I missed the articles in Top Producer when magazine was received.........probably in my stack of "to read".

The first article is quite misleading..........sounds like the guy was attempting to drum up business...............did the same type of thing myself years ago, so no ill will intended.

The second article tells "the rest of the story"........without it, the first article is lawsuit material for gross negligence..............I'm being dramatic now, but it is not an article that could be used for a guideline by itself...........which is probably why Top Producer really got the calls.

re the wife's wages in kind...............it will work.  If paid in kind, business withholds nothing, she pays INCOME taxes, but neither she nor the business pay FICA taxes.

BUT.....note in the second article..........guy says that they recommend about a 50% split cash and in kind.   WHY?

Because they are not sure how the IRS is going to view the underlying employment situation.  If they were 100% sure that all would be sustained, they would advocate 100%----- why not??  Go for it!

It is not the method of payment the IRS would attack.....it is the nature of the employment-----is she really really really an employee???  IN TERMS of a THIRD PARTY employee??  and that is where IRS grabs.   If IRS fails to show she is NOT being treated as a third party ee, ie she IS an ee.........then the method of payment is mute, and the Sec 105 medical benefits (which they talk about as being the "medical benefits") are sustained.

Put some perspective into this --------- pay the wife 10k,   ..........5k cash and 5k in kind.........savings on the in kind = 5000 x 15% = 750 cash.   That wouldn't even cover the travel costs for handling an audit.  So........the structure, etc has to be worth the money...........750 gets a little thin.

Further.........in one of the articles......I think the second one.....they say that the cash plus in kind should equal 100% of the wife's "value" as ee............

That is contrary to what the court cases are saying--------it is the direct compensation PLUS the medical benefits and other benefits that the value must equal.

So.......if business documents 10k worth of time for the wife, and pays 10k in comp items, and then the family medical ins is in her name for 5k, and out of pocket medical bills are another 3k.........total she is getting benefit from is 18k,,,,,,,,,with documented only 10k.  that is a problem.

As a whole, however, the combo of the articles is pretty good---------B+.

I personally don't like the in kind payment routine due to the probability that my clients won't handle the storage fees, etc etc properly, and then that becomes just another item in an audit to bitch about..........it is a mechanical problem as compared to a "is it a deductible item" problem.......yes, it is deductible, but mechanically can we sustain it without peeing our pants.

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The retirement fund comments are the ones that need addressing.

I read the first article..........and started breaking out in hives that I might have missed a good thing.

Then I read the second article--------ahhhhh, business as usual!

If an unincorporated business could find a fund that would accept GRAIN as such, then one might get away with putting that much GRAIN in the retirement fund without incurring self employment taxes.............but that ain't gonna happen.

So, the grain has to be converted to cash before going into the pension fund........ergo, a sale.

The only sales I can think of that might avoid self employment taxes would be sales of grain after being officially retired, out of farming.........then the sale of the commodity would be exempt.

But.........the 250K is misleading, since the amount that can go into a pension is based upon the person's earned income from that business-------as the second article points out.

So..........sell the grain------produces income on Sch F, and therefore SE taxes........with a deduction for the pension payment on page 1, 1040..............which in result would offset the sale of the grain for INCOME tax purposes, but not for the SE tax.

Result-------for the self employed farmer, forget the avoidance of SE taxes on payments to the pension fund.

Now, if the grain is transferred to a C corp, or S corp........but probably not an LLC (taxed as partnership, and therefore the pension deduction would be on person's 1040 as compared to the LLC's partnership return)...............then sold, ..........the ee is paid a salary sufficient to support the pension payment %.............then the corp could make the pension payment without it flowing thru the ee's 1040, and therefore the group would avoid SE tax on the grain sold to provide funding that would go into the pension fund.

It could not be an ee's share of the contribution to a 401K, however, since that would be subject to FICA.........has to be the company's share.

The point is that in order for the grain sale to avoid SE taxes, it has to be sold in a non-SE environment..........which the second article effectively points out.

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Rule of thumb...............any farmer not over 55 should be incorporated under a C corp, should be then getting the meals and lodging deduction, term life benefit, medical ins and medical bills deduction, have corp put money into pension plan/IRA..........and, in those states where IRS is still attacking rental payments of farm land as paid to producer------which is all of them as far as I am concerned---------use an S corp as intermediary----------------and be done with all of these "exotics".  Stay with the basics.  The C corp insulates all of the problems, and provides a vehicle to weather the economic business cycles.

If you use a C corp............then the questions about the retirements, etc become mute.

But, to answer your question directly...........the spouse should be employed.........pay her cash, get the medical ins and medical expenses deducted via Sec 105.........make sure a contract/job description is in place which outlines duties, times, and values.

Use the standard pension plan routes---------there is nothing to the "avoid SE taxes" routine..........with respect to the non-incorporated business.

If you incorporate, then different ball game..........

(by the way, kids under 18 can work for Dad in self employment business, for cash, and not incur FICA taxes.   Every farm kid should be getting a paycheck.    If incorporated--------possibly a different story--------"just depends")