SmokeySays

Young or Old?

2010-12-18T11:13:00.000-08:00

... Read this article to find out who makes a better entrepreneur http://www.slate.com/id/2278383/

All of which leads to the question: Should we be encouraging older entrepreneurs rather than younger ones? It may be a false choice. At the end of the day, the United States needs more entrepreneurs, period. But the research does show that maybe, instead of focusing so much on the kids, some wealthy philanthropist can fund a fancy entrepreneurship initiative or two exclusively for AARP members.

I'm an old(er) entrepreneur. What about you?

Lessons I have Learned from Games Part 2

2009-05-14T10:50:00.000-07:00

by Wendy Byford
In Part 1 of this series, I talked about learning to Let Go. That was my first experience of learning from a game. This lesson applies to all parts of my life, not just business. Take my bedroom carpet, for example. When we moved into our current home, this carpet was a beautiful shade of off-white. Now, five years later, it is an intriguing shade of spotted banana.

You see, somewhere along the way I decided to pull up the carpet we had installed in the bedrooms and replace it with the same hardwood flooring we have in the rest of the house.

Having made that decision, it made no sense to me to have the carpet cleaned, because, after all, it was going to be replaced. So I waited for the right time to pull the funds from other projects, staunchly refusing to give in as the months ticked on. I knew that as soon as I had the carpet cleaned, the Universe would hand me the funds. So what you may ask? Well, it was the principle of the thing. Waste not and all those other lessons learned from parents who had been through the Great Depression. Now I am having my carpet cleaned; and I am diligently looking for other areas where my principles are getting in the way.

Last week, I told you I would talk about Farm Town, the second game I play. Farm Town is a game accessed through Facebook. You start with a small plot of land and a few coins, and you build your farm into a mega-combine employing others to harvest for you while you run along behind them plowing and reseeding. It is an ingenious game that starts by taking a few minutes here and there and rapidly grows to an hour or so a day. Oops, did I say that out loud?

The first lesson I learned in Farm Town wasn’t so much a first time lesson as it was a confirmation of something I knew but needed to internalize everywhere, not just at my desk. Cash flow is King. You see, at the end of the day, if you don’t have enough coins to buy seed, you can’t plant. And if you can’t plant, you will have nothing to harvest and therefore nothing to sell for more coins. So my strategy was simple – plow and reseed before buying anything – even fences for the animals. Yes, you guessed it; this game has a lot of moving parts. Spare cash went into buying more land to expand the farm and make more coins from growing more crops. This, of course, meant that every reseeding took more and more coins. But I stuck to my strategy and today I have a 300,000 coin farm house and a fully planted mega-farm. Loral Langemeier would be proud.

So what does this have to do with real life? Everything. Money that could go into new flooring, for example, sits in a reserve set aside for our rental real estate. Good thing because the air conditioning just went out in one of the units. Impulse purchases are a thing of the past. Excess funds have to be reinvested to earn more coins. And one day the Universe will bring me the deal I envision, enabling me to replace the carpet in the bedroom; but only after the plowing and reseeding are done.

So how does cash flow work for you? Next lesson, Farm Town and competition.

Lessons I have Learned from Games - Part 1

2009-05-11T12:17:00.000-07:00

by Wendy Byford
There are two games I play when I am not working, reading, or listening to the airline hostess tell me that I am sitting in the emergency row. While they started as a way to entertain myself when I was too tired to work – late night flights from here to there come to mind – I grew to respect the lessons I learned from playing them.

The first game is called Jewel Quest II. It sits on my cell phone. For all of you from the IRS, it doesn’t cost me any minutes. The objective of the game is to line up 3 pieces in a row so their game squares turn to gold. It doesn’t take a rocket scientist to play; which is good, because, as I recall, I didn’t take that class. The lesson this game taught me is easy to describe but took quite awhile to sink in – Let Go. Now for all of you who are spiritually minded, you probably got this lesson a long time ago. I applaud you. However, in my case, the Universe decided I needed remedial training. In my mind’s eye I can see my mentors, Bob Proctor and John Assaraf, cringing in the background. “We thought you had this one nailed.” Well, apparently not. So the Universe chose a unique way of showing me.

When I first started playing Jewel, I would try to hang onto positions so I could maneuver the pieces into just the right configuration. Of course – yes, I can hear all of you game players laughing into your PCs – the board had other ideas. Determined not to be out-strategized by a piece of electronics, I tried harder. The positions, points and time slipped away. Finally one day, in absolute frustration, I just let a position go and all the game pieces fell neatly into place – better than my original strategy. Huh. I tried it again, and again it worked. Now I am not saying I do not have to play the game; but the lesson I learned is that after I have done the best I can to line things up, I have to let the positions go and see what happens. Most of the time the outcome is in my favor. The Universe is on my side.

