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  1. #21
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    Quote Originally Posted by gbent View Post
    With a 600' separation it sounds like you have a reasonable sized piece of property. Think into the future for some number of years. What is your exit strategy for your business? Or for your building if your business becomes sufficiently successful it outgrows your location? If your building can be split from your residence it may make selling your business easier, or allow you to sell the building if you sell your business to someone who doesn't want the building.

    Just because your area isn't zoned now doesn't mean it will never be zoned.

    I agree with all those who say build the building personally, and then lease the building to your business. This allows you an avenue to receive income from the business without paying SS, WC, UC, or other taxes on that income. If you have all your available cash in the business, the business can even loan you your money so it doesn't have to be taken as income and rinsed through the tax man first.
    Good point, I didn't even think of a business loan to myself personally to avoid taxes. That answers my previous post.

    And that's why I come here, clearly there are more seasoned businessman present.

    Apparently I haven't found a good accountant yet, the few I've had have been less then helpful when it comes to saving me money and getting creative.

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  3. #22
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    In the vent of a part failure/lawsuit and possible criminal negligence, its usually on the individual(s), but that's what liability insurance is for.
    But that is not the same as financial liability which is the real reason to incorporate, LLC, or whatever other name, and split personal assets from business assets(when it makes sense anyway, I haven't yet) so that in the event of the business you own going bankrupt through no fault of your own, you kinda want your personal assets to be protected and not pillaged by the creditors. But if you purposely bankrupt it you could be (likely will be) personally liable and still lose your personal stuff, unless you're one of the pro's that seem to be able to go bankrupt every few years and keep getting away with it, I don't know how they do that but its popular in the construction industry. Good rule is to not go bankrupt eh.

    I know a few people who personally own their buildings on their property, but their company pays rent to them, same for their equipment, company owns very little. All depends on your tax/money situation, varies all over the place, back to checking with accountant.... In my case I own it all personally, and everything tax related is settled every year. I'll worry about splitting it when there's enough money I no longer know what to do with it... could be a while... for now I don't mind the much easier and less costly accounting fees and process.

  4. #23
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    Quote Originally Posted by gustafson View Post
    Just because there is no zoning does not mean there are no land use restrictions. As far as legally building, only your local code enforcement can tell you for sure. Small businesses can get away un permitted un noticed for a very long time but it does not make them 'legal'
    LOL strangely thats one of the things in the uk that can make them legal, if you can show the business has been functional in the premises and not caused issues - aggravation with others in that time period it can get grandfathered in pretty easily. That said a lot of its how you class your business, like most things there can be some creativity there, so long as you can support it.

    I would not overly sweat the long term sale of the business being complicated by its current location, look at the number of business ran out of rented space etc, equally whats your plans for the business? If its build it up to sell then it might be different, but if its just std machinery that gets wired up and sits on a floor, it really has little to do with location.

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  6. #24
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    Quote Originally Posted by adama View Post
    I would not overly sweat the long term sale of the business being complicated by its current location, look at the number of business ran out of rented space etc, equally whats your plans for the business? If its build it up to sell then it might be different, but if its just std machinery that gets wired up and sits on a floor, it really has little to do with location.
    Completely agree with that.

  7. #25
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    Check availability and rates for fire insurance on the building and contents. While a residence can be in a rural area with no water mains or fire hydrants and still be insurable, that's because homeowner's insurance is somewhat controlled by states sorta like car insurance. But no such restrictions or rate controls, or requirement to provide any insurance whatsoever, exist for commercial buildings.

    Obviously, this could be a big deal on a building, but it can also be a bigger deal if you buy a machine on credit or lease/purchase where the machine itself has to be insured as a condition of the lease or financing.

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  9. #26
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    You've been given a lot of great advise, I have my business at my house on 8 acres, there are pluses and minuses, the first thing you need to make sure of is that you can legally run a business at your location.
    #2 Get a business attorney to look things over.
    #3 The plus side to having a business at home is the convinience, another thing is property taxes tend to be a lot cheaper, where I live my taxes are about 6K a year for the house and the shop, to have what I have on a commercial piece of property would be about 20k a year not to mention the cost of buying the land... so I save about 18 thousand a year in property taxes alone, an earlier post said his dad sold their building for over a million dollars, so there's a trade off, save money in the short term or look at your building as a retirement investment... so very valid point the guy made.
    I agree, use your personal money to build the building, doing so allows you to have the business pay you rent, the tax advantage to the rent payment is that you don't have to pay social security tax on rental income.

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  11. #27
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    Quote Originally Posted by zipfactor View Post
    ...If I were to use personal funds, I'd have to run payroll to get that money out, which entails getting hit with payroll taxes...
    Im not an accountant, so youíll need to verify all this...

    Structure a loan from the business to your person (LLP or LLC might be better) for the construction costs. Use the loan proceeds to build building. Then pay yourself (or the LLP) rent from the business, then use the rent income to pay off the loan back to the business. You might be able to deduct the interest (not sure if thatís possible with new tax laws)... This will likely require a little fancy legal / accounting work, but that is all a deductible expense on the business side.

    In the end, you end up transferring the cost of the building to yourself with significantly reduced tax burden... You should be able to structure so you donít incur any additional personal income until the loan is paid in full.

    Youíll also have significant depreciation on the building that should make the LLC tax neutral (or offset your rent income) for many years...

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  13. #28
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    Something to consider if you proceed is how to handle depreciation.
    Depending on plans for the future, there are reasons to take depreciation, and reasons not to. Legally, depreciation usually has to be paid back at time of sale, if proceeds exceed depreciated value of asset. Start and maintain a good file of every penny of maintenance & improvement costs to the building, my experience is that it can help dramatically with taxes at time of sale.

