When you're running a farm or ranch, choosing a legal business structure isn’t just paperwork—it impacts how you pay yourself, your family, and your workers. It also affects what IRS forms you need to file and which payroll taxes you're responsible for. Let’s break it down in plain terms.
Why Your Business Entity Matters
Your business type:
Determines how you (and your family) get paid
Decides which payroll taxes you must withhold and pay
Tells you which IRS forms you’ll file each year
If you’re setting up payroll for the first time, you’ll want to know your business structure so you can do it right from the start.
Common Farm Business Structures Explained
1. Sole Proprietorship
This is the simplest structure—just you running your farm under your own name or a farm name.
How You Get Paid:
You don’t pay yourself a “wage” with a paycheck. Instead, you take owner’s draws (transfers from the business to your personal bank account).
Payroll Taxes:
You don’t run payroll for yourself, but if you hire others (including family), you must pay payroll taxes and file IRS forms like 941 (quarterly payroll tax return) and W-2s for employees.
Common IRS Forms:
Schedule F (filed with your personal tax return)
Form 941 or 943 (for employee wages)
W-2s for hired workers
Note: If you pay your spouse or children, special rules apply—see our help article on family payroll.
2. Limited Liability Company (LLC)
An LLC protects your personal assets like a corporation, but can be taxed in different ways.
Single-Member LLC (one owner):
Treated like a sole proprietor for tax purposes unless you elect to be taxed as a corporation.
Multi-Member LLC:
Treated like a partnership by default.
How You Get Paid:
Still typically through draws, unless you’ve elected to be taxed as an S Corporation (more below).
Payroll Taxes:
You only run payroll for other workers, not yourself—unless taxed as an S Corp.
Common IRS Forms:
Schedule F or Form 1065 (partnership return)
Form 941 or 943 and W-2s if you have employees
3. Partnership
Used when two or more people own the farm together and haven’t formed a corporation.
How You Get Paid:
You take distributions based on your share of the farm’s profits—no wages for partners.
Payroll Taxes:
You run payroll and pay taxes for non-partner employees.
Common IRS Forms:
Form 1065
Schedule K-1 for each partner
Form 941 or 943 and W-2s for employees
4. S Corporation (S-Corp)
An S-Corp is a special tax status you can elect for your LLC or corporation. This lets you split how you pay yourself: some as salary (via payroll), some as profit distributions (which aren’t subject to self-employment tax).
How You Get Paid:
You must pay yourself a “reasonable salary” through payroll. You can also take profit distributions.
Payroll Taxes:
You withhold and pay payroll taxes on your salary, just like a regular employee. FarmRaise Payroll can help set this up.
Common IRS Forms:
Form 1120-S
W-2 for yourself and any other employees
Form 941 or 943
5. C Corporation
Less common for farms, but offers full liability protection and can make it easier to raise capital.
How You Get Paid:
You receive a salary (through payroll) and possibly dividends.
Payroll Taxes:
All wages go through payroll and are taxed.
Common IRS Forms:
Form 1120
W-2 for yourself and other employees
Form 941 or Form 943
What About Paying Family?
Family members can be employees too, but there are special payroll tax rules depending on their age and your business type. For example:
Children under 18 working for a sole proprietor parent may be exempt from Social Security and Medicare taxes.
Spouses may or may not be treated as employees, depending on your business structure.
Need Help? FarmRaise Payroll Makes It Simple
No matter your farm’s structure, FarmRaise Payroll can help you:
Set up proper payroll for employees and family
Handle IRS forms and tax deposits
Stay compliant with state and federal rules
Not Sure What Type of Entity You Are?
Check your tax returns or talk to your accountant. Or reach out to the FarmRaise team—we’re happy to help guide you.