Running a successful farm in North Dakota takes a lot of work. With that in mind, it’s important to do what you can to make it as easy as possible. One way you might achieve this goal is by selecting the business entity your farm operates under. Considering that, it’s good to understand how choosing different business entities can affect the future of your farm.
Some farmers prefer to manage their farms without being a formal entity. If that’s the case, you’d choose to operate your farm as a sole proprietorship. With that said, operating under this type of business entity means you’ll pay both self-employment taxes and taxes on your income.
Many farms operate as family-owned businesses. If you run a farm with others, you might choose to operate as a partnership. With that said, the major drawback of a partnership is that each partner owes self-employment and income taxes on their farm’s earnings.
Forming a C or S corporation
If you’re looking for a tax break, it could be time for your farm to operate as an S or C corporation. Operating as an S corporation reduces self-employment taxes. However, running a corporation can make your life a bit more complicated from a regulatory compliance standpoint.
A C corporation can also provide tax-related relief for a farmer. Under this entity, you can provide tax-free lodging and meals on your premises. In some cases, certain farms operating as C corporations can also catch a break on taxes related to offering medical insurance.
In closing, each business entity has advantages and disadvantages for your farm. Look over each option and closely research which entity is best for you.