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Choosing the Right Corporation

January 2018 - Posted in Life Events Library

Examine Options Carefully for Organizing Your Business

If you’re like most owners of growing firms, you might wonder about the best way to protect your personal assets and conduct your daily activities. For some businesses, forming a corporation is the best solution. Others benefit most from the creation of a Limited Liability Partnership.

Suppose that you are the sole proprietor of a retail firm and a customer falls and gets hurt in your store. Your personal assets, such as your home, could be used to satisfy business litigation awards. When you have a general partnership (two or more people conduct a business), partners are not only liable for themselves, but also for actions of other partners. Insurance policies can protect you up to a certain point, but without a formal way to conduct business, you might still be open to risks. Below are a few different routes you could take to protect yourself against personal liability.

	LP/LLP	Corp and S- Corp	LLC
Liability Protection	To limited partners only	Yes	Yes
Created at state level	Yes	Yes with S-Corp requiring IRS approval	Yes
Tax status, IRS	Partnership	Corporation taxes, except for S-Corp	Flexible. Could be taxed as corporation or sole proprietor or partnership.
Advantages	Can complement an existing general partnership	Recognized way to conduct business Possibility of endless life to the firm.	Simple to setup and maintain Flexible options on taxation No annual meetings or keeping minutes
Disadvantages	Unlimited liability of general partners Death of partners dissolves the LLP	Complex to set up and maintain Except for S-Corp, double taxation	Relatively new form of business that may not be fully understood by banks and investors Possibility of being dissolved upon death of member

Limited Liability Partnership (LP or LLP)

This type of entity is a more formal way of doing business than a general partnership. Limited partnerships include both general and limited partners. Limited partners are usually investors with not much say in the business. An LLP can be formed after a general partnership has been set up and is working well. For example, a father and son own a business using an informal general partnership setup. However, now they need funds to make improvements and to open a new branch. While other family members and friends might be willing to help out, they’re not interested in the risks involved – so they choose to be limited partners.

The LLP is not a separate entity as far as taxes are concerned. This means that the LLP doesn’t pay separate income taxes, and profits/losses flow directly into partner’s tax returns. Note that an LLP is required to file an annual information return using Form 1065 and K-1s to all partners.

The rules about opening an LLP and documentation vary by state. Check out with the Secretary of State or other department for registration and compliance requirements. In California, the LLP structure is used primarily by certain professional services, and firms must pay an annual fee of $800.

One of the main advantages of an LLP is that it’s easy to attract investors, who might become silent partners without dissolving the original general partnership. On the other hand, the chief disadvantage of this type of structure is that you still have general partners who have liability over the business. Death of any partner dissolves the partnership.

Corporation

A corporation is a separate entity created at the state level. A corporation has rights and liabilities that are separate from the owners, shielding them from personal liability for business activities – a major advantage of a corporation. If a product hurts a customer and he sues, corporate owners are not at risk of losing their assets. A corporation has stockholders as owners, and it distributes profits and losses through dividends. Income doesn’t automatically flow through the owners.

It’s easy to transfer ownership through transference of stocks, allowing for more flexibility and the possibility of endless life. When a stockholder dies, the effect on the business is not as high as in the case of a sole proprietorship or a partnership. A corporation is an older, more traditional entity conducting business in the United States. Banks and investors tend to be more comfortable with a corporation rather than a Limited Partnership or Limited Liability Company.

Corporations file separate tax returns and pay taxes at their own rate. This often causes the problem of double-taxation of owners, who are taxed on dividends while corporations are taxed on earnings. Certain corporations do qualify with the IRS to be S-Corporations and are able to avoid the corporate taxation.

Professionals, such as doctors and attorneys, form professional corporations that offer lower liability protection for negligence or malpractice. This sub-type of corporation is preferred when compared to a general partnership, where professionals are liable for the malpractice of other owners.

A disadvantage of corporations is the work involved dealing with specific legal and financial requirements at both state and federal levels, such as holding annual members meetings. Also, some states charge corporations fees. For example, corporations operating in California pay $800 a year in fees even if they have losses or are based in other states.

Limited Liability Company (LLC)

LLCs are a very popular structure for a firm because it’s simple and easy to set up, providing business owners with flexibility not available with the other types of entities. It allows the benefits of liability protection similar to a corporation and it offers the option of a “pass-through” taxation, like a partnership.

An LLC with only one owner can be considered to be a “disregarded entity” with profits and losses flowing directly into the personal tax return of the owner. The LLC can also choose to be treated as a corporation for income tax purposes – this level of flexibility can be very appealing to many business owners. There is no need to hold annual meetings or to submit minutes with this type of entity. However, it does need to have bylaws or an operating agreement to avoid losing liability protection.

