Posts by Bowen Law Professional Group

2024 Estate Planning Need-To-Knows

Preplanning & maintenance matter greatly in all things Estate Planning. Know that we are here to help secure your financial future and well-being.

Read further to stay current with today’s Estate Planning highlights regarding:

  • How 2 New Healthcare Initiatives Impact Tax Advantages & Estate Planning
  • The Integral Role an Estate Planning Attorney Plays in Gifting Provisions
  • Need To Knows Re: The IRS’s Ruling on Irrevocable Grantor Trusts & How Essential Regular Estate and Asset Planning Maintenance Truly Is
  • The IRS Roth Catch-Up Extension Deadline
  • IRS and DOJ Crack Down on “Sham” Trust Schemes

Click the link below to access more in-depth information for each.

Here is the Link

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2024 Business Law Considerations

Entering the new year, the following highlights are current areas of emphasis in Business Law:

  • The Corporate Transparency Act’s Impact on Small Businesses
  • False Advertising Lawsuits on the Rise
  • SBA Loan Changes: Easier Access to Capital for Small Businesses
  • DOJ’s Announcement of New M & A Safe Harbor Policy
  • Businesses Warned of Employee Retention Credit Scamming

In clicking the link below, you’ll find more in-depth information about each. As always, we are dedicated to “Helping You Keep What’s Yours” and planning for the future by implementing new strategies and keeping ourselves, and you, up to date. Please reach out to us with your questions and business needs. We are here to help.

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New FinCEN Filings Go into Effect on January 1

For existing businesses, the Corporate Transparency Act (CTA) goes into effect on January 1, 2024, and imposes a brand-new federal filing requirement on most corporations, limited liability companies, and limited partnerships and on certain other business entities.

No later than December 31, 2024, all non-exempt business entities must file a beneficial owner information report (BOI report) with the Financial Crimes Enforcement Network (FinCEN)—the Treasury Department’s financial intelligence unit.

The BOI reports must disclose the identities and provide contact information for all of the entity’s “beneficial owners”: the humans who either (1)control 25 percent of the ownership interests in the entity or (2) exercise substantial control over the entity.

Your BOI report must contain all the following information for each beneficial owner:

  • Full legal name
  • Date of birth
  • Complete current residential street address A unique identifying number from either a current U.S. passport, state or local ID document, or driver’s license or, if the individual has none of those, a foreign passport
  • An image of the document from which the unique identifying number was obtained

FinCEN will create a new database called BOSS (Beneficial Ownership Secure System) for the BOI data and will deploy the BOSS to help law enforcement agencies prevent the use of anonymous shell companies for money laundering, tax evasion, terrorism, and other illegal purposes. It will not make the BOI reports publicly available.

The CTA applies only to business entities such as corporations and LLCs that are formed by filing a document with a state secretary of state or similar official. It also applies to foreign business entities that register to do business in the United States.

Some businesses are exempt from the CTA, including

  • larger businesses with 20 or more employees and $5 million in receipts, and
  • businesses already heavily regulated by the government, such as publicly traded corporations, banks, insurance companies, non-profits, and others.

The CTA does not apply to sole proprietors or general partnerships in most states. But it does apply to single-member LLCs, even though the tax code disregards such entities and taxes them on Schedule C, E, or F of Form 1040.

The initial BOI report filing does not expire, and you don’t need to renew it. But you have an ongoing duty to keep the BOI report up to date by reporting any changes to FinCEN within 30 days of occurrence.

Failure to comply can result in hefty monetary penalties and up to two years in prison.

Beat the Net Investment Income Tax

Here is some important information regarding the net investment income tax (NIIT), which may be relevant to your financial situation.

NIIT Overview

The NIIT is a 3.8 percent tax that could apply if your modified adjusted gross income (MAGI) exceeds $200,000 (single filers), $250,000 (married, filing jointly), or $125,000 (married, filing separately). It targets the lesser of your net investment income or the amount by which your MAGI exceeds the thresholds.

What Qualifies as Net Investment Income?

Net investment income includes income from investments (such as interest, dividends, and annuities), net rental income, and income from businesses in which you don’t materially participate. It does not include wages, self-employment income, tax-exempt income, and distributions from qualified retirement plans.

Reducing or Avoiding the NIIT

To mitigate the NIIT, it’s crucial to understand what’s triggering it—your net investment income or your MAGI. Here are some strategies:

  1. Invest in municipal bonds. Pick bonds that are exempt from the NIIT and from federal and state taxes.
  2. Donate appreciated assets. The correct asset donation avoids the NIIT and provides a tax deduction.
  3. Avoid selling appreciated stock. Buy growth stocks that don’t pay dividends, and hold them.
  4. Utilize Section 1031. It avoids MAGI and net investment income, and defers taxes.
  5. Invest in life insurance and annuities. This typically defers tax until withdrawal.
  6. Harvest investment losses. This can offset gains and reduce taxable income.
  7. Invest in rental real estate. Structured correctly, this can minimize taxable income.