So how do I translate this lesson into everyday living? After all, running a business or two is not a game. Or is it? What I learned is to do the best I can with each strategy, each project, and then let go to see what happens. The results can be amazing. When things appear not to go my way, I ask the best question I know – What’s the lesson here? I always get an answer, and it is usually that a better configuration is right around the corner. So get ready.

Where do your lessons come from? In Part 2 I’ll talk about Farm Town.

How to GROW your Business

2009-05-04T09:54:00.000-07:00

Were you on our amazing and gratis webinar the other night with Dr. Anil Agarwal? We told you he would shift your thinking. We’ve been getting nothing but emails today telling us what a job he did in rearranging brains and showing businesses ways they can succeed.

We've uploaded the webinar and you can watch it here. Scroll down and click on his picture to launch the video.

Enjoy.

What Happened to My Profit?

2009-03-09T15:08:00.000-07:00

March and April are normally difficult months for many people. It takes at least two bags of potato chips and a House marathon to avoid spending the weekend looking for receipts, 1099 slips and all the other paraphernalia our CPAs need. When the task takes on all the elements of climbing Mount Everest, we finally get the papers together, then go through a couple of bottles of wine or a six pack waiting for the verdict – do I owe or don’t I owe? And if I owe, how much? Of course if you have a good bookkeeper on your team, you can skip the chips and go directly to wine.

This year there seems to be a lot more stress. Many small businesses that would otherwise fly through tax prep are faced with an undeniable fact – profits have vanished. It has been a struggle in much of 2008 and now in 2009 to pay the bills, pay employees, and finally pay ourselves – or not. Profits are thin to nonexistent so none of us can afford to throw away a single dollar, especially on taxes.

Why is it, then, that so many people earning $50,000 or more after expenses and before paying themselves are still sole proprietors? The main reason is that no one told them they were overpaying their taxes. Depending upon how much revenue you bring in and how much money you pay yourself, this overpayment can represent thousands of dollars. Yes, you could be paying thousands of dollars in self-employment taxes that you do not need to pay.

The cure for this ailment is quick, easy and perfectly legal. Really. I do it for clients all day long. All you need to do is put your business into the right entity with the right tax election; then follow some simple rules that we teach you. So what would you do with a few thousand dollars more? Buy a new computer? Invest in some marketing? Pay yourself? Give to charity?

Whatever your reasons for wanting to put more in your pocket than you give to the government, come talk to us. Just email us at info@yourentitysolution.com or call 702 506 0190. You don’t get the benefits until the entity is set up, so don’t procrastinate. House – or any other favorite TV show - can wait.

IS $100,000 A MAGIC NUMBER?

2009-03-09T14:54:00.000-07:00

At every event we attend someone always stops me to say that their tax professional told them not to incorporate until they are making $100,000. This figure is quoted so frequently you might think it is some kind of magic number; however, there is a simple explanation for this amount.

Tax professionals think in terms of tax. They see owning an entity as another layer of hassle that you can avoid until there is a tax benefit – generally when you are earning $45,000 to $50,000 after expenses, or approximately $100,000 gross revenue. This is the point where you will save more in taxes than you will spend on your team if you have your business in an S-corporation or LLC-S. What team? The payroll company that will issue the W2 paycheck to pay you as an employee in your own company, the bookkeeper who will track your distributions of profit to the owner, and the CPA who will file the company tax return.

If you have read the Primer on our website, purchased Your First Entity Solution, or heard me speak, you know there are many more reasons for incorporating than just tax benefits. Think about liability protection, asset protection, credibility, privacy, and the psychological benefits and smooth flow that come from building your business inside an entity from the start. You get these benefits in a flow through LLC. When you are ready for the benefits that come with an S tax election, all you do is create a resolution to vote on the change of status, amend your operating agreement and file the appropriate IRS form on time. Easy – with none of the hassles of having to change your business from a sole proprietorship to an entity. Of course, if you already meet the criteria for an S tax election and are not a highly paid W2 employee as well, we can start you as an S-corporation from the beginning. To your success, Wendy. info@yourentitysolution.com

Why Won’t They Hire Me?

2009-03-09T14:51:00.000-07:00

You are an excellent consultant. You are professional. You know your topic. You have great people skills. You deliver on your commitments on time and on budget. Your client has the money and they are looking for someone to help with their project – someone just like you – no, someone who is you. So why won’t they hire you?

When you try to find out, the Project Manager mumbles something about rules. All they are allowed to hire are other companies. Frustrated and sad, you walk back to your car. How can they possibly have a rule like that? Not everyone is IBM.

