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Seven Powerful Reasons to Incorporate or Organize an LLC

Seven Powerful Reasons to Incorporate or Organize an LLC published on

1. Protect yourself from personal liability

  • Corporation or LLC signs lease – you’re not personally liable
  • Corporation or LLC borrows money – you’re not personally liable
  • Corporation or LLC buys goods and services on credit – you’re not personally liable

2. Business Tax Deductions

According to Judge Learned Hand, “any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes. Gregory v. Helvering, 69 F.2d 809 (2nd Cir., 1934).” Furthermore, the Supreme Court stated that “[t]he legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted.” Gregory v. Helvering, 293 U.S. 465 (1935).

Entrepreneurs will want to attribute as much of their expenses as possible to reasonable and necessary business expenses. Why pay more taxes than necessary? Many taxpayers overlook legitimate deductions for business expenses. To the extent possible, entrepreneurs will want to ensure to deduct the following business expenses:

  • Vehicle expenses are deductible if they are attributable to a business use. An individual taxpayer cannot claim a corporate expense, it is an expense of the corporation. Automobile lease payments are deductible if they are ordinary and necessary expenses of a trade or business directly attributable to the operation of a trade or business.
  • Travel expenses are deductible to the extent they are reasonable and necessary expenses incurred in the conduct of a trade or business directly attributable to the trade or business. Townsend Industries, Inc. v. U.S., 342 F.3d 890 (8th Cir. 2003). Thus, a corporation could hold an annual meeting for its shareholders and directors in a distant city.
  • Start-up and organizational costs, at the taxpayer’s election, may be treated as deferred expenses and allowed as deductions prorated equally over a period of not less than 60 months, beginning with the month in which the active trade or business, corporation, or partnership begins.
  • Certain types of entertainment expenses may be deducted, such as food and beverages provided for employees on the business premises, recreational expenses for employees, expenses of certain business meetings, and items sold or made available to the public.
  • Attorneys’ fees, court costs, and other legal and accounting expenses may qualify as ordinary and necessary trade or business expenses.
  • Rent for the use of property to which the corporation has no title and in which the corporation has no equity can be deducted as a trade or business expense if the rent is paid in connection with the corporation’s trade or business, is ordinary and necessary, and is paid or incurred during the taxable year. If the property on which the rent is paid is used for both business and personal purposes, only the portion allocable to business use is deductible. If the corporation leases office space at the residence of an officer or director, for the rent to be deductible the office space must be exclusively used for business purposes on a regular basis and be the principal place of business of the corporation.
  • Expenditures for incidental repairs, maintenance, replacement, and improvements may be deducted as ordinary and necessary business expenses.
  • The cost of materials and supplies used in a corporation’s trade or business generally is a deductible business expense.
  • Interest and other borrowing charges incurred in the course of a trade or business are deductible.
  • In general, state local and sales taxes that are ordinary and necessary corporation expenses paid or incurred in carrying on the trade or business are deductible.
  • Salaries and other compensation for personal services actually rendered may be deducted as an ordinary and necessary trade or business expense. To be deductible, compensation payments must be reasonable and must be actually paid as compensation (rather than as dividends).
  • The cost of insurance may be deducted as a business expense if the insurance is connected with the corporation’s trade, business, or profession
  • Advertising costs related to a corporation’s business generally are deductible as an ordinary and necessary business expense.
  • A rebate of a portion of the purchase price to a customer generally is deductible as a business expense.
  • Payments to charitable organizations that bear a direct relationship to the corporation’s business and that are made with the reasonable expectation of a financial return commensurate with the amount of the donation may be deductible as business expenses. For example, a retail store might set aside a percentage of its sales for donation to local charities as part of a promotional campaign and thus be entitled to a business deduction for the donations.
  • Setting up a reserve account can create a legitimate tax deduction. Midas Muffler warrants its muffler for as long as the purchaser owns the vehicle on which the muffler has been installed. If the muffler fails to perform properly during the warranty period, Midas will install a new, warranted muffler on the vehicle, and the muffler owner will not be charged for the muffler, only for the labor required to install. You may be interested to know Midas Inc. (the muffler company) recorded $38.5 million in charges to reflect its estimated liability associated with outstanding warranties in the U.S. and Canada. On a going forward basis, Midas will accrue for the expected future cost of warranty redemptions at the time of the original installation of the warranted part. See Midas Inc.’s 10-K here. What does this mean? Midas is claiming such warranty reserves as a business deduction! Other entrepreneurs are bound to take note and offer long-term warranties for their products and claim a business deduction.

