Apr 30

Victory for family farmers

In an announcement last week, the Department of Labor withdrew the proposed child labor rules that would have prevented any child (under the age of 16) from doing most labor on farms not owned directly by his or her parents. Further, the Department said that the regulation would not be pursued for the duration of the Obama administration.

This is a good deal for farmers, for children of parents with a farm, and for children who have an interest in farming. From my own experience, I know there were times when I wish I would not have had to scoop wheat, hoe summer crops, and work cattle in freezing temperature, but doing those things helped to build my character to what it is today. Further, since my dad only paid in “room and meals” my main chance to earn money came from doing work for others in the area. This failure to pursue the regulation is good for all.

Apr 22

Reviewing estate plans

Reviewing existing estate plans is an important part of the estate planning process. Although estate plans are valid at the time they are signed, periodically updating and reviewing the documents is important, especially after big life events like deaths, births, marriages, and divorces. The five areas where individuals should focus when updating and reviewing estate plans are below:

1. A simple review of your documents to ensure you have and understand the plan you put into place.

2. It is important to review that people nominated as guardians, agents, executors, and successor trustees are still in a trusted relationship with you and, if not, naming someone who is.

3. If your plan was created when you had minor children and now they are grown, ensuring the plan fits their needs now, and not what they were when they were minors.

4. Ensuring that any assets acquired after creation of a trust  are in the name of the trust. A thing to remember here is that trusts only control the assets actually titled to the trust.

5. Keeping up with the changes in the estate tax and regulation over health care decisions. You will want to ensure that your estate plan completes its objectives in the most tax efficient way possible, and with that if you are unable to make decisions for yourself, that someone can act on your behalf.

If you would like a review with an attorney, I will offer one hour of my services, to tell you what your plan currently says and what it should say. If you are interested in this type of review, please call 580-318-8829 to set up an appointment.

Apr 19

Choice of closely held entity

I recently had a client come in and discuss how he should protect himself from liability on his closely-held business (he and his brother-in-law were the sole owners). This got me thinking that the information would probably be of a benefit to others who follow this blog.

When you look at limiting liability that may stem from a business (called inside liability protection), one must look to the state corporations law as well as the federal tax laws, and how the best options will work for all of the owners. That being said, there are still a few options out there and I will try to do a short overview of the options.

Incorporation: One of the oldest ways to leagally protect from liability, every state has laws to allow incorporation of a business. By incorporating, the business will file with the State and the owners will receive stock back to signify their ownership of the company. Incorporating has been around for a long time, so there are many positives with established law that come from this type of choice of entity, however, there are many downsides, too. One of the main downsides is that corporations are generally taxed at the corporate level, and then again at the owner level (dividends). This can be avoided for most small businesses via an “S” election, that only causes taxation at the shareholder level, but the “S” election comes with its own restrictions. Another downside of the corporate choice of entity is that it does not come with a standard “outside liability protection”. Outside liability protection means that if an owner is sued, his shares of stock are not protected from the creditor; e.g., the creditor can become the new owner of the stock. When you are dealing with a closely-held business, the other owners will not want to deal with another owner’s creditor, and by choosing corporate form, it may result in the end of the business. Another downside is the imposition of franchise taxes at the state level, which are usually avoided with the other entities.

Limited Partnership: The Limited Partnership (LP) was one of the fist attempts to allow limitation on inside and outside liability as well as a way to avoid the double taxation associated with corporations. The LP must have a general partner (GP) who is subject to full liability, but all limited partners only risk losing what they have invested in the business. This option was greatly used 50 years ago, but with the advent of the LLC, there are not used as often now. LPs must be taxed as partnerships and there must always be a General Partner and at least one Limited Partner.

Limited Liability Company: The Limited Liability Company (LLC) is the most recent development in the options to limit liability of owners. The LLC (in most states) offers both inside and outside liability protection, meaning neither a creditor of the business nor a creditor of the owner will affect the other owners beyond initial investments. In addition, the LLC has the most flexibility with taxation due to the IRS “check the box” regulations. This means that an LLC can be taxed as a disregarded entity (if only one owner), as a partnership, as a corporation, or an “S” corporation. In addition, the LLC has flexibility for future planning because different classes of ownership can be created.

If you have a small business or farm then you should really look at ways to protect your assets and your family from liability. Consulting with a qualified estate and tax planning attorney is one of the best ways to rest assured you get the best protection.

Apr 16

Who pays taxes in America

I thought I would share another post from TaxProf blog. This one is on who pays taxes in America. Much pandering is being done in the media that the rich do not pay “their fair share”, so the Citizens for Tax Justice did a study based on filings of 2011 income to see if this was true.

Based on the article, the top 1% of income earners pay 21.6% of all individual income taxes in the United States. The next 4% pay an additional 15.5% of individual income taxes collected. So, 5% of the United States population pays 37.1% of individual income taxes collected by the government. If you make it the top 10%, then the amount collected is 48.1%, or nearly half of taxes from 10% of the population.

In contrast, according to the study, the bottom 40% only pays 7.4% of the individual income taxes in the country.

This study also shows the effective marginal rate (taxes as a % of income), which isn’t often discussed. If the country wants to look at fixing the tax code, it should look at this disparity and make the effective rates for everyone even. The complexity of the tax code is good for the tax planning business, but it significantly hurts others.

You can see the full article here: http://ctj.org/ctjreports/2012/04/who_pays_taxes_in_america.php

Apr 12

Much needed break

If you have tried to call or stop by the office today, you will find out that I am not available. I am taking my first vacation since opening the office and will be at a conference in Broken Bow, Oklahoma until April 16.

If you have emergency needs call 911. If you have questions for me, then leave a voicemail and I will try to check periodically and get back with you as soon as I am available.