Other Strategies

  • Active participation in business. It avoids classifying income as net investment income.
  • Short-term rentals and real estate professional status. These also avoid classifying income as net investment income.
  • Alternative marital status. Though this option may seem extreme, two single taxpayers have a higher MAGI threshold than a married couple.
  • Retirement plan investments. These can reduce MAGI.
  • IRA conversions. Converting traditional IRAs to Roth IRAs may trigger the NIIT but can have long-term tax benefits.
  • Installment sales. They can level out MAGI over time.

The NIIT can be complex, but strategic planning can significantly reduce its impact.

Deducting Start-up Expenses for a Rental Property

Are you interested in becoming a commercial or residential landlord?

If so, you’ll likely have to shell out plenty of money before ever collecting a dime in rent. The tax code treats some of those monies as start-up expenses.

Start-up expenses are some of the costs you incur before you offer a property for rent. There are two broad categories:

  1. Investigatory
  2. Pre-opening costs, such as advertising, office expenses, salaries, insurance, and maintenance costs

Your cost of purchasing a rental property is not a start-up expense. Rental property and other long- term assets, such as furniture, must be depreciated once the rental business begins.

On the day you start your rental business, you can elect to deduct your start-up expenses.

The deduction is equal to

  • the lesser of your start-up expenditures or $5,000, reduced (but not below zero) by the amount by which such start-up expenditures
    exceed $50,000, plus
  • amortization of the remaining start-up expenses over the 180-month period beginning with the month in which the rental property business begins.

When you file your tax return, you automatically elect to deduct your start-up expenses when you label and deduct them on your Schedule E (or other appropriate return).

Costs you pay to form a partnership, limited liability company, or corporation are not part of your start-up expenses. But under a different tax rule, you can deduct up to $5,000 of these costs the first year you’re in business and amortize any remaining costs over the first 180 months you are in business.

Note that the cost of expanding an existing business is a business operating expense, not a start-up expense. As long as business expansion costs are ordinary, necessary, and within the compass of your existing rental business, they are deductible.

The IRS and tax court take the position that your rental business exists only in your property’s geographic area. So, a landlord who buys (or seeks to buy) property in a different area is starting a new rental business, which means the expenses for expanding in the new location are start-up expenses.

You can’t deduct start-up expenses if you’re a mere investor in a rental business. You must be an active rental business owner to deduct them.

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End of Year Real Estate Updates

In our efforts to keep you updated with the latest legal news in Real Estate, this month’s post highlights the following:

  • The White House HUD’s Crackdown on Unnecessary Rental Fees
  • Federal Agencies’ Proposed Rules to Address Bias in Home Appraisal Process
  • Details on The Department of Justice’s Continuing Anti-Redlining Initiative
  • A Rise in Real Estate Transactional Scams & Helpful Federal Guidance

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Business Law Matters

This fall in Business Law matters, we take a deeper dive into:

    1. What businesses need to know about state consumer privacy legislation. A growing number of states are enacting consumer data privacy laws to give consumers more choice over how companies access and manage their personal data.
    2. Companies’ responsibly to understand the U.S. Environmental Protection Agency’s (EPA) decision to ban 9 additional PFAS in products and the reporting requirements. To avoid negligence, companies must work to eliminate legal claims due to environmental contamination or personal injury. An attorney can help you understand your rights and obligations with the government or other parties.
    3. Why and how the legalization of recreational and medical marijuana use’s limited bipartisan support creates a public safety issue. Consumers need to be educated and aware of how the SAFE Banking Act is doing its part.
    4. A costly blunder on the part of the Consumer Financial Protection Bureau (CFPB). Find out how an IT test triggered $2.3 billion in unauthorized payments.
    5. The specifics regarding former Uber executive Joseph Sullivan’s data breach, liability, and sentencing.

 Read More Here :

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DOL proposes change to independent contractor definition

The U.S. Department of Labor (DOL) has issued a notice of proposed rulemaking related to classifying employees as independent contractors.

The change could result in more workers being classified as employees and therefore entitled to certain federal protections such as minimum wage, workers’ compensation and overtime pay.

The rules would effectively undo a Trump administration-era ruling that took effect in January 2021.

