Economic and Policy Update

Graphic owner: UKZN SAEES: school website

July 22, 2016 Volume 16, Issue 7 Edited by Will Snell & Phyllis Mattox

Are You Thinking About Incorporating?

- Tarrah Hardin Onboarding New Employees - Steve Isaacs Kentucky Grain Markets Map - Jordan Shockley Policy Briefs - Will Snell

Economic & Policy Update Are You Thinking About Incorporating?

When one is starting a new farm business or whether they have been farming for many years, it is common that at some point, they will consider if they should operate as a sole proprietor or incorporate. This decision should be thought through very carefully as there will be long-term impacts of the decision. Each entity should be examined carefully to determine the benefits and risks are for all those involved. There are three types of corporations: Limited Liabilities Corporation, S Corporation, and C Corporation, each having their own tax structure. This short article will address some of the reasons businesses should incorporate and the tax structure of each type.

One of the reasons people incorporate their business is to protect personal assets such as their home, personal vehicles, and savings. No one wants to think that their business will fail or will have to file for bankruptcy. However, should this become reality, personal assets may be at risk in order to pay off creditors that are associated with the unincorporated business. Incorporating reduces the risk of losing personal assets in the event of the exit of a business.

In many situations farming is a family affair with multiple households involved. Creating a corporation legally puts families into business with each other and establishes guidelines of ownership, such as issuing shares to members. Not only does this help protect each family but allows the business to continue if something devastating should happening. As farm ownership and management evolves, the corporation will stay intact until the members of the corporation decide to dissolve it.

When thinking about whether or not to incorporate, individuals have three options, and with these options come different tax structures. A Limited Liability Company (LLC), can be taxed like a sole proprietor that flows straight to the individual’s tax return, as a partnership that also flows directly to each partner’s tax return, or can be treated like a traditional corporation with its own return. However, when doing so one needs to be mindful of double taxation of the corporation profits. With C Corporations, the entity files a corporate tax return and pays taxes on a corporate level. However, if the corporation provides the owners with dividends throughout the year, then the owner will pay personal taxes on the dividend amount. S Corporation taxes pass through to the personal tax return and no corporate tax is paid. Another difference between C and S Corporations is ownership. S Corporations can have no more than 100 shareholders and cannot be owned by other corporations. C Corporations have more flexibility, along with LLCs. When thinking about turning a sole proprietorship into a corporation several details need to be examined. When doing so, a farmer should surround themselves with trusted advisors to help guide them through the process and have their best interests in mind. If you have any questions about corporations, please feel free to contact your local Area Farm Business Management Specialist.

Tarrah Hardin, tarrah.hardin@uky.edu Area Farm Management Specialist PAGE 2 Educational programs of Kentucky Cooperative Extension serve all people regardless of race, color, age, sex, religion, disability, or national origin.

UNIVERSITY OF KENTUCKY, KENTUCKY STATE UNIVERSITY, U.S. DEPARTMENT OF AGRICULTURE, & KENTUCKY COUNTIES, COOPERATING.

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Onboarding New Employees A third to half of new employees decide they are going to leave within the first week of a new job. This doesn’t mean they leave the first week (some do), but they consciously or subconsciously determine that they are not staying here. Numerous human resource studies support this, and if you question the research, start asking acquaintances who’ve changed jobs, “when did you decide to leave?” You’ll find a large proportion made the decision early-on.

Often the decision is based on how they were treated the first day or first week. Employees who are welcomed, equipped, and oriented to the culture of the business are far more likely to feel welcome and feel like this is a good place to work…and are more likely to stay. Getting employees onboard is more that giving them the keys, filling out the forms, and showing them to the job site. The first day is often the most stressful day for new employees.

Knowing where to park and where to eat lunch are nonissues for everyone else. They are big time stressors for new employees. “Oh my gosh, what if I take the bosses’ parking spot?” “Is there a break room, or do they all go somewhere for lunch?” Granted, in the context of overall job performance and satisfaction, these seem like little things, but they can set the stage for liking or leaving a new job.

