SEE YOUR TAX PRO FIRST!

I have covered this issue here at TWTP before – but it bears repeating.

A recent discussion thread at a tax preparer Facebook group concerned a potential new business client with three partners and 5 already created “entities” (corporation, partnership). 

Pardon my cynicism (especially when it comes to lawyers) but I expect the 5 entities were created on the advice of an attorney without regard to the tax consequences – an attorney who would get 5 separate fees.

To be fair, an attorney may not necessarily be trying to pad a bill when providing incorporation advice and suggesting multiple entities – but the attorney may not be fully aware of all the tax consequences of the entities, and their interactions, that they propose.

 

Very, very important - if you are considering entering into a business enterprise visit your tax professional and your accountant (if not the same person or firm) before you visit your attorney.  Often times getting out of an entity formed in error can be more expensive than forming the entity. 

It may turn out that you don’t need the attorney at all – a one-person LLC or corporation can be formed easily and inexpensively directly with the appropriate state agency online without a lawyer.  And it is important to be aware that formal incorporation is not always the best way to go for a one-person business (although being an LLC, if not a corporation, is). 

However if there are more than one individuals involved in the business, more often than not you will need a lawyer to make sure that you are fully protected – from your potential partners in the enterprise.  You may need a lawyer to draw up the business agreements for the partnership and your own personal lawyer who represents you alone to review the agreements.

Bottom line – when considering going into business consult a tax professional first!

TTFN

DO IT YOURSELF!

Earlier this week I pointed out that telling all Schedule C filers to incorporate, and telling a one-person business to incorporate solely for the purpose of reducing his/her audit profile, is truly bad advice (click here for post).

But I did add that there are times when it may indeed be cost effective for a closely-held business to incorporate.

If, after careful consideration of all the facts and circumstances and a detailed cost benefit analysis, and after consulting with a competent tax professional, you decide that it would be appropriate to incorporate your one-person business you certainly do not need a lawyer to do so.

While I am not familiar with all the states procedures, I expect that you can incorporate easily online via the website of your State. Last year I formed a NJ corporation online in about half an hour.

FYI, registering your business as an LLC is equally as easy and can generally be done online.

You can also very easily get an Employer Identification Number from the IRS at the Service’s website.

You also do not need a “Black Beauty” or other such corporate package with by-laws, corporate seal and personalized stock certificates, which lawyers are fond of selling at a nice mark-up, or pay an inflated fee for a lawyer to prepare corporate bylaws.

You can download free blank stock certificates and corporate by-laws and purchase an inexpensive corporate seal from a variety of online sources. I expect you can also find free pro-forma corporate resolutions online. Just do a “Google” or other search.

What do you think a lawyer will do when preparing your by-laws? He/she will have a secretary or paralegal clerk go to the firm’s work processing inventory, pull down pro-forma by-laws, and type in your name and information. And when a lawyer forms a basic corporation the same secretary or paralegal goes online and files the appropriate forms. Even when there was paper filing the secretary or clerk would do all the work. You can do this just as easily yourself for free.

Here are a few online resources (FYI I have no personal experience with or connection to these resources):

PRINTABLE STOCK CERTIFICATES

CORPORATE BY-LAWS

CORPORATE BY-LAWS

CORPORATE SEAL

Where you may need the assistance of a lawyer, experienced in tax matters, is if you are forming a partnership, to help with the writing of the Partnership Agreement. And, of course, you also may need to consult a lawyer when forming a more complex corporation, with multiple shareholders of differing inter-relationships.

You certainly should sit down with a competent tax professional, experienced in business taxes, and go over all of your options in detail, and perform the requisite cost benefit analyses, before making any moves.

TTFN

THE FIRST THING WE DO IS KILL ALL THE LAWYERS!

Trish McIntire of the OUR TAXING TIMES blog mentioned in today’s post “Rebate Problems” that “it seems that many Refund Loan customers are threatening lawsuits against preparers (notably the big tax prep companies) because their rebates are coming by check”.

Apparently taxpayers who applied for refund-anticipation loans, or who had their e-filing fees deducted from their refunds, won't receive their rebates by direct deposit, even if their regular tax refunds were delivered that way. They must wait for a paper check.

Believe me, I am the first person to encourage lawsuits against the “big tax prep companies” (you know about whom I am speaking) for greed, incompetence, misleading clients, and the like with regards to their various high cost services and products. And there have been many over the past few years (that is one reason Henry and his brother charges so much – they have to pay for their legal fees and the cost of the many settlements they have negotiated). I can’t think of one reason why anyone would overpay these guys to prepare a tax return. However in this instance I must agree with Trish and admonish the greater of two evils.

I, like Trish, am “fascinated by the attorneys who are considering the class action suits. Are they so desperate for work that they are thinking about suing a preparer for not seeing into the future?”

What did a person whose rebate was not directly deposited actually lose? Everyone will still eventually get their appropriate check. Are the lawyers going to sue for interest at 2% on $600.00 for the month or two that the payment is delayed? What arseholes!

In most “class action suits” what eventually happens is that the “class” gets a check for $12.36 each and the “barritors” (no, I did not mean to say barristers – look it up) who initiate these actions end up with millions in fees.

Many years ago on one of my post-tax season Atlantic crossings on the QE2 the ship was forced to change course and go south to avoid an iceberg or some such other obstacle (it if was indeed an iceberg it would certainly be sort of “deja-vu-ish” - as Cunard is the “descendant” of the White Star Line of Titanic fame). As a result an extra day was added on to the length of the crossing.

To “compensate” for any inconvenience Cunard provided a one-hour open bar and a free bottle of wine at each table that evening, and the ship’s Travel Office made all necessary arrangements free of charge for passengers who had to change or adjust bookings. In our case we had to push up by one day our reservation at a hotel in Southampton, which Cunard took care of for us.

I remember that we were thrilled to have an extra day at sea on the luxurious QE2, as were most of the passengers. We actually saved money in the long run as we spent one less night at the Southampton hotel.

While I was reading in the lounge the afternoon after the delay was announced a ship’s officer called for our attention and said that one of the passengers wished to address us. A young woman, who identified herself as a lawyer, told us that Cunard had refused to compensate her for having to pay her babysitter back in the States for an extra day and to reimburse her for other minor costs, such as telephone calls, that arose from the delay. She planned to institute a class action suit against Cunard and said that anyone wishing to join with her in this action could contact her later that afternoon in her stateroom, which was somewhere well below deck in “steerage”.

I don’t recall if her announcement was met with hardy laughter then and there – but she was the joke of the cruise for the remaining two days. Everywhere one turned you could hear someone laughing about the “absurd American lawyer” or saying “what did you expect from a lawyer”. I doubt very much whether anyone joined in her action, as nothing was ever heard about it again.

Bill the Bard was right – the first thing we do is kill all the lawyers!

TTFN