Should I Incorporate My Business?

March 17, 2015

incorporateThe primary advantages of operating as a corporation are liability protection and potential tax savings. Like any important decision, choosing whether to incorporate involves weighing the pros and cons of the various business structures and should only be done after careful research.

Once incorporated, the business becomes a separate legal entity, and assets of the corporation are separated from the owner’s personal finances. As a result, the owner’s personal assets generally can be shielded from creditors of the business.

To maintain this legal separation and avoid “piercing the corporate veil,” the corporation must observe certain formalities, including:

  • Keeping corporate assets and personal assets separate (no commingling of funds)
  • Holding shareholder and director meetings at least annually
  • Maintaining a corporate record book including bylaws, minutes of shareholder and director meetings, and shareholder records
  • Filing annual information statements with the Secretary of State
  • Filing a separate tax return for the corporation

Many business owners are concerned about “double taxation” of income that affects certain types of corporations known as “C-Corporations”.   Double taxation results when the C-corporation has profit at the end of the year that is distributed to the shareholders. That profit is taxed to the corporation, at the corporate tax rate, and then the dividends are taxable income to the shareholders on their personal tax returns. However, the corporate tax and dividend rates can be lower than the individual tax rate that a sole-proprietor would pay on a 1040 Schedule C, and a knowledgeable accountant or tax attorney may be able to advise on how to minimize the burden of double-taxation and indeed pay an effective tax rate which is lower than what a sole proprietor would pay.

For example, a small C-Corporation will likely have a shareholder who is also an employee. Paychecks to the shareholder/employee are, of course, tax deductible to the business. To the shareholder/employee, they are taxable income (as would be the case with a paycheck from any employer). A bonus could be paid to the shareholder/employee in order to lower the corporation’s taxable profit, eliminating the double-taxation. These calculations should be performed by a tax advisor, but shifting income from the corporation to the shareholder/employee (or not, depending on which has the lower tax rate) can be an effective way to lower your overall tax liability. In addition, there are certain advantages that are only available with a C-Corporation, such as full tax-deductibility of medical benefits for a shareholder/employee.

The S-Corporation avoids the double-taxation by offering a tax structure similar to the Limited Liability Company. A corporation with 100 or fewer shareholders can elect to be treated as an S-Corporation. If the corporation is profitable, the shareholder/employee must draw a reasonable salary (and pay employment tax on it), but then all remaining corporate profits flow through to the shareholder’s personal tax return (thereby avoiding the FICA tax on the portion of profits that is taken as a dividend).

An experienced attorney can help you decide which form of ownership is best for your business, help you establish the entity, and ensure the required formalities are observed.

Importance of Credible Accident Reconstruction Testimony

March 16, 2015

accident-recon

If you have been injured in an automobile collision, your attorney may require the assistance of an experienced accident expert to help prove who is at fault for the accident. Generally, in order to recover any compensation for your injuries or property damage, you will have to prove that the other party was somehow negligent. Accident reconstruction experts are professionals who have obtained specialized training in order to analyze the physics of the accident scene, determine vehicle speeds and movements, and effectively communicate their findings to the court or insurance company representatives.

These professionals come from a variety of backgrounds, including science education, engineering, or law enforcement who have undertaken special training. These experts can evaluate the scene of the accident, develop calculations and assessments regarding how the accident occurred or how damages were sustained, and can testify to these facts and findings before a judge or jury. They do so by offering a variety of services, including site visits to the scene of the accident, taking photos, interviewing witnesses, applying the applicable scientific principles and preparing a final report. That report often forms basis for the expert’s testimony in court. Generally, the importance of the accident reconstructionist’s testimony is directly tied to the complexity or controversial nature of the accident in question.

Expert testimony regarding how an accident occurred is key to settlement negotiations. Using illustrations, simulations, models, animations and other methods, accident reconstructionists can show exactly what happened, how it happened, and how it could have been prevented.  Even if there are photographs of crash scenes and medical records, these can usually demonstrate the severity of the accident or damages sustained rather than proving who was at fault.

Usually, both sides hire their own reconstruction experts and, not surprisingly, those reports often conflict with one another. When this happens, the experts’ credibility becomes a key issue. As in every case where there is conflicting testimony, the decision-makers must make a determination regarding which expert to believe.