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
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NEW 474 HAYBINES
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YOU WHILE
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GOOD RECONDITIONED USED EQUIPMENT*
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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