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