Rachel RespondsSeptember 27, 2018

Building the right business structure for your farm.

Question:

Is it worth it to file taxes as an S corporation?

Answer:

You can elect to have the IRS treat your LLC as an S corporation for tax purposes. Farmers who make more income than the average farmer may find an advantage in doing so. This is because the amount of income made over the average may be classified as dividends rather than income, and dividends are taxed at a lower rate.

To be treated as an S corporation for tax purposes, the LLC must meet the eligibility requirements. There must be fewer than 100 members/shareholders, only one “class” of stock available to each member/shareholder, and only persons, trusts, or estates are members/shareholders (other corporations or LLCs may not be members/shareholders). There are special forms to fill out and deadlines to meet to make this designation. Talking to an accountant or attorney will be helpful in keeping track of the steps necessary to file as an S corporation. 

FOR MORE INFORMATION: Read chapter 4 (pages 232–245) of Farm Commons’ Farmer's Guide to Choosing a Business Entity. An attorney specializing in tax law can also answer questions about the benefits and responsibilities of filing under S corporation status.

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