Case Study: The Tax Saving Team

The Jones family dreamed of owning a California vineyard.  For years, they watched newspapers and websites, dreaming about property which they might someday afford in Temecula, Paso Robles, the Livermore Valley, and the Sierra foothills.  When they saw “THE PLACE”, three generations pooled their money and purchased vineyard land and an adjoining homesite parcel.

Needless to say, there were huge costs involved in preparing the land and planting their vines.  They were fortunate in that some of the land was planted, so they had some initial cash flow.  However, many of their costs were capitalized rather than expensed and they believed that they would have to pay income tax on money that had already been spent on planting!

Fortunately, the Jones family was able to find a team of professionals who worked well together:

  • A tax professional
  • An attorney
  • A vineyard and winery consultant
  • An insurance professional

This team worked together to help the Jones family reduce their costs, organize their vineyard and winery for best tax effect, insure against loss, and put together the legal documents necessary to lock in their savings.

First, the consultant and insurance professional were used to find better pricing on vineyard and winery needs, and to insure against loss.

Next, the tax professional and attorney got busy.  The vineyard was organized as a Limited Liability Company and the winery was separately organized as an S Corporation.  This protected the vineyard by segregating potential liability from tainted product or drunk drivers in the winery corporation.  It also allowed different accounting methods and tax treatments to be used for the vineyard and the winery, lowering the family’s income tax burden for their combined operations.

The vineyard was placed under a lease to an operating company, also owned by the Jones Family.  This permitted the Jones Family to defer recognizing income and to manage the income level attributable to the vineyard.  Most surprising to the Jones family was their ability, through Internal Revenue Code § 119, to use their S Corporation to hire a family member as the “24/7 onsite manager.”  Using this option, the farmhouse owned by the vineyard LLC was expensed as a rental and was provided to the family member as a tax-free employment benefit.

Finally, agreements and estate plans were drafted among the three generations to keep the vineyard and winery in the family and to reduce or eliminate estate tax as each generation passes their interests to future generations.

The full amount of savings cannot be calculated.  Every year, the vineyard, winery, and owners legally will pay less income tax because things have been organized correctly.  The cost associated with hiring the team has already been recaptured in tax savings and will continue to pay dividends in the years to come.

 

Acuña ❖ Regli provides expert services within the four corners of family wealth transfers: Estate Planning, Probate and Trust Administration; Conservatorship and Special Needs Planning; and, Inheritance Litigation.  We are also available to counsel our clients and to refer them to competent, qualified attorneys who can help if they need further, specialized help.  ContactUs@AcunaRegli.com or call (925) 906-1880.

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