Tax Shelters

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Mahoney Pursley Ranch":zefj1fv3 said:
It has been said here many times that being in the cattle business is a good tax shelter. Do any of you people form a Corp. or LLC in the ranch name ?

I personally do not have a Corp or a LLC but in answer to your question, yes many ranchers and farmers has formed either a Corp or a LLC,
I haven't figured out what the shelters are yet and I've been INC for several years. At the end of the year, you will get taxed on all profit just like anyone else. We need to hear it from Arnold Ziffle, who is a CPA and a cattleman if I am not mistaken.
D.R. Cattle":29hbxyrn said:
I haven't figured out what the shelters are yet and I've been INC for several years. At the end of the year, you will get taxed on all profit just like anyone else. We need to hear it from Arnold Ziffle, who is a CPA and a cattleman if I am not mistaken.
D.R. You're right about that
Arnold probaly knows more about this subject than anyone else on the board
My wife owns a corporation and I own an LLC. I was just curious to see if ranchers named the cattle business they run in either. And there are tax benifits to be had over an individual filing taxes.
The main advantages are the ability to depreciate assets and expense activities that you can't if you're not in the cattle business. On your personal return it's done on your Schedule F. If your running everything through the books of your business it's done there. Either way you go it will pay to use a CPA who is familiar with agriculture. They will keep you in compliance and still make you more money than they cost you.

MP Ranch

Welcome to the business. I usually hesitate to use the term "tax shelter" when describing the type of operations that most of us CattleToday folks have --- too many unsavory deals in the past, with little or no economic substance were promoted as "tax shelters". But nevertheless, there can be income tax advantages associated with your proposed cattle business, and also the ability to reduce self-employment taxes if you happen to have self-employment income from some other source,

Be sure to keep good, detailed records. Seek out the advice of as many cattle people, extension agents, etc. as you can (in addition to the fine folks here at CT) and try document your investigations, analysis, etc. and develop a good "paper trail" of all the investigative work you do, the training you obtain, etc. If you have an accountant, get him to give you some additional guidelines about how to conduct your operations so as to maximize your tax benefits and minimize the chances/possibility that the IRS would seek to treat your operations as a "Hobby" (a hobby largely being the kiss of death from the standpoint of tax benefits).

Craig is correct: one of the primary tax benefits is the ability to immediately write off relatively large amounts paid for breeding herd animals, tractors, fencing, etc. --- assuming you have "earned income" from wages or some other "self-employment" activity (in addition to being able to write off the cost of feed, hay, vet supplies and services, and other "consumable" expenses commonly incurred in the business). Properly structured, your cattle business losses in the first few years (and forgive me for assuming that they indeed will be losses) can then be used to offset taxable income from other sources such as your "real job", interest, dividends, etc. As I recall, you are not a Texan yet, but own the property in Texas on which you will soon begin your cattle operation. You'll find that one of the biggest "shelters" is simply the much lower land value for ad valorem taxes if you qualify for the ag exemption. Never spend money on cattle business related things just because they happen to be deductible. I can't tell you how many otherwise very intelligent clients and acquaintances I have heard say silly things like "he just does it for a tax shelter". Remember that even if an expenditure is 100% deductible it could still be costing you 50% or more after taxes, depending on your tax bracket – Uncle Sam and the state taxing authorities only pick up part of the tab via allowing you a deduction.

The issue of incorporating your operations, or going the LLC route, brings up many considerations beyond the scope of this discussion. As a practical matter, there are no magical, greatly enhanced tax benefits associated with incorporating (or LLC'ing) a small ranching enterprise, and there can in fact be significant problems associated with having highly appreciated property such as land in a corporation. Generally speaking, I have always urged clients not to incorporate unless they first felt the need to do so for legal liability protection. In many situations the legal liability issue is paramount, but for most smallish ranching operations the sole proprietorship (or possibly even better, a single member LLC) works just fine. But you should consider various types of commercial insurance, certainly including liability insurance. Texas is not a free-range state, so at a minimum make sure you have good fences --- and a business liability and umbrella policy wouldn't be a bad idea.

Another thought: you should consult your accountant or attorney if you are seriously considering incorporating or creating even a single member LLC for Texas operations. If you decide to incorporate talk to your attorney about filing Form 2553 to elect "S" corporation status. Also, note that Texas essentially has a 4.5% income tax rate for corporations and LLCs (although it is called the "franchise tax") --- but under fairly recently enacted CURRENT law there generally is no Texas franchise tax unless the gross receipts of the business exceed $150,000 in a year. Because of the $150,000 gross receipts rule you most likely won't have to worry about the franchise tax unless you get a heck of a lot bigger than I think you will, but the law could change again at the whim of the bozos in Austin.

Good luck to you. Arnold Z.
My farm is incorporated. Up to a certain level a corp pays a flat 15% tax. If the farm wasnt incorporated that income from the farm plus my wife's salary would throw us into a much higher tax bracket. With the corp I pay myself a salary just like any other employer would. There's other advantages as well but its been so many years now I don't remember all of them. I'm sure AZ can clarify more.
Texas farm Bureau offers some excellent insurance for farm and ranch operations. I know I carry a million dollar liabilty with my FRO policy and its resonable.
Arnold Ziffle":b7nq4vf6 said:
Never spend money on cattle business related things just because they happen to be deductible.

come on arnold.. that section 179 deduction sure makes it tempting to want to buy that new tractor, etc

and when i tell my wife how much taxes we are saving..... she doesnt fuss as much.. LOL

all joking aside, thanks for the post. we have to remember that we are running a business. practically everything we buy is deductible, but not every thing is practical to buy.

Most importantly, please remember that this just allows you to keep a little bit more of your own money....the goverment is not "giving" you a be nice thing! :cboy:

Well put SFMG! Great post AZ.

We keep extensive records and data on our Longhorn & Gaited Horse operation. Use a CPA firm. Stock used for breeding purposes, major equipment, and infrastructure construction & improvements are depreciated. Other (many) deductible items are written off as expenses.

If you have a legitimate livestock operation, your CPA Firm will treat you right. If you have a "hobby" operation and/or are using your "operation" for a "tax write-off gimmick" or other questionable activity, be sure you also have a good Tax Attorney and a lot of luck (assuming you are trying to sneak by a "tax shelter or write-off".

Bottomline is whether or not you are trying to run a legitimate "for profit" livestock operation; or, trying to "launder money"
yea I'm laundering money made from the pot I grow on my ranch and the poppy fields. :) I know the laws pertaining to "tax shelters" perhaps I shouldn't have used that phrase when I created this post. My wife and I both own corporations and am well aware of what you can and cannot do. I only asked to see how many people here have used the ranch to form a corp. or llc.

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