3. Minimize IRS Audits

  • Sole proprietors must file an IRS Form 1040, Schedule C (Profit or Loss from a Business). Unfortunately, the IRS audits sole proprietors that file the form at a higher audit rate than returns for an incorporated micro business. Also, sole proprietors with home office deductions face even more risk of audit by filing the IRS Form 8829 (Expenses for Business Use of Your Home) for home office deductions. S or C corporations avoid such scrutiny. See Shelter Your Small Business from Tax Audits.

4. Privacy

  • The Corporation or LLC can be established in such a way so that shareholder/owners remain anonymous, many times the same anonymity can be accomplished for officers and directors.

5. Use of a Marketing framework

  • Hold the business out to all as a Corporation or LLC
  • Give the business the appearance of being much bigger than it is
  • Attract investors more easily

6. Raising capital

  • Because of the ease of transfer of ownership and the “separate entity” concept of the Corporation or LLC, it is much easier to attract investors than otherwise.

7. Easy transfer of ownership

  • Put real estate in Corporation or LLC and transfer through private agreement, i.e. stock transfer rather than formal real estate transfer and closing.
  • Re-title asset to a Corporation or LLC yet continue to maintain control.

 

Raising Money For Your Business Using The Internet

Raising Money For Your Business Using The Internet published on

Crowdfunding is a new and evolving method to raise money for businesses using the Internet. It serves as an alternative source of capital to support a wide range of ideas and ventures. An entity or individual raising funds through crowdfunding typically seeks small individual contributions from a large number of people.

In 2012, Congress enacted the Jumpstart Our Business Startups Act (the “JOBS Act”). The Jobs Act makes it easier for an entrepreneur or company to find investors and raise capital. By easing various securities regulations, it encourages small business funding. The Securities and Exchange Commission (SEC) has promulgated Rules under Title II (Access to Capital for Job Creators) removing the prohibition on general solicitation or general advertising for securities offerings relying on Rule 506 (considered a “Safe Harbor” for the private offering exemption of Section 4(a)(2) of the securities Act of 1993) provided that sales are limited to accredited investors and an issuer takes reasonable steps to verify that all purchasers of the securities are accredited investors. The SEC is expected to finalize its November 5, 2013 proposed Title III (Crowdfunding) Rule this October. Until that Rule is finalized and promulgated, nationwide general solicitation is illegal.

A growing list of states is also allowing the general solicitation of in-state investors through crowdfunding internet platforms. Governor Rick Scott of Florida is expected to sign the Florida Intrastate Crowd Finance Act amending the Florida-based entrepreneurs, small business owners, and others can use web-based crowdfunding platforms as intermediaries for their intrastate funding campaigns. This law amends Florida’s securities transactions law. A Florida entrepreneur or business person will no longer be limited to soliciting financing support from Florida “accredited” or high-net-worth individuals.

Due to the strict requirements and limitations of state and federal laws, advice counsel is necessary for businesses to assure full compliance before crowdfunding activities commence on the internet.

To better understand how crowdfunding  can help your business, speak to one of our attorneys by calling 800-743-9900 or visit our website today!

www.AmeriLawyer.com

Hands in the Tip Jar: Rights May Depend on Degree of Management

Hands in the Tip Jar: Rights May Depend on Degree of Management published on

A court recently held in that employee rights to tips may vary depending on specific job duties and the degree to which one has supervisory authority. Generally, management takes no cut of employee tips. Two federal suits were filed to determine to what extent middle-management may claim a share of the tip jar.

Baristas, whose duties are to serve clients were plaintiffs in one suit and sought to have shift supervisors removed from the distribution cut. In the related second suit, assistant store managers, who have limited authority subject to the head managerial decisions, filed as plaintiffs to include themselves in the cut.

On one hand, the court disagreed that “even the slightest degree” of authority waived an employee’s rights to tips; siding with the shift supervisors, the Court said they may still be entitled to tips since their primary duty is serving the client. On the other hand, an employee is not required to distribute tips to assistant store managers; the Court held that “…an employee granted meaningful authority or control over subordinates can no longer be considered similar to waiters or busboys.” Balancing the line between minimal responsibility and “final authority,” the Court concluded that “the line should be drawn at meaningful or significant authority or control over subordinates”

Visit our website for more information and to make sure your interests are protected!

