Anybody have an LLC

This is true of all activities that you are considered passively involved in and that is the case for individuals owning hunting land and farms (but not a farmer). If you are considered materially involved in the operation of a farm you own and your gross income is less than some number, you can use farm expenses to offset all income... Up to a certain maximum allowable deduction.

Someone that is a farmer can use all farm expenses to offset revenues earned because this is their business and they are considered materially involved.

Ok so say I sold the firewood and I did all the work, could I then deduct loan interest and property taxes. Thence I am not passively involved, how much income would it take and how often?
 
This is a great statement. MO is obviously a businessman and know his business. I always hear people say things like "I want my side business to show a loss so I can write it off". Makes no sense. If you're running a business one of your primary goals should be to make a profit so you can stay in business. If not, then you're just looking to get the government and other taxpayers to pay for your hobby.

It seems some are lumping personal liability and tax liability together. While there are vehicles that do both, an LLC perhaps the best choice in a lot of cases, the two liabilities are very different. Use the laws to your advantage. That's a part of their design. But also know there's really no free lunch. There's certainly legal and tax liability protection in a business venture but there's also responsibilities on your end too if set up as a business. If you claim to be a business for the benefits you'd best be aware of the responsibilities.

Sorry for ranting a little but again, get good legal and tax representation and find out what's best for you and how the laws apply to you in your state.

Very important to have a good attorney and a good tax law CPA. Mine costs me a couple grand a year, but there is no way possible I could know what to do with the ever changing tax codes. My guy goes to continuing education on the IRS tax code all the time. My only problem is, he is 76 years old and getting ready to pull the pin. Now I have to find a new guy to prepare my 78 page tax return! Damn it!
 
I'll try to provide an example of how having a business (LLC or otherwise) can help with wildlife management. We have a pine farm. We grow pine trees and sell them to buyers. It takes a long time for pines to grow. You get come income at your first commercial thinning, but the income can be much higher when trees are mature. Today, may pine farms operate for pulp. Trees are clear cut for paper when they are young and replanted. Depending on prices and the amount of time it takes for trees to reach each stage, this strategy can me more lucrative, but other strategies include thinning trees and eventually selling saw logs. Folks can rape the land or they can operate in a much more sustainable that balances timber income with wildlife management. This is encouraged more and more by the government.

So, many of the things we want to do for our deer management are also sustainable practices for forestry. So, we have a Forest Stewardship Plan that was written in cooperation with state forester, private forester, and wildlife biologist. It incorporates our balanced goals. It talks about dividing our timber into management units, thinning rates, and cycling for each unit. It includes riparian buffers for water quality, openings and food plots for wildlife, controlled burns, firebreaks, herbicide application and the like.

If we held this same land for recreational hunting, none of these wildlife management practices would be deductible. Since some timber buyers will not bid on timber that is not from a certified tree farm or under a forest stewardship management plan, all of these expenses are deductible. For us, hunting is not simply recreational. It is part of our management plan to keep deer populations in balance with the land so they don't damage young pines. Some large timber companies spend lot of money on exclusion fences or use other techniques, but we use hunting.

One a side note, many of these practices are also supported buy farm bill programs administered by USDA NRCS. They provided funding to support our firebreaks, timber herbicide application, and controlled burns.

As noted earlier, an LLC is a pass-thru entity from a tax perspective. All income and deductions are not taxed but passed through proportionally to the owners via a K-1. Someone mentioned passive income. One of the things I do is keep a log of what I do at the farm and the hours spent. My tax guy tells me I need to show 500 hours per year to keep it from being considered passive. I have way more than that. Once we bought the farm and formed an LLC, I stopped doing my personal taxes myself. I hired a tax accountant who takes the data I provide him, including the K1, and he figures out what I can legally deduct.

One more benefit to operating a business is B2B benefits. Many businesses will let me setup commercial accounts where I can buy supplies at wholesale. One example for me is Rootmaker. I was able to setup a commercial account for the business with them. I bought most of my rootmaker containers at wholesale from them directly rather than paying retail.

There are costs to operating an LLC. In our state, there is a $50 per year charter fee for the LLC. There was the initial setup cost. That cost depends on the complexity of the LLC and the attorney you hire. Ours had 5 initial owners and was quite complex. It took the members (what partners are called in an LLC) several months of passing drafts around to come to agreement. You also need to prepare K1s. We spend about $650 per year for a tax preparer to do that for us. There is a lot of record keeping that is necessary.

So, if you don't have significant income to offset, the costs may outweigh the benefits. It is a tradeoff.

Thanks,

Jack
 
I knew the encyclopedia Yoder was about to chime in......
 
Glad to see you're in good spirits!

How could I not be, you are in Virginia I am in MN! LOL
 
Ok so say I sold the firewood and I did all the work, could I then deduct loan interest and property taxes. Thence I am not passively involved, how much income would it take and how often?
No. Go see a CPA
 
I'll try to provide an example of how having a business (LLC or otherwise) can help with wildlife management. We have a pine farm. We grow pine trees and sell them to buyers. It takes a long time for pines to grow. You get come income at your first commercial thinning, but the income can be much higher when trees are mature. Today, may pine farms operate for pulp. Trees are clear cut for paper when they are young and replanted. Depending on prices and the amount of time it takes for trees to reach each stage, this strategy can me more lucrative, but other strategies include thinning trees and eventually selling saw logs. Folks can rape the land or they can operate in a much more sustainable that balances timber income with wildlife management. This is encouraged more and more by the government.

So, many of the things we want to do for our deer management are also sustainable practices for forestry. So, we have a Forest Stewardship Plan that was written in cooperation with state forester, private forester, and wildlife biologist. It incorporates our balanced goals. It talks about dividing our timber into management units, thinning rates, and cycling for each unit. It includes riparian buffers for water quality, openings and food plots for wildlife, controlled burns, firebreaks, herbicide application and the like.