An LLC is not a corporation, and its creation is a bit different than a corporation. Some states, such as California, don’t allow for licensed professionals to form professional limited liability companies (PLLC). Certain circumstances, such as making the company insolvent because of excessive partners’ distributions, can make owners personally liable for the debts of the LLC.

Note that when a member of the LLC dies, the LLC may dissolve, depending on the state the company resides in and its operating agreement. Also, note that an LLC is a relatively new form of business and state laws continue to change regarding this type of entity. Banks and investors may prefer to invest in a corporation that they are more familiar with than an LLC entity.

As you consider the types of entities available for business owners who want to formalize their operations and to protect themselves from liability, it’s always a good idea to talk to professionals familiar with the various options. Don’t wait until your assets are at risk to take care of the liabilities of owning a business – be proactive and start to consider your options now.

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Developing A Family Budget

January 2018 - Posted in Life Events Library

It’s no secret that the U.S. economy is going through a great deal of upheaval these days. With the government taking control of the two largest funders of home mortgages, and major Wall Street players being sold or going bankrupt, these are scary times. While there is little we, as individuals, can do to affect the broad U.S. economic picture, we can protect our families by acting responsibly with our own money – and by careful budgeting.

If you are new to the workforce, or have never really lived on a budget, a good definition of it is: a system used to make sure your expenses, including savings, don’t exceed your income. A successful budget will help you minimize debt – and sleep better at night – but how do you determine what your expenses should be?

The starting point of your budget should be an analysis of your income and when you expect to receive it. Include any business or salary income, interest, dividends, child support, alimony and other regular payments you reasonably expect to receive throughout the year.

The next step in developing your budget is to look at your basic expenses, i.e. those that cannot be avoided. Housing, utilities, food, taxes and the cost of getting to and from work or school are examples of these. You can get a handle on them by first looking at your expenditures over the last three or four months, assuming they are representative of your normal spending habits. Try to include in the basics only those things that are necessary. This means that entertainment and other nonessential activities should not be included in this step.

Establishing your budget based on past history is a relatively simple process, but what if that has gotten you into a tight spot? How can you tell if your spending habits have been reasonable in the past? One way is to take a look at the Basic Family Budget Calculator provided by the Economic Policy Institute. No single tool can provide a complete set of factors to develop your budget, but this one offers insight into what it takes for a family to meet its basic needs in any given city. Example: according to the Basic Family Budget Calculator, a family of five (two parents and three children) in Washington, D.C. would require an annual income of $86,544 to meet its basic needs. This amount is broken down monthly as follows:

Housing	$ 1,708
Food	776
Childcare	2,081
Transportation	401
Healthcare	419
Other	597
Taxes	1,230

Perhaps the single greatest value from using a calculator like that of the Economic Policy Institute is that it provides guidelines based on the area in which you live. Using a tool like this can give you an idea of your basic needs and give you a starting point to building each individual budget item.

Once you have determined your needs, you should establish savings goals. Even if the goals are modest at first, developing good savings habits will enable you to begin to develop financial independence. As your income increases, so can your savings goals.

Only after you have made provision for your basic needs and savings can you develop a budget for your wants. Entertainment, eating out, more expensive clothing, a new entertainment system, and extracurricular activities for the children can be included in this category. Even a cell phone is a luxury if it’s not your only telephone.

Creating the budget may be the easiest part of the process – the real trick comes in following it! We suggest keeping track by using a columnar pad or computer-based spreadsheet. To be most effective, you should review your expenditures at least once a week. This will help you avoid overspending during the month and also give you a better idea of the pattern of your monthly expenditures. Looking at the pattern of your outgo can help you avoid overspending between paychecks.

Establishing a budget is one of the most important steps in taking control of your financial future. Although the concept is relatively simple, it requires making some informed and difficult decisions that can affect the quality of your life and that of your family’s. If you need assistance in developing realistic goals for your financial future, give us a call. We’re here to help you.

Have a great month!

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Congress at Work: Vets Get Dental Coverage, JFK Gets a Party, and the Possible End of Ticket Gouging

August 2016 - Posted in Congress at Work

Housing Opportunity Through Modernization Act of 2016 (H.R. 3700) – On July 29, President Obama signed this bipartisan legislation into law. This bill impacts the nearly 5 million households that receive rental assistance through HUD, including Section 8 Housing in which tenants pay approximately 30 percent of their income toward rent and the balance is subsidized. The new legislation alters the qualifications for determining federal housing assistance. Specifically, the bill reduces the amount people can deduct for child care and medical expenses for elderly and disabled families, but increases the deduction amount for dependents. In addition, households with more than $100,000 in assets are no longer eligible for assistance. The bill was sponsored by Rep. Blaine Luetkemeyer (R-MO).