Avoid Becoming Personally Liable For Business Employment Or Payroll Taxes

Avoid Becoming Personally Liable For Business Employment Or Payroll Taxes published on

Many business owners have a false sense of protection from liability of business debts and taxes based on general rule of law that the corporate or LLC form of organization shields persons from personal liability. However, this is not the case when it comes to paying employment payroll taxes. Employers are required to withhold federal income taxes and social security (FICA) taxes from their employee wages and are liable for payment of these taxes to the IRS. The employer does not have to segregate withheld funds from other funds available. However, these funds are considered to be held in trust and cannot be spent for any purpose other than remittance to the government.

Failure to Withhold and Pay Employment Payroll Taxes

To facilitate the collection of unpaid trust fund taxes, persons statutorily responsible for making sure the taxes are paid are held personally liable. The IRS will seek a 100% penalty against certain individuals considered to be “responsible parties” for the payment of trust fund unpaid withholding taxes. The penalty does not apply to the employer’s portion of FICA and to federal unemployment taxes.

Who Is A Responsible Party?

In many situations it is difficult, based solely on the tax code, to determine who is the responsible person. The ultimate determination of responsible persons is often decided by the courts, which have taken a broad view. Courts have repeatedly stated the penalty should be imposed on persons who have ultimate authority to decide the priority of bill payment and who willfully pay other creditors, rather than paying the payroll taxes. For a small business, this may include signers on the corporate bank account(s), any of the officers, directors, and shareholders or members of the company.

Call us or visit our website today to learn more about Avoid Becoming Personally Liable For Business Employment Or Payroll Taxes!

800-743-9900

www.AmeriLawyer.com

Selling Your Existing Business

Selling Your Existing Business published on

How much is it worth? If you are thinking of selling your existing business, the first question you will ask yourself is; “How much is it worth?”

Unfortunately there is not only one method to value a business, there are many different approaches, and in addition there are also many variables to take into consideration. It is very likely that two people looking at the same business will come up with two different values.

There are a few methods however that are commonly used.

1. Value your business based on sales
Some industries tend to value the business based on the annual sales and use a multiplier. This method is commonly used in service industries; the multiplier will be different depending on the industry and a few factors individual factors. For example, one industry’s multiplier may be 2 times the annual sales, which would be the price you would ask for your business.

2. Value your business based on cash flow or profits
In this method the value of the company is based on the company’s estimated ability to generate profit or cash flow over a period of five years used with an agreed upon multiplier. As you can see, there may be vastly different opinions about the accuracy of the future projections but a profitable, healthy small business should sell for somewhere between 2.5 to 4.5. For example, if the annual cash flow in your business is $50,000 the selling price should be somewhere between $125,000 and $225,000.

3. Value your business based on assets
What if there is no cash flow or profits? Sometimes business owners cannot wait for the ideal point in time to sell the business, but they are forced to sell. In this case the method of valuing the assets may be a way to go. While it may be easy to value tangible assets such as machinery or vehicles, don’t forget that the business phone number, domain name or an existing lease in an attractive area may also be valuable assets.

To better understand how to sell your business, speak to one of our attorneys by calling 800-743-9900 or visit our website today!

www.AmeriLawyer.com

Employee v. Independent Contractor: What’s The Difference and Why Does It Matter?

Employee v. Independent Contractor: What’s The Difference and Why Does It Matter? published on

They are certain factors that go into determining whether one is an independent contractor or employee, and it all depends on the level of control and independence within the employment relationship. You are not an independent contractor if you perform services that can be controlled by an employer. Some questions to consider in determining whether one is an independent contractor are as follows: 1) Does the company control or have the right to control what and how the worker does their job? 2) Are the business aspects of the worker’s job controlled by the company? 3) Are there written contracts or employee type benefits? 4) Is this job the worker’s sole source of income and will the work relationship continue?

Which

Why is employment status important for you as an employer? A worker’s employment status affects an employer’s tax liability. When a worker is an employee, employers must pay state and federal unemployment tax, social security tax and workers compensation/disability premiums. However, when a worker is an independent contractor, the hiring party is not required to make any of these payments. Should employers incorrectly define a worker as an independent contractor, they may find themselves liable for past taxes including income taxes, FICA, federal unemployment taxes, workers compensation insurance, interest and penalties.

