As your farm’s size and complexity increases, there are likely many new considerations weighing on your shoulders. How can you minimize your ongoing tax burden? How can you remunerate yourself in more tax efficient ways? How can you limit liability and protect your personal assets or assets of another business? How can you transfer the family farm to the next generation tax free?
For some farm businesses the answer to all these questions could be incorporation. With a substantially lower tax rate on the first $500,000 of taxable income, more after-tax income from an incorporated farm business remains available.
Not only can additional family members easily be added as shareholders without disrupting the current operations, but shares of a family farm corporation can be transferred tax-free to the next generation as long as certain conditions are met.
With lower tax rates, limited liability, flexible remuneration strategies, fiscal year end dates allowing for additional tax planning measures, and tax-free transfers under certain conditions all make incorporation of your farm business an important financial strategy to consider.
But remember, incorporating a farm business isn’t for everyone. Important considerations include: initial set up costs, increased annual tax filing requirements and record keeping, as well as the potential loss of value future tax measures like the lifetime capital gains exemption and even the principal residence tax exemption.
To determine if incorporating your farm business is the best strategy for you and your family, contact Allied Associates to learn more.