You became a sole proprietor so you could work your own hours on the projects you like for a fair price and put the money into your pocket, not the corporation’s. Now you’re finding it hard getting the projects you really want. Do you need to work for a management agency to get the work you love? Absolutely not!

Several years ago a very large corporation ended up in trouble for hiring certain people as independent contractors when in almost every respect they were really employees. It cost the corporation a small fortune to fix. When something like this happens, word gets around fast; and even years later no other business wants to find itself in the same position.

The Internal Revenue Service has strict rules on who qualifies as an independent contractor; and if you, the business, get it wrong, you could be liable for paying that hire’s payroll taxes and benefits on top of the contract price.

Most corporations avoid this issue altogether by hiring only companies to supply independent contractors. Are all these companies the size of IBM? Of course not. Here’s the solution to your dilemma – you can be your own company. Yes, John Smith can be an employee of Advanced Project Management, Inc. or Smith Enterprises, LLC. Your client would contract with your corporation or limited liability company for your services. You would be unable to take them court, claiming you are really an employee of their corporation, because the corporation did not hire you – it hired your company. Problem solved. While you will still be working to put money in the company’s pocket rather than yours, you will at least own the company and can get the money out.

Want to find out more? Email us at info@yourentitysolution.com or call 702 506 0190. We specialize in helping new entrepreneurs get started.

Autism Spectrum Testimonial 1

2009-02-14T10:51:00.000-08:00

This post from a mother. "I am a special education teacher and an independent consultant through the state of NJ’s early intervention system. I have had the opportunity to work with children on the spectrum for quite some time. However, I have a much more prominent desire to help this population.

My son started to show signs of classic autism before the age of 2. My son has been on isotonix vitamins since he was 2 ½ years old. Simultaneously, he was intensively involved in the most cutting edge therapy for those on the spectrum. I began to get my lost little boy back. Although the improvements were remarkable, he still demonstrated symptoms of autism. Will has always had a ring-worm looking rash that never goes away, even with the isotonix. His anxiety levels were heightened and his eye-contact was poor.

Will has been on the spectrum isotonix since it came out. He is now 4 ½ years old. Two months of spectrum supplements and the rash he has had all his life went away. His eye contact has improved. I am getting positive letters from his teacher on a regular basis. I have gone back to work full-time and he is handling it. Most importantly, as a mom, he is connecting and communicating and enjoying the time he spends with people. I use to be wary of speaking out loud my greatest wish… to completely recover my sweet little boy from autism. I now have no doubt. He will recover. In my heart of hearts, I know that the spectrum supplements play a crucial role in his astounding progress.

Will’s regimen: 1 cap- spectrum digestives, spectrum opc, spectrum multi
½ cap- vitamin c, calcium, b-complex
with exactly 9 oz. of water and before he eats or drinks in the morning.

My nephew Lewis is 9 years old and severly autistic. He was completely non-verbal until my sister put him on a gluten-free diet at 7 years old. He began to acquire echolaic speech at that time. After seeing my son’s improvements, my sister put Lewis on the spectrum supplements. He is only getting half of what he should for his size and does not take it on an empty stomach. However, in just 1 month’s time he has had even more amazing results. Lewis’s speech is becoming meaningful and he is demonstrating a desire to communicate and learn from his environment. My sister calls me at least twice a week to tell me something new and amazing he is doing. Here are some examples: He told her he loved her for the first that was not echolaic. He jumped to the ground and said “Oh… Are you OK?!” when his older brother hit his head. He was pointing at pictures and independently initiating labeling them. There are many more. It is the buzz in my very large extended family… “Have you seen Lewis?!”

Autism is a devastating experience for any family. I have watched numerous families under-go the torment of watching their perfectly healthy and developing child suddenly or gradually slip away. It is a death of the soul. And sadly leads to the death of the family many times. Watching my little boy awaken from autism has given me and my family a new lease on life. Our greatest joy is only as fulfilling as our deepest sorrow. The loss of a child is the deepest of sorrows. If I can do anything to awaken more children and families from choke hold of autism, I will do it. I believe in these supplements and the power of the human spirit."

The problem with sunscreen

2009-02-08T11:45:00.000-08:00

We all know by now (or at least should know) that exposure to the sun (UV rays) damages our skin and encourages skin cancer formation. So we use products with SPF 10, 25, 90 or higher and wear long sleeved tops and hats. Great!!

Unfortunately, this has resulted in a dramatic decrease in the amount of Vitamin D that our bodies produce. Now, we don’t need to have vitamin D just to eliminate rickets, it turns out that vitamin D is used by the body for lots of other critical functions.
Studies have produced evidence that low levels of vitamin D make:

Men more likely to have heart attacks.
Breast and colon cancer victims less likely to survive.
Kidney disease victims more likely to die.
Children more likely to develop diabetes.