Don’t forget to consider these important factors next time you are hiring.

Yield Significant Tax Benefits & Separate Your Business Liabilities Through A Qualified Subchapter S Subsidiary Election

Yield Significant Tax Benefits & Separate Your Business Liabilities Through A Qualified Subchapter S Subsidiary Election published on

Prudent business owners who own multiple businesses generally form a separate corporation for each separate business in order to isolate the liabilities of one business from the other. If you currently own a Subchapter S Corporation (“S Corporation”) and are thinking about starting another business as a “division” of your S Corporation, then the Qualified Subchapter S Subsidiary (“QSSS”) may be a useful vehicle to establish a parent-subsidiary structure through filling IRS Form 8869. Each QSSS is treated as a separate legal entity, maintaining its state law liability protection.

For federal income tax purposes, however, each QSSS is not treated as a separate entity such that its income and expenses roll-up into, and are reported as part of, the parent’s S Corporation tax return. Additional Advantages which QSSS may provide are significant tax benefits. In the instance where some entities in the parent-subsidiary structure generate taxable income while other entities generate taxable losses, the QSSS may allow the income and loses to offset one another.

To understand how an S corporation election can save you money, speak to a one of our attorneys by calling 800-743-9900 or visit our website today!

Protecting Your Business’s Intellectual Property

Protecting Your Business’s Intellectual Property published on

For many small business owners, the topic of intellectual property makes them run in the other direction because of the fallacy that it is not worth their time or effort to secure intellectual property rights. However, many emerging businesses soon discover that a competitor is using their ideas such as packaging, logos, names and other protectable items costing them lost revenue due to consumer confusion.

Unlike patents, which must go through a rigorous application process with the United States Patent and Trademark Office, trademarks can be obtained with relative ease. Your company’s name, logos, slogans and any other identifiable marks consumer relate to recognize your company and its products or services must be registered trademarks to be protected from your competitors. Your company’s reputation is at stake – you must be armed with registered trademarks to protect your company

Do not delay; call us today or visit our website to get the process started!

(800) 603 – 3900

www.AmeriLawyer.com/trademark

Employer Liability For Harassment At Work

Employer Liability For Harassment At Work published on

Harassment is a form of employment discrimination that violates Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, and the Americans with Disabilities Act of 1990. A determination of whether harassment is severe or pervasive enough to be illegal is made on a case-by-case basis by the Equal Employment Opportunity Commission.

The employer is automatically liable for harassment by a supervisor that results in a negative employment action such as termination, failure to promote or hire, and loss of wages. If the supervisor’s harassment results in a hostile work environment, the employer can avoid liability only if it can prove that it reasonably tried to prevent and promptly correct the harassing behavior, and the employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer.

To learn more about Sexual Discrimination & Harassment Company Policy, click Here or call us at (800) 603 – 3900 to speak to one of our attorneys.

Unique Ways To Get Everyone On Board With A Marketing Strategy

Unique Ways To Get Everyone On Board With A Marketing Strategy published on

An excellent way to boost sales for your company and outshine your competitors is through a marketing strategy. Getting the necessary people to support the strategy so that it is properly implemented can be difficult.

marketing-strategy

These tips are aimed at helping to convince others that the marketing strategy would work.

Make the Marketing Strategy a Game. Create teams, and when creating these teams try to put people together who don’t normally work with each other. From there the teams would use some variation of the following steps to create strategies:
Step 1: Decide on a single product to market.
Step 2: Research and document general audiences, buyer personas, pain points, motivators, etc.
Step 3: Define goals of the content – leads, sales, exposure, list building, etc.
Step 4: Detail the buying process (how/when does the target buy) and engagement cycles (top, middle, or bottom of funnel).
Step 5: Define the content niche.
Step 6: Develop a content mission statement.
Step 7: Create a comprehensive content marketing plan based on channel, persona, pain points, goal, content type, structure, tone, channel integration, and desired interaction.
Step 8: Build a content calendar to include at least 12 pieces of content. For each one, identify topic, type, persona, pain point, goal, call to action, next/previous steps, and anything else you deem appropriate.
Step 9: Develop a strategy to market each piece of content. Options could include social media, link building, video, offline, etc.
Step 10: Define key performance indicators and how goals will be measured.

The teams would then make a presentation to answer the steps listed above.

Visit our website today for more business tips from our attorneys!

 

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