John F. Kennedy Centennial Commission Act (H.R. 4875) – Signed into law on July 29, this bill was sponsored by Rep. Joseph Kennedy III (D-MA). It establishes the John F. Kennedy Centennial Commission, a committee that will plan activities to honor the 100th anniversary of John F. Kennedy’s birth. The commission is required to submit annual reports on its revenue and expenditures up until Aug. 31, 2017, after which it officially terminates.

Department of Veterans Affairs Dental Insurance Reauthorization Act of 2016 (S. 3055) – This bill amends Title 38 to provide a voluntary dental insurance plan to veterans, their survivors and dependents. Benefits will include diagnostic and preventative services, endodontics and other restorative services, surgical and emergency services. The provision for this bill is scheduled to end on Dec. 31, 2021. The legislation was sponsored by Sen. Richard Burr (R-NC) and signed into law on July 29.

Better Oversight of Secondary Sales and Accountability in Concert Ticketing Act (H.R. 2545) – This bill, sponsored by Bruce Springsteen fan Rep. Bill Pascrell (D-NJ), is designed to mitigate problems associated with the sale of tickets for music, theater and sporting events. It is in response to the increase in surcharges and fees in recent years, which have increased event prices by as much as 40 percent. Furthermore, the market has been gouged by third-party vendors who buy large volumes of tickets at once, then resell them on the secondhand market for exorbitant prices. This bill is designed to crack down on illegal or unfair practices in the ticketing industry by establishing new rules to be enforced by the Federal Trade Commission. Specifically, primary sellers would have to provide public disclosure of the total number of tickets being made available to the public and disclose all fees and additional charges. Buyers would be provided a full refund if requested at least one week before the event. Secondary vendors would have to disclose whether or not they actually possess the ticket(s) at time of sale, and reveal the location and price of the event and seats being sold. Finally, the Act would make it a criminal offense to resell any tickets for a higher than face value. This bill was assigned to a congressional committee on May 16 for consideration before possibly sending it on to the House or Senate.

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Congress at Work: Planning for America’s 250th Birthday, Overdose Prevention, and Beefing up Benefits for Vets

August 2016 - Posted in Congress at Work

United States Semiquincentennial Commission Act of 2016 (H.R. 4875) – On July 22, President Obama signed this bill into law. The Act establishes a commission authorized to plan, develop and coordinate the commemoration of U.S. history leading up to the 250th anniversary of the founding of the United States in 2026. The commission will give particular attention to the people, locations and ideas that have had a significant impact on U.S. history starting with the Declaration of Independence. The commission will also study actions to further preserve and develop historic sites and battlefields in preparation for the celebration. The commission shall terminate at the end of 2027. The bill was sponsored by Rep. Patrick Meehan (R-PA).

Comprehensive Addiction and Recovery Act of 2016 (S. 524) – Also signed into law on July 22, this Act was sponsored by Sen. Sheldon Whitehouse (D-RI). According to the Centers for Disease Control, heroin, prescription drugs and opioid pain reliever overdoses have now surpassed car accidents as the leading cause of injury-related death in America. This bill authorizes the Attorney General and Secretary of Health and Human Services to award grants to address the national epidemics of prescription opioid abuse and heroin use. It also established an interagency taskforce to review, modify and update best practices for pain management and prescribing pain medication.

POLICE Act of 2016 (S. 2840) – The full title of this bill is Protecting Our Lives by Initiating COPS Expansion, known by its acronym POLICE. Sponsored by Sen. John Cornyn (R-TX) on April 21, this bill amends the Omnibus Crime Control and Safe Streets Act of 1968 to expand the use of grant funds for active shooter training and other purposes. It was signed into law on July 22.

Summaries for the Veterans’ Compensation COLA Act of 2016 (H.R. 5588) – This bill authorizes the same percentage as the increase in benefits provided under the Social Security Act for certain VA benefits. These include veteran’s disability compensation, additional compensation for dependents, the clothing allowance for qualified disabled veterans, and dependency and indemnity compensation for surviving spouses and children. This rate plan will begin on Dec. 1, 2016. Introduced by Rep. Ralph Abraham (R-LA), the bill was signed into law on July 22.

Global Food Security Act of 2016 (S. 1252) – This bill authorizes a comprehensive strategic approach for U.S. foreign assistance to developing countries to reduce global poverty and hunger; achieve food and nutrition security; promote inclusive, sustainable, agricultural-led economic growth; improve nutritional outcomes, especially for women and children; build resilience among vulnerable populations; and for other purposes. The Act states that it is U.S. policy to fully leverage available U.S. humanitarian resources to mitigate the effects of manmade and natural disasters by delivering aid, and permits the President to provide assistance under the Foreign Assistance Act of 1961 to prevent or address food shortages. The bill was sponsored by Sen. Bob Casey (D-PA) and signed into law on July 20.

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