Many farms were incorporated as C-corps in the 1960s, 1970s and 1980s. At the time, the highest corporate tax rate was lower than the individual rate, and C-corps allowed farmers to deduct personal expenses such as housing. However, there was a price to pay.

Do you pay tax on land contributed to a C-Corp?

Land contributed to a C-corp was trapped — the corporation had to pay tax on profits, and the shareholders paid tax on the dividend distributions, or ultimately, liquidation gains (double taxation). However, until 1986, there was an opportunity for closely-held C-corp to liquidate without the double tax.

What is the tax rate for a C Corp?

Starting in 2018, the tax rate for a C-corp is a flat 21%, and the highest individual rate is 37%. In addition, dividends from a corporation are taxed at 0%, 15% or 20% (depending upon the stockholder’s level of taxable income), and they are subject to the net investment income tax.

When to transition from C Corp to S Corp?

If you operate a family farm, the following arguments support transition from a C corp to an S corp: Income from a C corporation gets taxed twice before landing in your bank account. Corporate tax rates apply to the farm’s net income, and individual tax rates apply to the corporate dividends you receive.

What are the legal implications of farm leases in Iowa?

[ii] Given these numbers, it is crucial that Iowa landowners and producers understand the legal implications and requirements of their farmland leases. A lease is a contract under which a right to use and occupy real property is conveyed. A farm lease is a binding legal contract, whether or not that lease is reduced to writing.

What is the inheritance tax rate in Iowa?

There are Tax Rate C beneficiaries, which applies to uncles, aunts, nieces, nephews, foster children, cousins, brothers-in-law, sisters-in-law and all other individuals. The inheritance tax rate for Tax Rate B beneficiaries ranges from 5% to 10%, and the inheritance tax rate for Tax Rate C beneficiaries ranges from 10% to 15%.

Why did farmers convert to S-Corp in 1986?

After the 1986 Tax Reform Act, individual tax rates went down. Many farmers looked at converting to an S-corp to avoid the double taxation, especially at retirement. This was especially the case if the stockholders were no longer living on the farm. Pass-through income-tax treatment and reduction of self-employment tax were a big draw to farmers.