If we held this same land for recreational hunting, none of these wildlife management practices would be deductible. Since some timber buyers will not bid on timber that is not from a certified tree farm or under a forest stewardship management plan, all of these expenses are deductible. For us, hunting is not simply recreational. It is part of our management plan to keep deer populations in balance with the land so they don't damage young pines. Some large timber companies spend lot of money on exclusion fences or use other techniques, but we use hunting.

One a side note, many of these practices are also supported buy farm bill programs administered by USDA NRCS. They provided funding to support our firebreaks, timber herbicide application, and controlled burns.

As noted earlier, an LLC is a pass-thru entity from a tax perspective. All income and deductions are not taxed but passed through proportionally to the owners via a K-1. Someone mentioned passive income. One of the things I do is keep a log of what I do at the farm and the hours spent. My tax guy tells me I need to show 500 hours per year to keep it from being considered passive. I have way more than that. Once we bought the farm and formed an LLC, I stopped doing my personal taxes myself. I hired a tax accountant who takes the data I provide him, including the K1, and he figures out what I can legally deduct.

One more benefit to operating a business is B2B benefits. Many businesses will let me setup commercial accounts where I can buy supplies at wholesale. One example for me is Rootmaker. I was able to setup a commercial account for the business with them. I bought most of my rootmaker containers at wholesale from them directly rather than paying retail.

There are costs to operating an LLC. In our state, there is a $50 per year charter fee for the LLC. There was the initial setup cost. That cost depends on the complexity of the LLC and the attorney you hire. Ours had 5 initial owners and was quite complex. It took the members (what partners are called in an LLC) several months of passing drafts around to come to agreement. You also need to prepare K1s. We spend about $650 per year for a tax preparer to do that for us. There is a lot of record keeping that is necessary.

So, if you don't have significant income to offset, the costs may outweigh the benefits. It is a tradeoff.

Thanks,

Jack

Once Again: Yoderized.gif
 
Ok I got my laugh for the day. Time to go out and fly.
 
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Ok I go my laugh for the day. Time to go out and fly.
Are you the guy who said they recently got their comercial drone license?

Sent from my SM-N910V using Tapatalk
 
Are you the guy who said they recently got their comercial drone license?

Sent from my SM-N910V using Tapatalk
No, but I did get Drone.
 
Well if you don't make any money, you won't need any write offs.

And you become a target for an IRS audit ... if you keep showing losses exceeding minimal income every year that is a problem.

Mo you obviously have a legitimate business operation with the amount of ag income you have.

Anyone considering an LLC had better get an opinion on their situation from a CPA and a quote to estimate their costs on an annual basis.

We have an LLC on one of our business' and a Sub Chapter S on another. The LLC is much simpler but it does pass through income to you personally. Better understand the impact of any added income personally, even if you can show a loss at the property, as you may be surprised by the tax effect.
 
There are some pro's and cons to LLC's and or S corp's. I Borrow little money, if any, for our business's. So I feel no need for my type of business's to be put in a LLC. And I already pay Self employment taxes, for those that don't know, they are some of the highest rates. If you are going to borrow a huge sum of money to start your business venture, It would be a good Idea to start a LLC to protect your personal assets, if your business goes under. But it may be harder for a new LLC to borrow money with no credit history. IE the catch 22! JMO!
 
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Very important to have a good attorney and a good tax law CPA. Mine costs me a couple grand a year, but there is no way possible I could know what to do with the ever changing tax codes. My guy goes to continuing education on the IRS tax code all the time. My only problem is, he is 76 years old and getting ready to pull the pin. Now I have to find a new guy to prepare my 78 page tax return! Damn it!

WOW ... finally some sanity ... I was just waiting for someone to say you can do this all online ... o_O

If you don't get a CPA and Attorney involved, inviting a problem.
 
I'm in the same boat. The attorney that set up our LLC retired from practice a couple years after our LLC was established. One of our original members was a tax guy. He passed away a couple years ago. We did find someone to replace his tax function, but the farm is not the same without him. Each time I return from working in the field, I expect to see his car...:(

Thanks,

Jack
 
Now I have to find a new guy to prepare my 78 page tax return! Damn it!

Our tax return was 104 pages last year, that did not include supporting docs ... I got dizzy after the first 30 pages then nauseous after page 62 ... better know what you are doing ... even if the IRS is wrong, you will continue to incur costs to defend ... :eek:

.
 
Our tax return was 104 pages last year, that did not include supporting docs ... I got dizzy after the first 30 pages then nauseous after page 62 ... better know what you are doing ... even if the IRS is wrong, you will continue to incur costs to defend ... :eek:

.

The thing for me is I trust my guy, I have had him since the late 70's. I am sure there are qualified people out there, but get in with the wrong guy that does not understand the whole scope of your business/business's, and it can be a long rode with the IRS. As you say, it don't matter if you are right or wrong, it can cost a guy a lot of money.

I error on the side of caution to some extent. I don't claim a home office expense for one thing. I could and start writing off a bunch of house crap. Big red flag I have been told. I also pay in quarterly, even though I am not required too. It just looks better and helps not having to come up with a huge chunk of cash at the end of the tax season. I don't want to give the IRS any excuse to knock on my door, I think it just all looks better in my mind and hopefully theirs as well!
 
Just got the letter from my accountant of 30 years. He's retiring and selling the firm to some big outfit. o_Oo_O

That's why I insisted my Cardiologist was 20 years younger them me. He ain't running out on me! He'll still be paying off school loans when I kick.
 
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