ASS—Lancaster Farming, Saturday, May 9,1981 LANCASTER If your net farm income will total $25,000 or more this year, you can probably save money by incorporating. Incorporation has long been popular among large farm businesses. But tax changes during the last decade now make it a smart move for many smaller farms as well, according to Economist Michael Boehlje. Owners of midsize family farms may save taxes by incorporating for two. reasons, he says. One is, that Congress has lowered cor-1 porate tax rates twice during the 1970’5. The more important reason is “bracket creep” which occurs as individuals’ incomes rise along with inflation. They move into higher tax brackets where taxes take a larger percentage of per sonal income. Because of these factors, a farmer who files as a sole proprietor or partner may pay thousands of dollars more over the years than a farm owner who in corporates. The same may have been true in 1969, but not at the same real income levels. For example, if your net farm income in 1969 was $14,000, you would have had to pay $1874, or 13.4 percent, m personal income taxes (with personal exemptions for a family of four and standard deduction for married taxpayers filing jomtly). Incorporation would have saved you nothing. By 1979, however, if your tax status had stayed the same and your income had kept up with inflation, the $14,000 would have become $27,720. You would have fallen into a much higher personal tax bracket, owing $4543, or 16.4 percent of your income, using the standard deduction. But suppose you had in corporated by 1979 and spht the farm income between yourself (as the salaried owner-manager) and the farm corporation. Using the most favorable spht, you could have lowered your total tax bill to $3340, or 12 percent of your income. Your savings: $1203. PUBUC SALE ANTIQUES AND HOUSEHOLD THURSDAY EVENING, MAY 14 at 5:00 P.M. Sharp The undersigned will offer the following at Public Sale located 12 miles South of Carlisle, PA on Route #34 in The Village of Goodyear, Cumberland County, PA: ANTIQUES RARE, AUTHENTIC, 3 SLAT, SHAKER, CHILD’S HIGH CHAIR; Walnut dropleaf writing desk with 6 drawers in base; Walnut Blanket chest; 2 Oak dressers Oak Washstand; Oak Stand; Oak Bookcase; Oak bed with box spring and mattresses; Quilting frame; Camel back trunk; Treadle Sewing Machine; Wood Wheelbarrow; Asparagus baler; Child’s spool cnb; Spider log cherry seeder; 4 Porch Ben ches; Lard press; Foot stools; Many stands 5 Press back chairs; Cane seat rocker; Larkon silverware; Weaved planters; Baskets; Stone crocks, 15 plus; Wall mirrors; Oil lamp; Depression glass. HOUSEHOLD Apiece Walnut veneer dining room suite; Speed Queen wringer type washer; Double nnse tubs; 2-Piece living room suite; Library table; Electrolux sweeper with power broom; Eureka shampooer; Berry grinder; Meat gnnder; Berry crates; Platform rocker; Coffee and end tables; Pole and floor lights; 2 Sets of dishes, both service for eight; Cookie jars; Stainless flatware; Large pressure cooker; Roasters; Utensils; Pots and Pans; Jars; Dishes; and many items too numerous to mention. TERMS: Cash or approved checks. Lunch stand rights reserved. SARAH EPPLEMAN, Owner RD #2 Gardners, PA CLAIR R. SLAYBAUGH. Auctioneer Idaville, PA Phone: 717-677-7479 Incorporate your way to tax savings Incorporation not only saves taxes, but also allows a farmer to reinvest more to build up farm equity faster. Over a 10-year penod, this faster equity growth can be sizable. For instance, in' what Boehlje identifies as a typical Missouri livestock operation, equity accumulation over 10 years may be $lOO,OOO more if the owner incorporates rather than remaining a sole proprietor. Incorporating has additional nontax advantages. It may help keep a farm together when it passes from one generation to another. “A farm corporation can pay nonfarm heirs a competitive return on their inheritance,” Boehlje stresses, so that those heirs are more willing to maintain their financial interest in the business. Their return can take the form of interest if they inherit debentures (loan notes of a given term), or dividends if they inherit stock in the farm corporation. To keep stock from going to outside investors, a buy-sell agreement can forbid selling to anyone except those who are already shareholders. The method of determining the stock’s selling pnce can also be set to guarantee their heirs not far ming can get a fair price for their shares if they want to sell to heirs working the farm. Besides aiding in estate plan ning, incorporation enable a farm owner to transfer assets while alive. “Giving your son or daughter a few acres annually, or a fraction of a tractor every year, is possible under