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As its name suggests,  limited liability companies (LLCs) protect personal assets from debts and other business liabilities. But you may not be aware that LLCs can also offer tax savings. As an LLC, you have flexibility in choosing how you’ll be taxed. This allows you to reap a number of benefits unavailable to other business entities. This goes for both single-owner LLCs and those with multiple owners, also referred to as members or managers.

Here are a few of the biggest tax advantages available to LLCs:

LLCs are unique because the IRS doesn’t consider them separate entities for tax purposes, and in some cases, the IRS will not tax the LLC directly. Instead, the LLC’s members get to choose how they want to be taxed. Tax options include sole proprietorship, partnership, or as a corporation, and these options depend on how many people own the LLC.

Unless you choose to be taxed as a corporation, single-member LLCs are automatically taxed as sole proprietorships, while multiple-member LLCs are taxed as partnerships. The IRS considers these “pass-through” entities, meaning the business profit passes through the company directly to the owners and is taxed on the personal returns of the owners.

In such cases, your company doesn’t pay taxes at all. Instead, your share of the net business income is taxed on your personal tax return, along with the rest of your income. You’ll pay taxes based on your personal income tax rate, and depending on how much total income you earn, this may be less than the corporate rate.

Alternatively, you can also elect for your LLC to be taxed as an S-corporation. In this case, you will be responsible for paying payroll, plus payroll taxes, and  filing a tax return on behalf of the corporation (1120S). The good news about this way of doing things is that so long as you pay yourself a reasonable salary, you only pay payroll taxes on the amount of your payroll, not on your profit distributions from the company.

You will, of course, pay ordinary income tax on your profit distributions, but you save the 15.3 percent or so in payroll taxes. In contrast, when using an LLC taxed as a partnership or sole proprietorship, you will pay payroll taxes on all distributions to you from the LLC.

Again, the advantage of an LLC is its flexibility: You can qualify for the perks of multiple entity structures simply by choosing how you wish to be taxed. Typically, you’ll want to have at least $75,000 of net income per year before the S-Corp election makes sense, so if you’re close to that, contact us to discuss your options.

As of 2018, LLCs offer a new tax benefit. President Trump’s Tax Cuts and Jobs Act established a new income-tax deduction for pass-through entities, making LLCs even more attractive. LLCs can now qualify for a straight 20-percent deduction on “qualified business income” (QBI). This means some LLCs will only be taxed on 80 percent of their pass-through income.

However, this deduction is subject to several limitations, so not all pass-through entities will qualify. Be sure to consult with a Family Business Lawyer® and/or an accountant if you’re looking to take advantage of this new deduction.

All of the above benefits are based on federal income tax law, but not all states handle LLCs equally. Depending on where you’re located, state law may offset some of these tax advantages. For example, in California there is an extra tax on revenue earned by LLCs.

Given this, you should check with us to find out exactly how our state taxes LLCs before choosing to set up an LLC.

Whether you need help understanding state tax laws on LLCs or choosing which entity tax status is best, we offer you trusted counsel. With us as your Creative Business Lawyer®, we can ensure your company is able to take advantage of every possible benefit available. Contact us today to get started.

We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule. Or, schedule online.

Correctly classifying workers as employees or independent contractors has always been tricky. Depending on the regulatory agency involved and whether you’re dealing with state or federal law, there are numerous different factors and tests that can apply to your decision.

In April 2018, a ruling by the California Supreme Court added a new test to the mix, and depending on how it plays out in the Golden State, it may have a ripple effect on worker classification laws across the rest of the country.

The ruling was made in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, in which the California Supreme Court adopted what’s known as the ABC Test. Following the Dynamex case, unless California business owners can prove a worker is an independent contractor using the ABC Test, all workers are presumed to be employees.

As a result, the California Supreme Court has dramatically reduced the number of people in the state who are eligible for independent contractor status. And though California is the first big state to make the ABC Test law, the test is already in use in two other states, and more than 20 states apply specific aspects of it in certain circumstances.

Given this, it’s important for employers in all states to understand how the test works and what its impact might be on your business.

In the California case, delivery drivers who worked for Dynamex, a nationwide courier and delivery service, sued the company for classifying them as independent contractors rather than employees. Prior to 2004, Dynamex classified its California drivers as employees. But in 2004, Dynamex converted all of its drivers to independent contractors to reduce costs.

