his strategy will work even if the same people own both entities. Under the law, each LLC is a separate person, distinct from its owners.
notice the use of "people" and "person" to mean two different things?
Wow "legal person" and "natural sovereign people." hahahaha.
The Land LLC has no responsibility for the Operating LLC--it is merely a landowner leasing land to the Operating LLC. So,
by having separate entities for the farm operations and the land, the land is well protected from the liability exposure of the farm operations.
Pretty
awesome - you lease your land back to yourself and thereby cut your
self-employment taxes in half since your land lease is now a tax
deduction on the Schedule F....
All assets are owned in their names, including 500 acres. The farm showed a profit of $200,000. Since the entire farm profit is earned income, John and Jane paid $22,300 in self-employment taxes.
Instead, what if John and Jane have a land LLC, which holds the 500 acres. They lease the land for $100,000, with the rent paid to the land LLC — a deductible expense to the farming operation. John and Jane will now receive $100,000 profit from the farming operation and $100,000 profit from the land LLC. The land rent is considered unearned income and is not subject to self-employment tax. Their self-employment tax liability under this scenario is $15,300, a $7,000 savings.
the land rent will only be considered unearned if there is no material participation by the LLC. This is typically easily solved by making the lease a cash-rent lease. The lease should also state that the land LLC will provide no labor to the farming operation.
Second, the lease rate must be similar to the market rate for similar land. If Bob and Jane pay $400 per acre for rent (double market rate) to try to transfer all farm profit to the LLC, they could jeopardize the rental income being considered unearned income.
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