sole proprietorship,” Boehlje says. But the process is cumbersome. On the other hand, “periodically giving shares of stock in a farm corporation is a relatively simple, convenient way to transfer wealth.” Gift tax limits are the same in both cases. fl Tax experts say incorporation can offer even further advantages, although you may not qualify for all of them. By incorporating, you Also, your Social Security payments will increase with in corporation, even if you have no employees except yourself. As a sole proprietor, you have to pay 9.3 percent of the first $29,700 you earn in 1981. Under a corporate PUBLIC AUCTION SATURDAY, MAY 30 AT 2:00 P.M. On the premises located in Lower Mahanoy Township, ' Northumberland Co., appro. 3 miles West of Pillow - off Route 225 * along Malta Road. Approx. 40 miles North of Harrisburg, 20 miles South of Sunbury. 117 ACRE FARM Consisting of gentle rolling land with some wooded areas & boarding along the Mahan tango Creek with double road frontage - Large Bank Barn - 8 Room Dwelling and other out buildings. This is a farm of sizeable acreage located in an excellent agricultural community currently being operated as a gram and grass operation. This farm is expected to sell at a very af fordable price. TERMS: 10% Down-Balance 60 Days. If you have an interest in a farm of this type - Why not investigate it now!!! ESTATE OF WM.L DEPPEN MERVIN W. ADAMS . MERVIN W. ADAMS STEVE ADAMS 1717)692-3076 rhont 692-3076 VSBW* SALB Wnt. Wicst, Attorney SKRVICI may be able to: Oeduct premiums on life, health, and accident insurance for yourself. Deduct depreciation, main tenance, and repairs on your farmhouse. Provide yourself retirement income as interest on corporate debentures. Protect your nonfarm assets from seizure to pay off farm debts, unless the assets have been pledged as collateral for farm loans. With all these advantages, it’s not surprising that the number of incorporated farms nearly doubled from 1974 to 1978, according to the latest Census of Agriculture. And as the distinction between the family farmer and the in corporated farmer is blurred, corporate farming is losing its connotation of big business in trusion into agriculture. Incorporating does have drawbacks. It may increase your chances of being audited by the IRS. In addition, the public disclosure that some states require of corporations may be distasteful, especially if you value financial privacy. structure, you are both employee and employer., in each role, you must contribute Social Security payments of 6)65 percent of your salary (up to the same $29,700 maximum), for a total of 13.3 percent. Another drawback is that you’ll probably need a lawyer to file your application to incorporate. Besides legal fees, you’ll have to pay corporation charter fees. Once your farm is incorporated, you may still need the advice of a lawyer, accountant, or other tax specialist to calculate the most favorable distribution of farm income, and to stay informed on changes m tax laws. You may also want help with keeping farm records and filing tax returns, although you can do these jobs yourself. .Corporate recordkeeping and taxes are more complex than those" for sole proprietorships. PCNNSVIMUIIA WE'RE (MOWING BETTER Full-width conditiomns rolls in the Model 474 Haybme® mower-conditioner are located in the mam frame, not in the header. The lighter header responds quicker to ground contours and greatly reduces knife and guard damage. Come in and let us demonstrate this deluxe machine for you. NEW 474 HAYBINES List Pr ice $6896 YOU WHILE BUY 9 C Q||A THEY NOW W WWW LAST! GOOD RECONDITIONED USED EQUIPMENT* i • N.H. 5P1469, Ford engine, • N.H. L-35 Loader \ priced to sell • N.H. 36 Crop Chopper f • N.H. 890 Harvester w/ • New Idea Cut-Ditioner I 2 row narrow YOUR AUTHORIZED DEALER But even if incorporating necessitates legal or accounting services, Boehlje concludes, your potential tax savings will probably offset additional Qosts if your net income is $25,000"t0 $30,000 or more. And, records required for a corporation may help you plan and monitor farm expansion more closely. One additional consideration is that in any multi-owner business, even the majority shareholder’ does not have absolute control (although, miJractice, there may be substantial agreement among family members). It is good business practice to consult other shareholders on management decisions. Nevertheless, these drawbacks are the same as for- any in corporated business. And in creasingly, as many farm owners know, to succeed in farming you must also succeed in business. WILEY & SON INC. 101 S. LIME ST. QUARRYVILLE, PA 17566 PH: 717-786-2895
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