Under the 2021 rule, an “economic reality test” is used that depends largely on two core factors – control over work and the opportunity for profit or loss.

Other factors could be taken into consideration but were given less weight.

Now the DOL has proposed returning to a “totality of the circumstances” evaluation under which applicable standards do not have a predetermined weight.

Additional factors can include:

  • Permanence of the work relationship
  • The worker’s investment in equipment or materials required for the task
  • Whether the work is an integral part of the employer’s business
  • Worker skill and initiative

Analysts have said the proposed rule will have the biggest impact on businesses that rely on gig workers, such as Uber and Lyft.

However, statements from both Uber and Lyft imply that the change is merely a return to the status quo.

In advance of an expected 2023 effective date, businesses should review contract language in which they “reserve the right” to control aspects of a contractor’s work.

Under the proposed rules, such language could constitute an employee relationship, even if you don’t actually exercise that control.

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Business Tax Deduction Strategies

Here are six business tax deduction strategies to implement before the end of 2022.
1. Prepay Expenses Using the IRS Safe Harbor

IRS regulations contain a safe-harbor rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS.

Under this safe harbor, your 2022 prepayments cannot go into 2023. This makes sense, because you can prepay only 12 months of qualifying expenses under the safe-harbor rule.

For a cash-basis taxpayer, qualifying expenses include lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums.

Example. You pay $3,000 a month in rent and would like a $36,000 deduction this year. So on Friday, December 30, 2022, you mail a rent check for $36,000 to cover all of your 2023 rent. Your landlord does not receive the payment in the mail until Tuesday, January 3, 2023. Here are the results:

You get what you want—the deduction this year.

The landlord gets what he wants—next year’s entire rent in advance, eliminating any collection problems while keeping the rent taxable in the year he expects it to be taxable.

2. Stop Billing Customers, Clients, and Patients

Here is one straightforward strategy to reduce your taxable income for this year: stop billing your customers, clients, and patients until after December 31, 2022. (We assume here that you or your corporation is on a cash basis and operates on the calendar year.)

Customers, clients, and insurance companies generally don’t pay until billed. Not billing customers and clients is a time-tested tax-planning strategy that business owners have used successfully for years.

Example. Jake, a dentist, usually bills his patients and the insurance companies at the end of each week. This year, however, he sends no bills in December. Instead, he gathers up those bills and mails them the first week of January. He postponed paying taxes on his December 2022 income by moving that income to 2023.

3. Buy Office Equipment

With bonus depreciation now at 100 percent along with increased limits for Section 179 expensing, buy your equipment or machinery and place it in service before December 31, and get a deduction for 100 percent of the cost in 2022.

Qualifying bonus depreciation and Section 179 purchases include new and used personal property such as machinery, equipment, computers, desks, chairs, and other furniture (and certain qualifying vehicles).

4. Use Your Credit Cards

If you are a single-member LLC or sole proprietor filing Schedule C for your business, the day you charge a purchase to your business or personal credit card is the day you deduct the expense. Therefore, as a Schedule C taxpayer, you should consider using your credit card for last-minute purchases of office supplies and other business necessities.

If you operate your business as a corporation, and if the corporation has a credit card in the corporate name, the same rule applies: the date of charge is the date of deduction for the corporation.

But suppose you operate your business as a corporation and are the personal owner of the credit card. In that case, the corporation must reimburse you if you want the corporation to realize the tax deduction, which happens on the reimbursement date. Thus, submit your expense report and have your corporation make its reimbursements to you before midnight on December 31.

5. Don’t Assume You Are Taking Too Many Deductions

If your business deductions exceed your business income, you have a tax loss for the year. With a few modifications to the loss, tax law calls this a “net operating loss,” or NOL.

If you are starting your business, you could very possibly have an NOL. You could have a loss year even with an ongoing, successful business.

You used to be able to carry back your NOL two years and get immediate tax refunds from prior years, but the Tax Cuts and Jobs Act (TCJA) eliminated this provision. Now, you can only carry your NOL forward, and it can only offset up to 80 percent of your taxable income in any one future year.

What does this all mean? Never stop documenting your deductions, and always claim all your rightful deductions. We have spoken with far too many business owners, especially new owners, who don’t claim all their deductions when those deductions would produce a tax loss.

6. Deal with Your Qualified Improvement Property (QIP)

In the CARES Act, Congress finally fixed the qualified improvement property (QIP) error that it made when enacting the TCJA.

QIP is any improvement made by you to the interior portion of a building you own that is non-residential real property (think office buildings, retail stores, and shopping centers)—if you place the improvement in service after the date you place the building in service.