Using the new ABC Test’s standards, the California Supreme Court ruled in favor of the drivers, noting that Dynamex should have classified them as employees, not independent contractors. As a result, the ABC Test is now law in California, and it stands to affect more than just those in the parcel-delivery business.

The test spells out three new standards, each of which must be met, in order for the independent contractor status to be appropriate. A worker can be classified as an independent contractor only if all of the following three standards are met:

A. The worker is free from control and direction of the employer in connection with the performance of the service, both under contract and in fact;

B. The service is performed outside the usual course of the employer’s business; and

C. The worker is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as the service performed.

If a California business can’t claim “yes” to all three parts, the worker must be classified as a W-2 employee.

The B prong is particularly troublesome for companies that rely heavily on independent contractors to deliver and/or provide their core product or service. The Court used the example of a retail clothing store that hires an outside plumber to repair a bathroom leak as an example where the worker could be classified as an independent contractor.

Since selling clothing, not fixing plumbing leaks, is the usual course of the store’s business, the independent contractor status would be applicable.

One the other hand, the Court noted that a clothing store that hired seamstresses to create some of the clothes sold in the store would be employees, since they’re performing work that’s in line with the store’s business. Indeed, this is the prong the Court applied to the Dynamex case, seeing that the delivery services provided by its drivers are the core of Dynamex’s business.

The case has many California business owners scrambling to figure out how to comply with the new law, while keeping their business model and company intact. Companies like Uber and Lyft that rely heavily on contract labor face the prospect of completely overhauling their core operations or reclassifying many workers as employees.

What’s more, there are still several questions that need answering. Most notably is whether or not the ABC Test will be applied retroactively. The California Supreme Court has agreed to address this issue, but no decision has been made yet.

While it remains to be seen how the new law will ultimately play out in California, the ABC Test already exists in other states. Both Massachusetts and New Jersey currently use the ABC Test to determine worker classification, and other states like Maine use the ABC Test for specific situations, such as determining unemployment compensation.

With the gig economy’s heavy reliance on freelance labor, it’s likely that more states will soon follow California’s lead to help limit the number of workers who can be classified as independent contractors. Regardless if the ABC Test is already law in your state or may become so soon, you should be extra vigilant in classifying your workers to avoid the potential hefty fines and other penalties for misclassification.

We can review your worker classification practices and help you take the necessary steps to ensure your company is in compliance with these more stringent standards. Additionally, we can assist you in properly drafting your contracts, so you’re better protected from liability if someone does try to sue your company.

We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule. Or, schedule online.

Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.

These days, you’ll find all sorts of advice about how best to launch a business. But with so much information out there, it’s hard to know what you should heed and what you can ignore. To make things simple, we’ve compiled a list of five fundamental tips for starting a business that you can’t afford to miss.

One of the best ways to come up with a winning business idea is to design your product or service to solve a specific problem. By fixing a problem, you’ll have a solid customer base right out of the gate, who won’t need much selling provided your solution works.

If possible, create your business around a problem you’ve faced yourself, so you thoroughly understand and trust the value your company offers. If your business truly helps improve people’s lives, you’ll succeed.

While it may seem counterintuitive, it’s often better to launch your business before you feel like your product is 100% perfect. Delaying your start is often an unconscious way of procrastinating—and besides, you’ll probably never feel like your business is totally perfect.

Best to launch fast before anyone else beats you to the market—or before you second-guess yourself out of launching at all. From there, you can adapt and perfect your solution with a small group of paying customers, whom you should give special attention in order to guarantee their happiness and loyalty. The most effective way to learn is to get your product into people’s hands or your service into people’s lives and see how they like it.

Remember, you should be prepared to fail, learn from your mistakes, and keep iterating!

When you come up with a great business idea, it’s tempting to imagine all of the possibilities of where it might go, and try to add all of those things into your launch. But you should narrow your focus and costs by making your solution as effective as possible, without getting too elaborate or complicated.

Consider the minimum viable product, or MVP, often talked about in the tech sector. What’s the minimum you can offer and get the results you envision for the people you serve? Offer that first, and build upon it from there.

Once your company is up and running and you’ve got some income and customers, it will be much easier and affordable to add additional features.

