2013 succession planning business structures sq
-
Upload
miriam-robeson -
Category
Documents
-
view
587 -
download
0
description
Transcript of 2013 succession planning business structures sq
![Page 1: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/1.jpg)
BUSINESS STRUCTURES AND TAXESLegal and Tax Considerations
Presenters:Derek Fisher, CPA -- Fisher & Associates
Miriam Robeson -- Attorney at Law
March 7, 2013
![Page 2: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/2.jpg)
What are your goals?
Ease of operation
Transferability Tax benefits Liability
protection
Self-Employment tax
Fringe Benefits Flexibility Real Estate
Basis
![Page 3: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/3.jpg)
Other Considerations
Life/stage of business
Sources of capital Inter/intra family
issues Taxes Risk management
Estate planning implications
Management or control
Termination of business
Multiple entities Key Employees
![Page 4: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/4.jpg)
![Page 5: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/5.jpg)
![Page 6: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/6.jpg)
![Page 7: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/7.jpg)
![Page 8: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/8.jpg)
Typical Scenario – Top Choice
Limited Liability Company or S Corporation Flexibility, Tax benefits, taxed at
owner rate Multiple Entities
Equipment and labor pool Land Livestock
![Page 9: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/9.jpg)
When To Choose Other Entity Types
C Corporation Need for control at the top Shareholders who would have
trouble with pass-through income Special needs shareholders,
“stranger” shareholders Limits movements of assets and
cash WATCH – Dividends are double-
taxed.
![Page 10: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/10.jpg)
When To Choose Other Entity Types
Partnership Well-suited for short-term project Can be adapted or evolved into LLC Can be terminated at end of project Highest liability issues and joint-
partner risk
![Page 11: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/11.jpg)
When To Choose Other Entity Types
Sole Proprietor Greatest liability risk – both
business and personal assets at stake
![Page 12: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/12.jpg)
LLC versus S Corp Structure
Tax free in-and-out (mostly)
Easy to change as circumstances change
Can have many layers
Prevents de-capitalization of Corp by young owners
Stronger mgmt control in officers
Limited Liability Company
S Corporation
![Page 13: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/13.jpg)
LLC versus S Corp SE Tax
GENERAL Members pay SE Tax
LIMITED Members are exempt from SE Tax
SOMEONE has to pay SE Tax
Can be exempt from SE Tax if salaries are paid to SH
Limited Liability Company
S Corporation
![Page 14: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/14.jpg)
LLC and Trusts Land
LLCs – “easy-in, easy-out” flexibility
Basis locked at formation
Can change structure at any time
Locked in for duration of Trust
Basis locked at formation
Cannot change structure
Can protect privacy
LLCs and Land OwnershipTrusts and Land Ownership
![Page 15: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/15.jpg)
LLCs and Tax Form
Pass-through income, depreciation, etc.
Humans usually lower tax rate than corps
No pass-through tax
Corps taxed at higher level than humans
Partnership LLC Corporation LLC
![Page 16: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/16.jpg)
Entity Structure and Risk Management
Liability Insurance – adapted for every entity type, but does not make you “risk-proof” Entity structure can either “keep in” or
“keep out” risk You cannot insure against your own bad
behavior Does not protect against financial liability
(bad debt, bad business decisions, over-extended credit)
![Page 17: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/17.jpg)
Entity Structure and Risk Management
Liability for outside events limited to assets in LLC – cannot get at your personal assets
Can protect real estate from operational liability
High-risk elements (equipment, labor) in one LLC
Liability limited to assets in that LLC
Keep Risk Out Keep Risk In
![Page 18: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/18.jpg)
Entity Choice and FSA/Farm Program
No more “3-entity Rule” Now – payment limit falls to individual
owners Critical factor is “active participation” by
owners Careful structure of “cash rent” entities Watch issues of Seniors and Minors
![Page 19: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/19.jpg)
Goodacre Farms LLCA&B Goodacre Farm Management LLCGoodacre Hogs LLCBill & Ann GoodacreMary – Tom – Jane
Case Study
![Page 20: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/20.jpg)
Assets
1,400 acres owned ground
1,400 acres rented ground
$2M machinery, buildings, bins
$500,000 Savings $500,000
Retirement
Farm Assets Personal Assets
Value of Estate (March 2013)
RE = $ 9.8M Farm EQP = $ 2.0M Cash assets = $ 1.0M Total Estate = $12.8M
![Page 21: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/21.jpg)
Organizational StructureG
ood
acr
e F
arm
s,
LLC• Farm
Real Estate
• Cash or Share Rent
A&
B G
ood
acr
e
Farm
• Machinery
• Labor• Contract
Farming• Key
Employee
Good
acr
e H
og
s LL
C• Livestock contracts
• Animal buildings
![Page 22: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/22.jpg)
En
tity
Rela
tion
ship
sReal Estate LLC• Contract with MGMT LLC• Liability insulation• Estate Plan – Ownership to all
children
Management LLC• Contract Farming• Production “stake” for sweat equity
(Son & Key Employee• Liability insulation
Livestock LLC• Production stake• Liability insulation from Real Estate
CrossContracts
![Page 23: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/23.jpg)
Fam
ily R
ela
tion
ship
sReal Estate LLC• Starting out - Owned by Parents• Gifted to/inherited by children• Rental income to owners• Downside – Basis lock!
Management LLC• Starting out - Owned by Parents• Sweat Equity and gradual “buy in” by
farming child
Livestock LLC• Opportunity for start-up by Gen 2 (Son)• Can be co-ownership by parents/son
![Page 24: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/24.jpg)
Considerations
Income tax effect of LLC on off-farm owners K-1 and personal tax rate Unwelcome complications to Gen 2 taxes Issue of locked-in basis for real estate
Yes, but is that important? Will there be liquidation?
Estate Tax Planning for entity discount Minimizing estate taxes in high value real
estate market
![Page 25: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/25.jpg)
Farm Entity Structure
Flexibility is KEY Goals suggest structure
Estate Planning – Will there be an Estate Tax Risk?
Transition to Gen 2 Consideration of on-farm and off-farm
children Needs of Gen 1, Gen 2 and Gen 3 Liability protection/insulation of assets
![Page 26: 2013 succession planning business structures sq](https://reader033.fdocuments.in/reader033/viewer/2022061119/546ac8e3af7959664c8b53f7/html5/thumbnails/26.jpg)
Questions?
Contact information:
Derek Fisher, Fisher & AssociatesEmail: [email protected]
Miriam Robeson, Attorney at LawEmail: [email protected]: lawlatte.com
Business Structures and Taxes