Saving Nickels Can Often Cost Dollars

A lot of farmers use corporations — either S or C corp — as their business structure. But as farmers move closer to retirement, a downside of that structure is that farmers haven't built up any or little social security benefits. CliftonLarsonAllen Principle and Farm CPA Today blogger Paul Neiffer explains more

Neiffer: "A lot of our planning that advisors do for our farmers are designed to save some self-employment tax or perhaps provide tax-free fringe benefits. The problem is sometimes the advisors end up saving nickels to cost their clients dollars later on. What I mean by that is perhaps we can save maybe $5,000 or $10,000 in tax but when the farmer gets close to retirement or once they pass away when they owned their farm corporation or other entity that may not have worked the past. The farmer ends up owing an extra $200,000, $300,000 or $400,000 or $500,000 of tax or more. I've dealt with some situations where the excess tax liability related to having a farm corporation was well in excess of a million dollars. So you just have to be careful. It is always nice to save on self-employment tax and perhaps have some other benefits but you also have to plan the future and for what is best for the client 10 to 20 years down the road."