Two other studies suggested that higher vitamin D levels reduce the risk of dying prematurely from any cause.

What to do? We’ll discuss how to address this problem effectively in a day or so.

Time for your annual meeting?

2007-04-27T09:20:00.000-07:00

Many companies (LLCs or Corporations) have bylaws or operating agreements that specify a due date for their annual meeting. Typically the window is from the end of the financial year to 4 or 5 months after the end of the fiscal year. If you are not sure what needs ot be documented in the minutes for the meeting, contact the minutes and resolutions people at Your Entity Solution, LLC, or visit their site for more information.

GoZone Information

2007-04-25T14:28:00.000-07:00

You might want to check the details of the Go Zone in the IRS publication 4492. you can download it at IRS.gov. I'm not sure if each state has different time lines, but the tax incentive will only be available on new construction PUT IN USE for the first time by the end of 2008 in Texas. Be sure to check with your tax professional to be sure your property will qualify. Don't forget to protect your liability by setting up an LLC properly.

IRS increases audit efforts relating to withholding and other information reporting

2006-08-08T11:48:00.000-07:00

The IRS has announced a new nationwide Compliance Initiative Project (“CIP") to address noncompliance by "non-traditional" withholding agents (i.e., non-financial institutions). A CIP is an examination of specific taxpayers within a group, using internal and external data to identify potential areas of noncompliance within the group, for the purpose of correcting the noncompliance. The IRS decided to undertake this initiative based on information uncovered during its administration of the Voluntary Compliance Program (VCP) that was available to withholding agents with respect to the payment, withholding, and reporting of certain taxes due on payments to foreign persons (see prior Inbound Newsalerts, dated October 1, 2004 and March 9, 2005). The VCP originally was available for submissions made on or before December 31, 2005. The filing date was later extended to March 31, 2006.

Although the compliance program primarily was developed to address problems experienced by financial institutions in reporting payments to foreign account holders, the IRS realized there was noncompliance with withholding rules by non-financial institutions based on submissions under the VCP program by these non-traditional withholding agents. IRS Computer Audit Specialists and International Examiners are being trained to conduct more directed “surgical audits” of taxpayers with the highest audit potential. Examiners will be analyzing information reported on Form 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations), Form 5472 (Information Return of a 25% Foreign-Owned U.S. Corporation), and withholding agents’ accounts payable records to identify payments to foreign persons.

The Audits:
According to the IRS, the audits will be a three-step process:
Step One: Determine payments to foreign vendors.
Step Two: Examine amounts paid by expense types that may generate reporting or withholding responsibilities.
Step Three: Determine U.S. source vs. foreign source income.

Companies that conduct business with foreign entities and that make payments of both U.S. and non-U.S. source income may wish to discuss withholding requirements with their accounts payable departments.

Observations:
This initiative could be significant for U.S. entities that make payments of certain kinds of income to foreign persons but that may not be familiar with the complex withholding regulations under sections 1441 and 1442. This will affect U.S. withholding agents making payments of fixed or determinable annual or periodical income such as interest, dividends, royalties, and payments for services performed in the United States to foreign persons.

Information provided by our international resource.

Ryan L. Losi, CPA, REALTOR
Business Development Manager
Piascik & Associates, P.C.
4470 Cox Road, Suite 250
Glen Allen, VA 23060
Direct: (804) 228-4179
Main: (804) 527-1815
Facsimile: (804) 527-1816
E-mail: rlosi@piascik.com

California LLC Update

2006-06-19T17:51:00.000-07:00

There has been a flurry of activity in California regarding LLCs since the beginning of the year. In this update we will try to sum up the three biggest issues.

The LLC Fee being ruled unconstitutional,
Foreign LLCs requirement to pay the $800 LLC tax and
Series LLCs in California.

LLC Fee is Unconstitutional

First of all let’s make sure we all understand that California has two charges that it imposes on LLCs. It imposes an LLC fee and an LLC minimum tax. The LLC minimum tax is the $800 LLCs must pay if they are registered in California. The LLC fee is an amount in addition to the $800 based on the gross receipts of the LLC (many LLCs do not have high enough gross receipts to be required to pay this fee). It is this additional fee that was ruled unconstitutional. If your LLC only paid the $800 minimum this case does not affect you.

In the case of Northwest Energy Services, LLC v. FTB the San Francisco Superior Court ruled that fee was not actually a fee but a tax and as a tax it violates both the Due Process Clause and the Commerce Clause of the US Constitution.