The most successful business ideas are ones that are near and dear to your heart. Focusing on something you’re passionate about will help keep you motivated to do whatever it takes to succeed.

However, just being passionate won’t guarantee success. It takes a certain mindset to endure the rigors of entrepreneurship, so unless you’re comfortable taking risks, learning from failure, and working harder than you ever have before, you might want to rethink things.

When things get challenging—and they definitely will—this mix of passion and fortitude will allow you to stay the course.

In the first part of this series, we discussed a couple of the most critical updates you must make to your estate plan if you’re getting divorced. Here, we’ll cover the last three of these must-do planning tasks. 

Because getting divorced can be overwhelming on so many different levels, updating your estate plan often takes a back seat to other seemingly more-pressing priorities. But failing to update your plan for divorce can have potentially tragic consequences, some of which you may have never even considered before.

In fact, it’s critical that you update your plan not only after the divorce is final, but as soon as you know the split is inevitable. Until your divorce is final, your marriage is legally in full effect, so if you die or become incapacitated while the divorce is still ongoing and you haven’t updated your plan, your soon-to-be ex spouse could end up with complete control over your life and assets.

For example, if you suddenly die of a heart attack while the divorce is ongoing and never got around to changing your estate plan, it’s quite likely that your future ex would inherit everything. And if that’s not bad enough, if you were to become incapacitated in a car accident during the divorce, the very person you’re paying big money to legally remove from your life could be granted complete authority over all of your legal, financial, and healthcare decisions.

This is something your divorce attorney won’t think to bring up, but it’s literally one of the most critical matters you need to handle if you’re ending your marriage. Last week, we discussed the first two estate planning changes you must make—updating your power of attorney documents and beneficiary designations—and today we’ll share the remaining three.

You should create a new will as soon as you decide to get divorced, because once you file, you may not be able to change your will. Rethink how you want your assets divided upon your death. This most likely means naming new beneficiaries for any assets that you’d previously left to your future ex and his or her family. And unless it’s your wish, you’ll probably no longer want your ex—or any of his or her family—listed as your will’s executor or administrator, either.

Some states have community-property statutes that entitle your surviving spouse to a certain percentage of the marital estate upon your death, regardless of what’s in your will. This means if you die before the divorce is final, you probably won’t be able to entirely disinherit your surviving spouse through the new will.

However, it’s almost certain you wouldn’t want him or her to get everything. Given this, you should update your will as soon as possible once divorce is inevitable to ensure the proper individuals inherit the remaining percentage of your estate should you pass away while your divorce is still ongoing.

And should you choose not to create a new will during the divorce process, don’t assume that your old will is automatically revoked once the divorce is final. State laws vary widely in regards to how divorce affects a will. In some states, your will is revoked by default upon divorce. While in others, unless it’s officially revoked, your entire will—including all provisions benefiting your ex—remains valid even after the divorce is final.

In light of this uncertain legal landscape, it’s critical that you consult with us as soon as you know divorce is on the horizon. We can help you understand the law and how to best navigate it when creating your new will—whether you do so before or after your divorce is over.

If you have a revocable trust set up, you’ll want to review and update it, too. Like wills, the laws governing if, when, and how you can alter a trust during a divorce can vary, so you should do it as soon as legally possible. In addition to reconsidering what assets your ex spouse should receive through the trust, you’ll probably want to replace him or her as a successor trustee if they are so designated.

And if you don’t have a trust in place, you should seriously consider creating one, especially if you have minor children. Trusts provide a wide range of powers and benefits unavailable through a will, and they’re particularly well-suited for blended families. Given the likelihood that both you and your spouse will eventually get remarried—and perhaps have more children—trusts are an invaluable way to protect and manage the assets you want your children to inherit.

By using a trust, for example, should you die or become incapacitated while your kids are minors, you can name someone of your choosing to serve as successor trustee to manage their money until they reach adulthood, making it impossible for your ex to meddle with their inheritance.

Beyond this key benefit, trusts afford you several other levels of enhanced protection and control not possible with a will. So you should at least discuss creating a trust with an experienced lawyer like us before ruling out the option entirely.

During the divorce process, your main planning concern is limiting your soon-to-be ex’s control over your life and assets should you die or become incapacitated before divorce is final. Given this, the individuals to whom you grant power of attorney, name as trustee, designate to receive your 401k, or add to your estate plan in any other way while the divorce is ongoing are often just temporary.