    On a complex property with other valuable buildings, it might not be a factor since future sales price for the parcel may well be determined by the residence only. But whether to take depreciation (on the costs incurred to build shop) is worth understanding with a CPA first.

    My one-man millworks is in a former barn on the property with separate road frontage though closer to the house than your proposed building. Ag-1 zoning. Token lease, separately insured, no depreciation (on building), all improvements and expenses paid by business. Office is in the house which means some expenses (fuel, electric, improvements) can be paid out of the business. Just don't get ridiculous.

    smt

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    Just say it's a farm.

    You can get away with murder then.

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    Quote Originally Posted by Garwood View Post
    Just say it's a farm.

    You can get away with murder then.
    And get a few goats so you can claim a farm credit on your property taxes.

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    Quote Originally Posted by DavidScott View Post
    And get a few goats so you can claim a farm credit on your property taxes.
    And grow marijuana for medical uses on it, to make it really pay

    Seriously, speak to professionals a few hundred $$ spent on their services could save you many many thousands $ of grief later on.

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  20. #32
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    Quote Originally Posted by Limy Sami View Post
    And grow marijuana for medical uses on it, to make it really pay
    As lucrative as that sounds, here in WA state (where recreational MJ is legal), there is currently a glut of supply and prices at the wholesale level are way down. I donít consume myself, but apparently the retail prices, while lower, havenít fallen as much as the wholesale...

  21. #33
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    I actually have 3 shop buildings, along with several other sheds and small offices, on my farm, and have it set up so the business rents them from me.

    One thing to consider though- homeowners insurance will not insure a business building or contents.

    I have a separate business insurance policy for liability and the shop buildings and contents, in addition to my homeowners for the house. Which, of course, costs more than homeowners by about triple.

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  23. #34
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    Quote Originally Posted by Garwood View Post
    Just say it's a farm.

    You can get away with murder then.
    Technically, that is the case. I'm zoned Ag, so you can get away with a lot!

  24. #35
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    Quote Originally Posted by Limy Sami View Post
    And grow marijuana for medical uses on it, to make it really pay

    Seriously, speak to professionals a few hundred $$ spent on their services could save you many many thousands $ of grief later on.
    Oddly enough, I called the "zoning" department for my township and the first thing they asked before I could get two words out was if the question was related to medical marijuana farming

    I say "zoning" because it is one person and they have absolutely no clue about the rules. I think they are there to hold a position and make it feel as if there is some sort of oversight.

    There are several properties near me that are zoned Ag and clearly are running non-Ag businesses out of their homes. I know for a fact they did not notify the township as they list these businesses on the zoning map.

    I've looked into it and the worst case if I were to get caught: a fee of $250 for the "license" and $50 penalty for not filing for said "license".

  25. #36
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    Quote Originally Posted by stephen thomas View Post
    Something to consider if you proceed is how to handle depreciation.
    Depending on plans for the future, there are reasons to take depreciation, and reasons not to. Legally, depreciation usually has to be paid back at time of sale, if proceeds exceed depreciated value of asset. Start and maintain a good file of every penny of maintenance & improvement costs to the building, my experience is that it can help dramatically with taxes at time of sale.

    On a complex property with other valuable buildings, it might not be a factor since future sales price for the parcel may well be determined by the residence only. But whether to take depreciation (on the costs incurred to build shop) is worth understanding with a CPA first.

    My one-man millworks is in a former barn on the property with separate road frontage though closer to the house than your proposed building. Ag-1 zoning. Token lease, separately insured, no depreciation (on building), all improvements and expenses paid by business. Office is in the house which means some expenses (fuel, electric, improvements) can be paid out of the business. Just don't get ridiculous.

    smt
    That's very sound advice and the situation created by building would be almost identical. Thanks for the heads up, I'll be sure to look into the depreciation aspect.

  26. #37
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    Default Shop use as hobby

    Quote Originally Posted by Ries View Post
    I actually have 3 shop buildings, along with several other sheds and small offices, on my farm, and have it set up so the business rents them from me.

    One thing to consider though- homeowners insurance will not insure a business building or contents.

    I have a separate business insurance policy for liability and the shop buildings and contents, in addition to my homeowners for the house. Which, of course, costs more than homeowners by about triple.
    So I have a barn on my property that I use as my shop. Have many thousands of dollars of equipment, my agent tells me that as long as the value of the equipment doesn't exceed the value of my "contents" coverage I have nothing to worry about. My problem is this, I do sometimes exchange cash for my services... I am afraid that is something happens the insurance will tell me it was a business and not cover the loss... I try to keep things on a "cash and carry" only transaction.

    I don't do enough to really turn it into a business, and all the expense that goes with that. I have owned a small business in the past, and the record keeping is such a headache. I want to keep my hobby fun, but make a few bucks to keep going with it. Is there any way to protect my assets in the shop, without turning it in to a business? Or would it be to my benefit to just form a LLC, put business insurance on it, and just deal with the rest?

  27. #38
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    There are some general rules that the IRS uses considering receiving cash or payment from hobby work so some Google time may be in order then follow up with tax man and insurance company to confirm.

    It relates to how much is invested in the equipment and other assets as well as how much is collected.

    If one has a collection of "tools" that allow them to play with their "hobby" and personal needs then a "friend" offers some payment for your time it could be fine.

    As long as there is no possible profit then there is no concern for the IRS, and if you are not acting like a buisiness then everyone else usually is fine.

    This is a common thing that nosy neighbors get involved with so there usually is clear legal language in your local zoning place that can be checked and copied to have handy.

    Sent from my SAMSUNG-SGH-I337Z using Tapatalk

  28. #39
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    paoldschool wrote: "My problem is this, I do sometimes exchange cash for my services... "
    I think you meant to say, "I sometimes have out-of-pocket project expenses reimbursed..."

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