Northwest was an LLC organized in the state of Washington that registered to do business in California with the California Secretary of State. This was sufficient to trigger the LLC fee under R&TC §17942, which, according to the FTB, is computed on total worldwide income without apportionment. The court held that, because the fee is not apportioned, it is unconstitutional. However, since Northwest did not do business in California, the decision is not ideal for determining the outcome for other LLCs that have paid the fee.

While the court ruled that the fee violates the Commerce Clause and the Due Process Clause of the U.S. Constitution, and the Due Process Clause of the California Constitution, it is not clear whether the statute itself is invalid or whether the statute will stand if the fee is calculated using an apportionment method. If the latter, the Northwest decision will only affect multi-state LLCs — those with income both within and without California. If the statute is ruled invalid it will affect all LLCs that pay (and have paid) the fee.

Although the outcome of the Northwest case was a clear victory for one taxpayer, the effect on the LLC fee for other taxpayers is unclear. For now, the decision does not apply to other taxpayers. The FTB must continue to enforce the LLC fee until a Court of Appeal or higher court declares it unconstitutional. This means that, for LLCs that filed protective claims, the waiting game is on. If the FTB does not appeal Northwest, the decision will apply only to Northwest, LLC, and you will have no recourse other than to file in superior court or wait for another taxpayer to file suit.

If the FTB appeals Northwest, there are a number of possible outcomes. First, the appeals court could overturn the lower court’s decision and side with the FTB. Second, it could side with the lower court but even that entails multiple possible outcomes.
• The court could rule that the entire statute (R&TC §17942) is unconstitutional. In that case, the result would be that no LLC, whether operating interstate or solely within California, would be required to pay the fee and the FTB would be forced to act on refund claims.
• The court could find that the unconstitutional provisions are severable from the rest of the statute. For example, they could find that the statute is valid generally in that it does not preclude a requirement for apportionment. In that case, the decision would apply only to LLCs doing business in multiple states.

Since it is possible that the decision may affect all LLCs that paid the fee, you should file a protective claim for refund of the entire amount of those fees for all years open under the statute of limitations.

Cautions: Please observe the following:
• Northwest addressed the constitutionality of the annual LLC fee only, not the $800 annual tax levied under R&TC §17941.
• The decision does not affect LLCs that have elected to be taxed as corporations because they do not pay the annual fee under R&TC §17942.
• You must continue to pay the LLC fee without apportionment; and you must pay the fee before filing the claim (see below).

If your LLC has paid this fee in prior years please contact our office to file a protective claim of refund. This will put your LLC on record as to have filed for a refund before the statute of limitations runs out and will preserve your right to claim a refund if the Appeals Court upholds this ruling.

Foreign LLCs

California law requires foreign LLCs (LLCs not organized in California) to register with the Office of the California Secretary of State (SOS) before entering into any intrastate business in California. The SOS may not deny recognition of an LLC because the laws of the LLC’s home state or foreign country differ from California’s laws, except in the case of professional service LLCs, which are not allowed to register as LLCs in California (Corp. Code §§17451, 17452).

For California taxation purposes, a foreign LLC must use a “doing business” test instead of the “transacting intrastate business” test that is used for determining registration requirements. “Doing business” means “actively engaging in any transaction for the purpose of financial or pecuniary gain or profit” (R&TC §§17941, 23101).

In a member-managed LLC, every member of an LLC is an agent of the LLC for conducting the usual business of the LLC, unless the articles of organization or operating agreement restrict the scope of the agent’s authority (Corp. Code §17157). A non-member may become an agent through precedent authorization or ratification by the LLC’s member-managers (Civil Code § 2307). It is therefore presumed by the FTB that California LLC managers are conducting LLC business while in California.

It is not clear whether a California resident who is a non-managing member of a foreign LLC with no managing members in California forces the entity to meet the “doing business” test.

So what all this means is that if an LLC has a member manager that is a California resident the LLC is assumed to be doing business in California and must register and pay the $800 tax. To avoid this, the member manger must travel outside of California to conduct business for the LLC. The member manager should keep meticulous logs of the business conducted and where the business was conducted. They should also be prepared to substantiate the travel with hotel, airline and or gas receipts. In addition the LLC should have its bookkeeping and tax returns prepared outside of California and its bank account should be outside of the state as well.

Another option is to have a person outside of California be the LLC manager and leave any California members as non-managing members. This option is based on our interpretation of the FTB’s ruling that LLC managers are agents of the LLC and therefore are conducting the business of the LLC. Non-manger members are not engaged in the business of the LLC and therefore would not lead to the assumption that their residency in California automatically assumes that the LLC is doing business in California. As said earlier this is based on our interpretation and to this point in time we are not aware of any rulings or guidance from the FTB as to how they would treat this situation, so caution should be used in determining whether or not to use this option.