Once the divorce is final and your marital property has been divided up, you should revisit all of your estate planning documents and update them accordingly based on your new asset profile and living situation. From there, your plan should continuously evolve along with your life circumstances, particularly following major life events, such as getting remarried, having additional children, and/or when close family members pass away.

Even though divorce can be one of life’s most difficult transitions, it’s vital that you make the time to update your estate plan during this trying time. Meet with us to review your plan immediately upon realizing that divorce is unavoidable.

Putting off updating your plan, even for a few days, during a divorce can make it legally impossible to change certain parts of your plan, so take action now. And if you’ve yet to create any estate plan at all, an impending divorce is the perfect time to finally take care of this crucial task. Contact us today to get the process underway with a Family Wealth Planning Session.

Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.

Even if you put a totally solid estate plan in place, it can end up proving worthless if it’s not properly updated. Estate planning is not a one-and-done type of deal: It should continuously evolve along with your life circumstances.

No matter who you are, your life will inevitably change: families change, laws change, assets change, and goals change. In the absence of any major life events, we recommend reviewing your plan annually to make sure its terms are up to date.

Yet there are several common life events that require you to immediately update your plan—that is, if you want it to actually work and keep your loved ones out of court and out of conflict. To this end, if any of the following seven events occur, contact us right away.

Marriage not only changes your relationship status, it changes your legal status. Regardless of whether it’s your first marriage or fifth, you must take the proper steps to ensure your plan properly reflects your current wishes and needs.

After getting hitched, some of your most pressing concerns include: naming your new spouse as a beneficiary on your insurance policies and retirement accounts, granting him or her medical power of attorney and/or durable power of attorney (if that’s your wish), and adding him or her to your will and/or trust.

Since divorce can be so overwhelming, estate planning often gets overshadowed by the other dramatic new changes happening. But failing to update your plan for divorce can have devastating consequences.

Once divorce proceedings start, you’ll need to ensure your future ex is no longer eligible to receive any of your assets or make financial and medical decisions on your behalf—unless that’s your wish. Once the divorce is finalized and your property is divided, you’ll need to adjust your planning to match your new asset profile and living situation.

Welcoming a new addition to your family can be a joyous occasion, but it also demands entirely new levels of planning and responsibility. At the top of your to-do list should be legally naming both long and short-term guardians for your child. Our Kids Protection Plan offers everything you need to complete this process for free right now.

Once you’ve named guardians, consider putting planning vehicles, such as trusts, in place for your kids. These documents can make certain the assets you want your child to inherit will be passed on in the most effective and beneficial way possible for everyone involved. Consult with us to learn which planning strategies are best suited for your family.

The death of a family member, partner, or close friend can have major consequences for both your life and estate plan. If the person was included in your plan, you need to update it accordingly to fill any gaps his or her absence creates. From naming new beneficiaries, executors, and guardians to identifying new heirs to receive assets allocated to the deceased, make sure you address all voids the death creates as soon as possible.

As with death, illness and injury are an unavoidable part of being human. If you’ve been diagnosed with a serious illness or are involved in a life-changing accident, you may want to review the people you’ve chosen to handle your healthcare decisions as well as how those decisions should be made. The person you want as your healthcare proxy can change with time, so be sure your plan reflects your current wishes.

Since estate planning laws can vary widely from state to state, if you move to a different state, you’ll need to review and/or revise your plan to comply with your new home’s legal requirements. Some of these laws can be super complex, so consult with us to make sure your plan will still work exactly as you desire in your new location.

Whenever your estate’s value dramatically increases or decreases, you should revisit your plan to ensure it still offers the maximum protection and benefits for yourself and your loved ones. Whether you inherit a fortune, take out a new loan, close your business, or change your investment portfolio, your plan should be adjusted accordingly.

You can count on us to ensure your estate plan is regularly reviewed and updated at all times. In fact, we have built-in processes to make sure this happens—be sure to ask us about them.

What’s more, rather than looking at the process as yet another task you have to accomplish, we view an annual review as a meaningful ritual that lets you see where your family has been and where you plan to go. But however you look at it, a regular review will put you at ease, knowing your family is protected and provided for no matter what happens.

Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.