As a farmer with business set up as sole propritor I keep getting nailed with a big tax bill since as a farmer I pay no quarterly est.tax. I've been told that I should incorporate as a subchapter s corp. since I pay almost twice as much self employment tax as income tax.(21,000 vs 12,000). Is this a wise thing mto do and what are some advantages. Also what happens if I do this in the last half of a year? Is it treated as two different returns?
I Think, taxwise, switching to a SCorp is only going to require you to pay SS taxes each quarter, and withhold taxes on your wages, another prepayment. Might as will invest them to pay in April as you're doing now. Since a SCorp is a direct passthrough to you of all profits (after paying yourself the salary, and depositing the withholding and SS taxes) I don't see any advantage, and plenty of prepaying of taxes disadvantage. Ed
I agree with edcosoft on this one. S corporation also provides a host of headaches in the form of deductability issues for the >2% owner. An overrated form of entity if their ever was one.
While S corp election may not be advantageous for all taxpayers IMHO it would warrant thorough investigation on your part. I personally feel that in the right environment it is an excellent choice - even for farmers.First of all - retain a professional who can assist you in the analysis and give you the pros and cons. This is not something that can be done in a forum such as this board since it requires a detail analysis of your individual situation.Your ability to control the dollars spent in SE tax is certainly one of the prime considerations. For those making 50-80k per year in earnings this becomes the most advantageous.S-corps also can flow farm income to the individual returns. The shareholder can use this income in the calculation of whether they qualify as a "farmer" which entitles them to filing and paying tax by March 1 of each year without estimated tax penalty.I agree with KK and Ed that the issues regarding benefits for 2% shareholders stink - but most of this lies in the health insurance area and Congress is getting more lenient in this area, and hopefully these premiums will be 100% deductible with this new tax bill.BTW - NO REAL PROPERTY IN THE CORPORATION. Own it individually or in an LLC and rent it to the corporation.As previously stated - retain a professional to assist in your decision processpete
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