To some of us taking steps to avoid the extra $800 per year LLC tax may be more of a nuisance than the $800 itself and it is just easier to register and pay the $800 to California. But what if you have several LLCs outside of California? Now we are not just talking about $800 but maybe 5, 10 or more times $800. An additional $8,000 (if you had 10 LLCs) may turn your entire investment strategy upside down. An option for this is to create a holding company LLC outside of California in which you are the member manager. This LLC would be registered in California as a foreign LLC and pay the annual $800 tax. All of your other non-California LLCs would be owned and managed but this new holding company LLC. It is our opinion that this structure would only require one $800 payment to California, however as with the non-manger member strategy we discussed earlier; to this point in time we are not aware of any rulings or guidance from the FTB as to how they would treat this situation, so caution should be used in determining whether or not to use this option

There is one safe and proven option for avoiding all of this and that is to leave California!

Series LLCs
It is standard practice to put assets into separate LLCs to isolate potential liability. This can be an expensive proposition entailing multiple administrative costs and, in California, multiple annual taxes and multiple total-income fees.

Many advisors are now recommending the “Series LLC” as a means of accomplishing many of the same objectives with a single round of administrative costs and taxes. The question is, does it work to eliminate multiple taxes and fees in California?

Series LLCs are now allowed in Iowa, Illinois, Nevada, Oklahoma, and Delaware. However, the Delaware law was the first and is the best known.

A Series LLC is one that places its assets in separate “series,” which function like separate businesses and are, in fact, required to keep separate books and records (Delaware Limited Liability Company Act §18-215). In addition, each series can operate different kinds of businesses and have different managers, members, and ownership percentages. A series can make distributions to its own members without regard to members of the LLC’s other series. Most importantly, the law provides that the debts and obligations of one series are enforceable against that series only.

A Delaware LLC is required to register with the SOS prior to doing business in California. Generally, the California courts will apply California law to all disputes regarding the entity except for those regarding internal governance. Under California Corporations Code §17450(a), “The laws of the state or foreign country under which a foreign limited liability company is organized shall govern its organization and internal affairs and the liability and authority of its managers and members.” As such, the separate treatment of series LLCs will apply in California for purposes of internal governance.

However, that doesn’t mean that the series laws will apply for creditors, claimants, and other California third parties who have not agreed to be bound by those laws. In fact, some legal commentators believe that the series laws would have little chance of working even for California tenants who sign a lease agreement stating that they must respect the series limitations given California’s heavy consumer- and tenant-protection laws.

So it appears that in California a series LLC will not provide separation of assets but instead the courts will more than likely open up the entire LLC to satisfy a judgment. If that was not bad enough wait until you see how the FTB will treat a Series LLC.

According to the FTB, each series is considered a separate LLC that must file its own FTB Form 568, and pay a separate LLC annual tax and fee if it is registered or doing business in California. The FTB compares the series LLCs to the separate series of a single trust, which have been regarded as separate taxpayers as found in National Securities Series-Industrial Stock Series v. Commissioner (13 TC 884) and Revenue Ruling 55-416.

It is our opinion that Series LLCs are only good in the state in which they were organized; and certainly not in California and not for California residents that may, as discussed earlier, need to register their foreign LLC in California. Someday California may adopt its own Series LLC law and at that time we may change our opinion.

Please note that the opinions and options mentioned are our best guess as to what the FTB might do and as such should not be relied upon solely in determining what actions if any should be taken in your individual circumstances. Our opinions are not intended be by legal opinions. Our purpose is only to make you aware of these issues and as always we suggest you consult your attorney as to how this may or may not apply to you. If you have any questions on this information or would like discuss this in more detail on how to proceed under your specific circumstances please contact our office.
Tel: 623-209-0012
Fax: 623-537-9184
13933 W. Grand Avenue, #302, Surprise, Arizona 85374

100% write-offs

2006-06-07T07:34:00.000-07:00

Recent federal legislation [section 179] allows certain classes of assets to be fully depreciated in 1 year. They include personal property such as office furniture, computers, etc. Up to $108,000 can be written off in 1 year!

This cap is linked to the amount of qualifying property being purchased, and reduces as the total exceeds $430,000. Not normally an issue for small businesses >grin<.

In 2010 that deduction limit is expected to fall back to pre-legislation values of $25,000, so this is still a good planning tool for financial forecasting and revenue modeling.

Typically you'll want your deductions applied to higher taxed income whenever possible. So if you can wipe out employment taxes [15.3%] as well as income taxes [say 25%] that would be better than just creating a Net Operating Loss. As always, consult with your tax professional to make sure that your plans maximize the benefits that you will receive.

oops - the dragonflies are out again - I'll see if I can catch one this time.

Until later then, Smokey says bye.

