the next generation so it may not be sold.

[LEP]

Richard5 , I understand creating a partnership between you and your wife for two years before incorporating. But creating a partnership with the corporation? I am not following the logic.

I could never have grown to the level I farm at without incorporation.

Makes even more sense if there is a next generation.

Should be $2-5,000 to setup and an extra couple thousand at the accountants office annually.

[farmaholic]

Side note....

I found it so much less stressful managing this farm to make money instead of managing it to avoid paying income tax. Imagine two vertical lines parallel to each other. One line was prebuying expenses to avoid tax and the other line was deferring income to avoid paying tax. Those two lines were diverging and showed no signs of coming back together with the attitude of never paying tax.
Always cash poor and managing cashflow was a nightmare. Today... earn it and give up 13%....as good as it's going to get.

If I had to go back to the old way, I would never work as hard as we do to give away nearly 50% of the income in the higher brackets. Punitive tax policies...

[Ache4Acres]

Farm corps are a no brainer.

The one thing to consider though is that if the land is in the corps name, if you try to sell land and later get the money personally for your retirement it can have some negative tax consequences since there is no capital gains exemption for corps.

[farmaholic]

A4A... I thought my accountant said it wasn't as bad as some people think because the tax on the capital gain is only on about half of the actual gain...some small convoluted formula applied to the gain that makes it smaller than most think.

[Richard5]

LEP, its because a single guy needs someone to partner with so thats why a company

My friend did this and the split was 95-5 so that most of the value is still in the hands of the individual when you transfer to the company

For those of you that went to a corp with out this step, especially in the last 15 years left a lot of permanent tax savings on the table. Now with million exemption it is completely a no brainer.

A lot of you make great comments about benefits of a company and i do agree with them. Its a great way to build equity and focus on profit.

As farma says, manage the money.

I would say manage how you get into the company and have an idea how you are going to get out.

For those of you that didn't do the partnership, you will have a company with a bunch of cash when you quit but no access to it in any large sums with out incurring 22-35% personal taxes

I guess what i am saying is make sure you know what your other options are because if your accountant has or is wanting to put you directly into a corp, they are doing absolutely nothing for you