QIP is not real property that you depreciate over 39 years. QIP is 15-year property, eligible for immediate deduction using either 100 percent bonus depreciation or Section 179 expensing. To get the QIP deduction in 2022, you must place the QIP in service on or before December 31, 2022.

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How to Avoid Legal Action Should a Conflict Arise

Managers and company owners fear a few items more than litigation.  Legal actions against a corporation can potentially damage an otherwise sterling reputation, create disputes, and of course result in the loss of large sums of money and staff talent.  It has been said and could be argued that we live in a litigious society.  Fortunately, with every new legal issue that can arise, there are just as many ways savvy business owners can protect their company, assets, and interests.  Ideally even the most negative situation can be spun into a win-win situation where owners, staff, and customers are given a positive outcome when a potential violation or lawsuit could arise.

Avoiding the Courts and Protecting Yourself

Did you know that corporations pay out more than 20 billion dollars a year to litigation attorneys?  This alarming figure does not account for lost money due to settlements, or perhaps more importantly lost business-related relationships that were once mutually beneficial.  There are countless potential risks and legal issues that can arise.  We want to highlight some common situations and potential strategies that can be implemented to avoid the court system should a misunderstanding or disagreement come forth.

Disputes between Partners

Every company starts out a little differently.  Some begin as a simple sole proprietorship, other times successful business owners combine their resources and make a corporation.  Regardless of how a company starts, it is important to make necessary changes along the way you grow, add new resources, and bring on new employees.  One of the most efficient ways for partners to reconcile differences is to draft a partnership agreement that outlines certain protocols.  Primarily a dispute resolution clause is guidelines that can be agreed to beforehand to help avoid courts and possible legal ramifications.

Keep Terms in Writing

Contracts are essential for any business to outlines terms between employees, contractors, vendors, and customers.  It is a sound investment to have any contract drafted, reviewed, and altered by a business consultation law firm.  This will help ensure that terms are properly outlined, risks are assessed and most importantly, the contract is legally binding in your jurisdiction.  Valid contracts can act as an important reference point, clarify misunderstandings, and provide legal protection should a disagreement arise.

Take Action Before Things Escalate

As a general rule of thumb, ignoring an issue won’t make it go away, and it could lead to the issue becoming worse.  By taking swift action you can help alleviate negativities and prevent issues before they get out of hand.  As time goes on people tend to become entrenched in certain ways of thinking and small issues can grow into bitter situations.  Ensure that management and staff members are trained to see potential risks as they arise and know what company policies should take place to alleviate the issue.  It is a good idea to make certain that employees understand what actions to take and feel comfortable bringing an issue, glitch, or mistake up to management so it can be dealt with.  Please consult with a business-risk assessment attorney to learn more about how you can protect your company and assets.

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Protecting Your Company When Using Social Media Influencers

The internet and social media platforms are rich with independent users that have built sizeable audiences ranging from hundreds of thousands to millions of followers.  In many cases these grass-roots campaigns have resulted in viewers that rival or top conventional media outlets.  As a result, many companies have learned that they can get their product or service in front of like-minded individuals at a lower cost than television or radio commercials.  In many cases, these social media endorsements are more powerful and engaging because people have a connection with the influencer they follow.  As with any marketing endeavors, it is important to protect your company and follow the Federal Trade Commission (FTC) rules and regulations.

How Companies Should Protect Themselves

In a recent article by Legal Matters we have read more about his subject, and how some companies have been flagged for non-disclosure violations.  These brands include Lord & Taylor and Warner Bros. Home Entertainment.  Both of which had to make settlements with the FTC for violations.  Specifically, they had failed to release the relationship they had with big-follow social media creators.  In these specific cases, the followers were compensated roughly $4,000 for an endorsement of their product.  Instagram has become feverishly popular over the last couple of years and companies need to ensure they are marketing their products or services within certain guidelines to avoid violation.

What Can Be Done to Avoid Penalties?

The most important take-away is to understand that according to FTC guidelines, consumers have a right to know whether a certain brand is being endorsed by the influencer’s own violation, or if they have a partnership with a company in exchange for free products or future payments.  In this case, the influencer and the companies failed to disclose their relationship, which violates FTC’s disclosure recommendations.  Remember that if your company is investing in advertising it is well worth your time to speak with an attorney to help ensure you are following FTC and online regulations.  The money you pay an online influencer can pale in comparison to the amount certain violations may bring.  In some cases, these disclosures can be adhered to with an online statement, or #hashtag such as #ad #paidadvertisement or #sponsoredpost at the beginning of the post.  Please feel free to contact our office to learn more about how law firms such as BLPG can help protect companies in their online and social media marketing strategies.

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