Want to set up a Corp or LLC in the USA?

2006-06-03T07:41:00.000-07:00

If you want to start a business in the USA, it is relatively simple. IF you are living here and are a citizen or a resident alien. If not, then the normal hoops can become major stumbling blocks. Contact gary @ yourentitysolution dot com for help in resolving company formation issues. At this time we do not need either an EIN or ITIN for the federal government (according to extensive conversations with the IRS).

California Real Estate Crash?

2006-05-11T18:02:00.000-07:00

The Norris Group released this update recently and it paints a uncertain or even negative future for real estate in the near to mid-term. Bruce Norris has invested a lot of time and money in this forecast and his last major report forecast the big boom in California very accurately - so this deserves more than a casual glance.

The summary is that Investor and second home purchases are around 47% of all of the homes bought over the past year. That's up from the normal 10% [yikes].

Historical Housing Median Prices
. . . . . . . 2004 . . 2005 . . 2006
January . . $404,460 $485,700 $540,000
February. . $391,550 $470,920 $535,480
March . . . $428,060 $496,550 $561,350
April . . . $452,270 $509,630
May . . . . $463,690 $522,900
June . . . $468,620 $543,120
July . . . $462,140 $540,900
August . . $473,360 $568,730
September . $463,620 $543,980
October . . $459,800 $538,770
November . $471,980 $548,680
December . $474,280 $548,430

The California real estate market is heavily dependent upon two things: The continuation of cheaper than market payments when people buy real estate and the mental outlook that real estate is still the “hot ticket” investment. Without the positive outlook, there’s no way a many of us will be signing up for the 50 year “easy payment” plan.

California foreclosures headline April 10, 2006, PRNewswire

“Los Angeles Foreclosures increase dramatically; 63% from 2005 to 2006” “The rising foreclosures are due to the ‘Average Joe’ buying a house he cannot afford because of inflated
home prices. Then, with interest rates rising, he cannot pay for the mortgage. Many of the homeowners used ‘aggressive financing to buy homes they could not afford.’” – Serdar Bankaci, President of Default Research, Inc.

California LLC Franchise Tax is Unconstitutional

2006-03-17T14:07:00.000-08:00

Court holds that part of the California LLC Franchise Tax is Unconstitutional
A San Francisco Superior Court dealt the Franchise Tax Board a blow last week when it ruled that a major portion of the California Franchise Tax violates both the Commerce Clause and Due Process Clauses under the United States Constitution. The case is almost guaranteed to be appealed given the magnitude of the decision.

The issue boiled down to whether the franchise tax imposed on LLCs under one or two major sections of the LLC act was a tax or a fee. If it is a fee, then the franchise tax would stand. If it was a tax, then the U.S. Constitution would kick in and certain rules would apply to protect the LLCs from being unfairly taxed.

The Impact of the Franchise Tax
According to the Court documents, the California Legislature added two revenue generating provisions in 1994 as part of the LLC Act to offset tax revenues that would be lost if companies operated as LLCs as opposed to Corporations. One provisons imposed an $800 minimum tax while the second imposed a levy based on the revenues of the LLC. The second provison was as issue.

Why does it matter if it is a tax or a fee?

In a nutshell, fees are imposed to fund a regulatory program - to cover the costs, if you will - or provide compensation for services and benefits received by the government while taxes raise revenue for typical governmental services (they are compulsory). Thus, a fee is incurred voluntarily to receive a benefit (i.e. you pay the Secretary of State a fee to receive the benefits of being an LLC) while a tax is compulsory (i.e. you pay just for being an LLC). Taxes, being compulsory, have more protections for taxpayers as they are imposed without choice.
The reason this is a big deal is because the Court held that the Secretary of State was collecting the fees relating to the LLC Act and that the proceeds generated by the Levy at issue EXCEEDED the ENTIRE budget of the Secretary of State in all years after 1999. Keep in mind that LLCs are only a small portion of what the Secretary of State's responsibilities.

So what if it is a tax?

If it is a tax, then the Due Process and Commerce Clause create a duty on the State to make sure the tax is applied to activities with a substantial nexus to the taxing state, that they be fairly apportioned (you should not get taxed by two states on the same dollar), that the tax does not interfere with interstate commerce and that it be related to the services provided by the state. The Court held that the tax was not fairly apportioned. The plaintiff in the case, a Washington State LLC registered to do business in California, was given a full refund plus interest as the levy could not "constitutionally" be applied to plaintiff.

Future Impact?
We will have to wait and see the fallout of the decision, but it does raise interesting issues for businesses, specifically, LLCs doing business in California. First, how do you preserve your right to refund if the statute is indeed struck down? Second, what impact will this decision have on the $800 minimum tax imposed?

