Sharing eqt - revisited - questions for JD Seller o...

I read the post a week ago about purchasing equipment based on shares. I"m just curious how that works out taxwise and then for collateral use. My sons and I purchase equipment individually and bring it up into shape at our own cost and then share in the cost of any repairs to the machinery based on the acres, just like you had posted. We each still own that piece of equipment individually. All rented ground is shared equally, and each persons owned ground is theirs 100%. That"s how we come up with our varying percentage of shares in the repairs. We are not a corporation, and our tax man keeps saying we need to form one. So the question is, how would shared ownership be viewed taxwise and collateral wise?

As far as combining into a corporation think about the following. How many people are going to be involved and not to be negative but how many potential problems will each party bring? I've heard of more than one operation permanently broken apart by a feud that started after the corporation was formed. If your corporation as you propose it fell apart could you survive on your own? The worst thing I ever did which is a bit different than what we are talking about was combine everything into one account for loan purposes. It left me no room to maneuver when things got tough and I had to sell ground that I would not have if I had left things separated as was before. Think long and hard about this. It might be worth giving up some short term benefits to keep things intact for yourself and maintain control for yourself.

We file as seperate opperations. Which we are, and dont plan to incorperate. We just share equipment and help each other. It was the only way I could help the kids get started. I was just wondering how to buy equipment togather and not have a tax or bank problem.

4020: The first thing to do is to talk with a LAWYER on whether you should incorporate or not. I have found in family situations that incorporating is usually a mistake in the long term. The tax guys and estate planners make it all sound good but in real life it just makes a mixed marriage that is usually doomed to fail. The problems usually come from the non blood spouses. They have no ties to the family members other than through their spouse. That tie is not much and their view point is very tainted toward themselves usually.

As far as tax wise the asset is just owned on a percentage basis. You own 20,30,or whatever percentage. So you depreciate that percentage.

The repairs are just a direct expense. I pay all of the ones on the joint owned equipment. Then we divide it into a per acre cost. Each user pays based on the acres they used the machine. They pay me before years end. I have seen separate accounts at implement dealers for partner ship owned equipment. Then the dealer bills each partner. This is usually only with two 50/50 partners.

Collateral wise each partner would own a set percentage just like the purchase cost/payment was divide. I will tell you that most banks will NOT put full valve on joint owned equipment. They know it would be hard for them to act on a minority partner on a partnership owned piece of equipment. Land they look at differently but most will still not be real favorable on partnership owned assets.

I will state again that I am not in favor of family corporations. TAX guys and LAWYERS LOVE them. They are just about always assured a good income off of one. The tax savings are SMALL on a percentage basis. Actually you have to watch out or you can get double taxes on income, the corporation pays and then you do too as personal income.

If you own certain assets in partnership the percentages of them are clearly spelled out. When in a corporation the ownership percentage is harder to figure on individual assets if the corporation breaks up.

Also you have to take human nature in to consideration. When you own an asset yourself you will take better care and pride in it. Ownership of an entity like a corporation does not have the same emotional effect/attachment.

Think about how a death or split in the corporation would effect everyone involved? It usually is nasty. The ownership is just not as clear.

Whether you incorporate or not make sure you have life insurance of a high enought amount so the surviving partners/share holders cam buy out any surviving relatives is one of the partners/share holders dies.

Do not make your business and estate complicated more than you have to for just a little in savings. Most of our estates will be small enought that they do not need all the twists and turns most tax and estate planners want to do. I would rather my estate pay a little in probate than be tied up in court for years while everyone fights about it. Incorporating and partnerships will make it more complicated.

While my brother was married to his first wife we refused to allow him to be in partners with us. We would do work for him at a very favorable rate but none of us wanted any business dealings with his first wife. That turned out to well worth his anger over it. She cleaned him out of well over seven figures for 10 years of marriage when she divorced him. IF he had been partners with us we would have been drug into the battle.

Thanks for your input. I do know if we bought any equipment on a shares basis, our tax man would have a fit and bring up the "partnership" issue. We purchase cattle on a shared basis and he said the IRS would view this as a partnership and we need to set up as a partnership instead of each paying 1/3 individually. I don't understand what difference it makes - we still report and pay taxes on profits, just individually. We have personal insight in the corporation department. My folks incorporated years ago and are now trying to retire. What a mess - the corporation has a lot of money that cannot be accessed without huge tax issues, while my parents personally have no money.

4020: You need to remember that "your" tax guy works for you. Just tell him in no uncertain terms that your NOT interested in a partnership or incorporating. IF he does not work with you, replace the tax guy not the business structure.

10-12 years ago I went through 3 tax guys and 2 lawyers. They all have THEIR ideas on how you should run your business. There are many ways to run your business that are all legal and tax correct. So you need to find a tax guy and/or lawyer that is willing to work with you to structure your business the way YOU want it. Not the way he wants it.

As you know, by your parents example, that a corporation and or trust can be a real PIA to unravel down the road if need be.

One thing people need to really think about is how much money is "SAFE" to retire on in times of financial uncertainty???? When you tie up your assets in a trust or corporation they can be about impossible to access later on if you need them.


I hate paying taxes but I hate paying lawyers/accountants just as much. So don't trade one for the other. Keep your business and estate structure as simple as you can to reach your goals.

SO do not tie your estate into knots to save a little on taxes or probate. It can real easily be a nightmare down the road to unravel if you need the money or even your heirs to straighten out.


A good family friend retired in the early to mid 1960s. He had $100,000 in cash and his home paid for. The inflation of the 1970s and 80s plus a heart attack made his wife have to go back to work in her late 70s because their money was running out.

I hate to say it but seems there is always at least one wife that has a queen complex. She can usually handle being separate in terms in assets because she can point to her and her husband's empire. These kinds of women are definitely not into sharing. She will be keen to what they brought to the partnership whether it be acres or dollars. Whatever favors her position more. The corporation works better if it existed prior to the marriage and the ground rules were laid out before the wedding.