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Multifarm CSA taxes
Posts: 1
posted 5 years ago
Hi everybody!
I'm new to the forum. I've been searching the internets for answers about some of the nitty-gritty of CSA management (specifically, taxes), and I am coming up short. I wonder if any of you who have been dealing with farm income (especially in cooperatives) might be able to help!
I am the manager of our local multifarm CSA. We have a bank account into which we deposit subscriber payments (at the beginning of the season) and disburse grower pay (weekly throughout the season). We bring in between $7,000 and $9,000 at the beginning of the season, and by November we are down to about $400 (which we use in early spring for advertising, etc, with a couple hundred held back as emergency funds). We don't even pay the manager (me) - it is a volunteer position. So essentially, all of the money that comes into our bank account is disbursed to the growers as income. If our gross receipts were under $5,000, we wouldn't have to bother submitting tax forms, but we are just above that threshold.
My concern is that, since we are not a registered nonprofit, somebody has to pay taxes on what we've taken into our account. Right?
But our growers are already paying taxes on that money when THEY report their yearly income. Since the money we receive is distributed to the growers as income, it is already being taxed once in their income taxes.
Essentially, our bank account is a holding tank - a momentary pause in the transaction between subscriber and grower. To tax the growers association is to tax the same income twice.
The vision and scope of our CSA is not (at this point) sufficient to qualify us as a 501(c)3 by IRS standards, as far as my research can tell me. Unless we want to expand our vision significantly (something we absolutely want to do at some point but aren't ready to do yet), I don't think an application for tax-exempt status will be successful.
Have any of you been in a similar situation? Is there an easy solution (besides not reporting our taxes - something I don't want to do) that you have found? Am I over-thinking this or getting something completely wrong?
Thanks for your help!
I'm new to the forum. I've been searching the internets for answers about some of the nitty-gritty of CSA management (specifically, taxes), and I am coming up short. I wonder if any of you who have been dealing with farm income (especially in cooperatives) might be able to help!
I am the manager of our local multifarm CSA. We have a bank account into which we deposit subscriber payments (at the beginning of the season) and disburse grower pay (weekly throughout the season). We bring in between $7,000 and $9,000 at the beginning of the season, and by November we are down to about $400 (which we use in early spring for advertising, etc, with a couple hundred held back as emergency funds). We don't even pay the manager (me) - it is a volunteer position. So essentially, all of the money that comes into our bank account is disbursed to the growers as income. If our gross receipts were under $5,000, we wouldn't have to bother submitting tax forms, but we are just above that threshold.
My concern is that, since we are not a registered nonprofit, somebody has to pay taxes on what we've taken into our account. Right?
But our growers are already paying taxes on that money when THEY report their yearly income. Since the money we receive is distributed to the growers as income, it is already being taxed once in their income taxes.
Essentially, our bank account is a holding tank - a momentary pause in the transaction between subscriber and grower. To tax the growers association is to tax the same income twice.
The vision and scope of our CSA is not (at this point) sufficient to qualify us as a 501(c)3 by IRS standards, as far as my research can tell me. Unless we want to expand our vision significantly (something we absolutely want to do at some point but aren't ready to do yet), I don't think an application for tax-exempt status will be successful.
Have any of you been in a similar situation? Is there an easy solution (besides not reporting our taxes - something I don't want to do) that you have found? Am I over-thinking this or getting something completely wrong?
Thanks for your help!
Jeff Mathias
Posts: 125
Location: Westport, CA Zone 8-9; Off grid on 20 acres of redwood forest and floodplain with a seasonal creek.
3
posted 5 years ago
Hi Laura,
You really need to speak to a tax accountant so you get safe guidelines for moving forward, even state to state the laws can be quite different. From your description it sounds like you have it correct, the tax is paid by the farmers when reported as income, however the co-mingling of everything especially without very clear documentation could still be of no benefit to you or the farmers. I am not suggesting poor documentation on your part but what the state and the IRS consider proper documentation and what most of use consider proper documentation can often be two entirely different things. I assume the CSA participants if they write checks write them to one entity(you?) then later you make payments to the farmers. In a simple world what your are doing makes sense but you need to be sure to protect everyone involved.
Most likely what you need to do is set up a trust for the management of the CSA monies, not to big a deal but best involving a lawyer and all interested parties. Possibly the portion of the work you do, collecting and redistributing the money could also be done as a business however you mention looking at becoming a non profit so that might not be quite what you are after.
Contact a good CPA and give them as much detail as you can. What you do, where you want to go with it, etc so they can give you the best fitted advice to your scenario and your future goals.
Jeff
You really need to speak to a tax accountant so you get safe guidelines for moving forward, even state to state the laws can be quite different. From your description it sounds like you have it correct, the tax is paid by the farmers when reported as income, however the co-mingling of everything especially without very clear documentation could still be of no benefit to you or the farmers. I am not suggesting poor documentation on your part but what the state and the IRS consider proper documentation and what most of use consider proper documentation can often be two entirely different things. I assume the CSA participants if they write checks write them to one entity(you?) then later you make payments to the farmers. In a simple world what your are doing makes sense but you need to be sure to protect everyone involved.
Most likely what you need to do is set up a trust for the management of the CSA monies, not to big a deal but best involving a lawyer and all interested parties. Possibly the portion of the work you do, collecting and redistributing the money could also be done as a business however you mention looking at becoming a non profit so that might not be quite what you are after.
Contact a good CPA and give them as much detail as you can. What you do, where you want to go with it, etc so they can give you the best fitted advice to your scenario and your future goals.
Jeff
"Study books and observe nature. When the two don't agree, throw out the books" -William A Albrecht
"You cannot reason a man out of a position he has not reasoned himself into." - Benjamin Franklin
Marissa Little
Posts: 63
posted 5 years ago
I agree with Jeff about contacting an accountant. These things are so tangled.
I would also suggest looking into an LLC. An LLC could be created with each of the farms as members and you as a managing member. You get to choose you to set up taxes for an LLC and you would want it as a "pass through" - meaning the LLC monies are NOT taxed, but monies paid to the LLC members are taxed as regular income (just the way it is being taxed now). That's the way we set it up on our farm because we have several people running the place and not all are related.
I would also suggest looking into an LLC. An LLC could be created with each of the farms as members and you as a managing member. You get to choose you to set up taxes for an LLC and you would want it as a "pass through" - meaning the LLC monies are NOT taxed, but monies paid to the LLC members are taxed as regular income (just the way it is being taxed now). That's the way we set it up on our farm because we have several people running the place and not all are related.
Marissa
Sand Holler Farm
Dale TX
posted 5 years ago
Marissa Little wrote:
I agree with Jeff about contacting an accountant. These things are so tangled.
I would also suggest looking into an LLC. An LLC could be created with each of the farms as members and you as a managing member. You get to choose you to set up taxes for an LLC and you would want it as a "pass through" - meaning the LLC monies are NOT taxed, but monies paid to the LLC members are taxed as regular income (just the way it is being taxed now). That's the way we set it up on our farm because we have several people running the place and not all are related.
I'm not a CPA - which I agree you do need to contact - but from my accounting/bookkeeping experience, I agree with Marissa that an LLC (a partnership LLC - there are several kinds of LLCs) is probably a better solution than a non-profit. I don't know much about trusts, so I can't comment on that.
I have one client who found LLC filing document templates online, edited them for her business, and then filed her own LLC (sole member LLC) with the state by herself.
Good luck!
Good luck!
QuickBooks | Payroll | Accounting - www.jocelyncampbell.com