For the first question, a taxpayer could preserve their rights to a refund by filing a protective claim. This tolls the statute of limitations until the case works its way through the appeal process. It is generally accomplished by stating on the face of the return that you are seeking a protective claim for refund based on (insert the case name). In this case, it would be "Protective Claim for Refund Based on the Outcome of Northwest Energetic Services, LLC." Have your preparer attach a statement and cite the case (case number CGC-05-437721). Use a professional.

As for the second question - only time will tell. We will have to wait and see how the legislature and other courts react to the decision.

Scam 12, “No Gain” Deduction

2006-02-09T10:43:00.000-08:00

Filers attempt to eliminate their entire adjusted gross income (AGI) by deducting it on Schedule A. The filer lists his or her AGI under the Schedule A section labeled “Other Miscellaneous Deductions” and attaches a statement to the return that refers to court documents and includes the words “No Gain Realized.”

Scam 11, Employment Tax Evasion

2006-02-09T10:42:00.000-08:00

The IRS has seen a number of illegal schemes that instruct employers not to withhold federal income tax or other employment taxes from wages paid to their employees. Such advice is based on an incorrect interpretation of Section 861 and other parts of the tax law and has been refuted in court. Lately, the IRS has seen an increase in activity in the area of “double-dip” parking and medical reimbursement issues. In recent years, the courts have issued injunctions against more than a dozen persons ordering them to stop promoting the scheme. During fiscal 2005, more than 50 individuals were sentenced to an average of 30 months in prison for employment tax evasion. Employer participants can also be held responsible for back payments of employment taxes, plus penalties and interest. It is worth noting that employees who have nothing withheld from their wages are still responsible for payment of their personal taxes.

Scam 10, Offshore Transactions

2006-02-09T10:41:00.000-08:00

Despite a crackdown by the IRS and state tax agencies, individuals continue to try to avoid U.S. taxes by illegally hiding income in offshore bank and brokerage accounts or using offshore credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance to do so. The IRS and the tax agencies of U.S. states and possessions continue to aggressively pursue taxpayers and promoters involved in such abusive transactions. During fiscal 2005, 68 individuals were convicted on charges of promotion and use of abusive tax schemes designed to evade taxes.

Scam 9, Abuse of Charitable Organizations and Deductions

2006-02-09T10:40:00.000-08:00

The IRS has observed increased use of tax-exempt organizations to improperly shield income or assets from taxation. This can occur, for example, when a taxpayer moves assets or income to a tax-exempt supporting organization or donor-advised fund but maintains control over the assets or income, thereby obtaining a tax deduction without transferring a commensurate benefit to charity. A “contribution” of a historic facade easement to a tax-exempt conservation organization is another example. In many cases, local historic preservation laws already prohibit alteration of the home’s facade, making the contributed easement superfluous. Even if the facade could be altered, the deduction claimed for the easement contribution may far exceed the easement’s impact on the value of the property.

Scam 8, Credit Counseling Agencies

2006-02-09T10:39:00.001-08:00

Taxpayers should be careful with credit counseling organizations that claim they can fix credit ratings, push debt payment plans or impose high set-up fees or monthly service charges that may add to existing debt. The IRS Tax Exempt and Government Entities Division is in the process of revoking the tax-exempt status of numerous credit counseling organizations that operated under the guise of educating financially distressed consumers with debt problems while charging debtors large fees and providing little or no counseling.

Scam 7, Return Preparer Fraud

2006-02-09T10:39:00.000-08:00

Dishonest return preparers can cause many headaches for taxpayers who fall victim to their schemes. Such preparers derive financial gain by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Taxpayers should choose carefully when hiring a tax preparer. As the old saying goes, “If it sounds too good to be true, it probably is.” And remember, no matter who prepares the return, the taxpayer is ultimately responsible for its accuracy. Since 2002, the courts have issued injunctions ordering dozens of individuals to cease preparing returns, and the Department of Justice has filed complaints against dozens of others. During fiscal year 2005, more than 110 tax return preparers were convicted of tax crimes.

Scam 6, It's against the law; constitution; yada, yada

2006-02-09T10:38:00.000-08:00

Promoters have been known to make the following outlandish claims: the Sixteenth Amendment concerning congressional power to lay and collect income taxes was never ratified; wages are not income; filing a return and paying taxes are merely voluntary; and being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. Don’t believe these or other similar claims. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

Scam 5, Illegal Use of Trusts

2006-02-09T10:35:00.000-08:00

For years unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. However, some trusts do not deliver the promised tax benefits, and the IRS is actively examining these arrangements. There are currently more than 200 active investigations underway and three dozen injunctions have been obtained against promoters since 2001. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust.