As a small business lawyer and business guru, I am asked lots and lots of legal and tax questions.
Most of these questions are asked by “newbies” – people starting businesses for the first time. But even established businesses should be thinking – always – about the legal and tax environment in which they operate.
Here are some of the tough legal and tax questions you should be asking about your business right this very minute.
(1) Is my legal entity still working for me? Perhaps you started out as a sole proprietor, but are thinking about forming a limited liability company (LLC) but it will make you “look bigger.” Maybe you are an LLC but are thinking about being taxed as a subchapter S corporation. Maybe you are a subchapter S corporation but are thinking about becoming a C corporation so you can launch a crowdfunded offering of your securities, or bring on foreign partners.
Just because you set up your business with a particular legal entity years ago doesn’t mean you should stay locked into that format forever. Maybe it’s time for a change.
(2) Should I consider trademarking my company name? So you’ve built a huge online following for your business on social media. You are now no longer a business but a recognizable “brand.”
Good for you, but without a registered trademark your brand will go nowhere.
And not every name or logo is trademarkable. You will need a really good lawyer here, and will need to spend upwards of $1,000 to do a thorough trademark search to make sure no one can challenge your trademark.
(3) Do I have all the business licenses I need? It’s no secret that state and local governments are desperate for revenue these days. Some of them are getting very creative in passing new taxes or extending old ones. States with sales taxes that apply only to “the sale of goods” are now considering taxing services. States with exemptions for “small purchases” of necessary goods such as food and clothing are expanding their definition of “small,” or redefining what is “necessary” (are Internet services truly essential?)
Consider meeting with your lawyer or accountant at least once a year to learn about “what has changed” in the last year, and how to pivot your business so you don’t get audited.
(4) Am I doing business in any states where I’m not in compliance? Your offices are in only one state. You never cross a state line when you drive from your home to your office. But your business may be operating in places and ways you don’t even know about.
If you are selling stuff on Amazon from an office in New York, but your inventory is being stored in an Amazon warehouse in Kentucky that ships from Kentucky and accepts returns in Kentucky, guess what? You are now a Kentucky business and are subject to all of that state’s business taxes (whatever they may be).
(5) Do I have any tax compliance issues? Did your business have a tax liability of more than $1,000 last year? If so you now have to “estimate” and pay your income taxes four times a year. Are you taking a “mileage” deduction for your personal car but not keeping a log book showing when you use the car for business as opposed to personal purposes? Are you claiming your cat as a “guard dog” and deducting its vet bills (please don’t laugh – someone I know tried doing that a couple of years ago, and given the cat, whom I knew, the guy had a case)?
(6) Am I sure all of my workers are properly classified for tax purposes? Make no mistake – the IRS is auditing BIG in this area. Is your UBER driver an employee or an independent contractor? It depends on whether or not he or she can schedule jobs. If you can tell someone to stop working on one project and start working on another, chances are, that person is an employee, even though he or she works only a few hours each week.
Look at each of your workers on an individual case by case basis. If you’re not sure about any person’s status, now’s the time to get it right, before the IRS reclassifies that person and socks you for tons of penalties. And if ALL of your workers (including you) are independent contractors, and NOBODY’s an employee, well, I strongly suggest you talk to your lawyer . . .
(7) Am I doing everything I can to protect my assets from lawsuits? If you have a corporation or LLC, that’s a great start. But there’s lots of ways you can still be sued and lose your entire business. Do you have all the insurance you need? Do you know the difference between “liability” and “errors and omissions” coverage? Is your intellectual property insured against copyright infringement (did you even know such coverage existed)?
Cliff Ennico (firstname.lastname@example.org) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.
COPYRIGHT 2016 CLIFFORD R. ENNICO.
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