Here’s a few tips. This is clearly not an all-inclusive list, but there may be a thought or two in here to help the next employee decide to stay.     

Have them arrive late the first day. This seems odd, and we don’t want to set a precedent, but the beginning of the day can be a hectic time. Coming in a bit later gives the manager time to sort out the early morning issues so they can devote some quality time to getting the new person off on the right foot.

Have keys, forms, email, office or job site ready. The first days are a flurry of information to learn, people to meet, skills to acquire. Streamline it as much as possible. They don’t need to know everything the first day…just enough to get through the first day.

Introduce to support staff first. Someone should be identified as the person to direct questions to, and they should be available, knowledgeable, and approachable.

Make plans for lunch. Let them know when, where, and with whom. This should be a highlight of the day, not the loneliest time.

See them off at the end of the day. Ask questions, clarify, encourage, support. You want them back tomorrow…but on time, of course.

Long term impressions and attitudes are often formed very early. The decision to stay or go is often made in the first week. If you’ve invested time in finding and hiring the right person, do all you can to keep them.

Steve Isaacs, sisaacs@uky.edu Extension Professor

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Kentucky Grain Markets Map As part of the ongoing effort in developing tools to improve post-harvest management, an interactive map was developed in Google Maps to depict grain markets available to producers in Kentucky. This map and the identified grain markets will also be used in the development of a Wet Soybean Delivery Advice App, which is progressing well. Each identified grain market has a link to the website where grain prices can be accessed (if available and up to date). This map can also be changed to satellite view and you can zoom into each location and see an aerial view of the granary or mill. This is an evolving process so as more markets are identified, the map will be updated to reflect the addition market locations. The map can be accessed via my website below or from the direct map link provided.

Direct Map Link: https://drive.google.com/open?id=1nUoO2dd8NCFtNLAlz4QXZoh_mnQ&usp=sharing

Jordan Shockley, Jordan.shockley@uky.edu Assistant Extension Professor http://www.uky.edu/Ag/AgEcon/shockley_jordan.php

Policy Briefs 

Support for trade agreements appears waning in the current U.S. political environment in response to concerns over job losses, environmental issues, and foreign currency manipulation.

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A bill requiring food companies to disclose GMO ingredients on food packages (via a scanned digital QR code, website, or phone number) has passed both chambers of Congress with an anticipated signature by the President. This legislation establishes a national labeling standard, preventing individual states from adopting their own GMO labeling requirements which was a major concern of farm organizations and food companies. USDA will determine implementation details over the next two years.

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Discussion on the next farm bill has already started in the midst of slumping net farm income (down 56% since its peak in 2013) and increasing concerns on government expenditures for farm/conservation programs (expected to exceed $15 billion in the coming year vs averaging $10.5 billion annually from 2011-2015). Included in this debate is discussion whether to maintain or remove the Supplemental Nutrition Assistance Program (SNAP) as part of the next farm bill.

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While the decision of Great Britain voters to exit the European Union is not expected to have much short-term implications on U.S. ag trade, concerns arise on the longer term global impact on U.S. ag trade volume given the anticipated boost in the value of the U.S. dollar and potentially other nations exiting the European Union which would likely impact European and overall global economic growth and trade flows.

Will Snell, wsnell@uky.edu Extension Professor

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University of Kentucky Department of Agricultural Economics 315 Charles E. Barnhart Bldg. Lexington, KY 40546-0276 Phone: 859-257-7288 Fax: 859-257-7290 http://www.uky.edu/Ag/AgEcon/extbluesheet.php

Economic & Policy Update View all issues online at http://www.uky.edu/Ag/AgEcon/extbluesheet.php PAGE 8 PAGE 5

Educational programs of Kentucky Cooperative Extension serve all people regardless of race, color, age, sex, religion, disability, or national origin.

UNIVERSITY OF KENTUCKY, KENTUCKY STATE UNIVERSITY, U.S. DEPARTMENT OF AGRICULTURE, & KENTUCKY COUNTIES, COOPERATING.