The North Carolina Association of Defense Attorneys 45th Annual Meeting and 12th Biennial Judicial Candidates’ Forum will be held in Wilmington, June 16, 2022 through June 19, 2022. Attorney Kristine L. Prati, 2021-2022 Vice-Chair of the Workers’ Compensation practice group of the NCADA, will speak before other professionals on “Futility” Cases In Workers’ Compensation. Her session will provide a history of “futility” cases, the issues related to such cases, and lessons learned.
WC: Extended Benefits in North Carolina
The North Carolina Industrial Commission recently issued decisions in the first round of extended benefits cases, in which claimants are arguing entitlement to temporary total disability benefits past the 500-week cap. On May 19, 2022, Attorneys Paul F. Toland and Kristine L. Prati attended the joint seminar offered by the NCADA and NCASI to learn more about the history of the legislation, analyze the cases decided to date, and explore strategies moving forward. If you have questions about how this may impact your claim, or wish to discuss extended TTD benefits in North Carolina, contact them today to learn more!
When Does It Make Sense to Move From A Single Member LLC To Filing As A S Corporation?
An LLC is a limited liability company that allows a business to operate with a flexible structure and with fewer requirements than a corporation. Additionally, it provides protection to the individual operating the business and potentially offers tax savings. However, as an organization grows and changes so does its legal structure.
Knowing when it makes sense to move from a single-member LLC to filing as an S corporation can aid you when the time comes to make this important change to the way your business is structured.
Company Growth
The size of the organization is a key factor in determining when it is time to move from an LLC to an S Corporation. An LLC is perfect for an individual who wants to flexibly manage their business without a board of directors. As the company grows then moving to an S Corporation should be considered.
An S Corporation allows room for a maximum of 100 shareholders. When your organization shifts from being operated by a single member or a small group of members to a large number of shareholders then it may be time to consider filing as an S Corporation.
Tax Benefits
When operating as a single-member LLC or a sole proprietorship, all profits from the business flow through as Schedule C income, and are taxed fully as self-employment income at a high rate. If the profitability of the business is high enough, moving to an S corporation can allow the owner(s) to take a salary, and then pay out additional profits as a distribution to save taxes. Profitability of the business as an S corporation will flow through to the owner(s) on a Schedule K-1.
Tax Preferred Retirement Savings
Establishing an S Corporation gives the taxpayer additional options and opportunities when it comes to saving for retirement. Once a taxpayer has an S Corporation they are able to set up a Solo 401(k). A Solo 401(k) is a 401(k) that is designed for a business with no employees. There are no age or income limitations or restrictions with the only requirement for establishing a Solo 401(k) being that you are a business owner with no employees. After the Solo 401(k) is set up an individual can contribute up to $61,000 with an additional $6,500 catch-up contribution if an individual is 50 years of age or older.
Desire For Shareholders
As a business grows and decides to expand it may decide to offer stock options. Once they begin selling stock the individuals who purchase equity in the company in this manner become known as the shareholders. An LLC does not have shareholders only members who share the profits of the business. An S Corporation can have shareholders who own stock in the business. An S corporation is permitted to have 100 shareholders at any given time.
Need to Complete Ownership Transfers
After it is established there are no restrictions on ownership transfers within an S corporation. Stakeholders are able to sell their shares of the company at any time. They have the option of using their shares to raise capital or to potentially attract new investors. There is no ability to offer stock as an LLC meaning there is no easy method of transferring shares of the company. An S Corporation allows for smooth transfers of ownership shares to multiple individuals over an extended period of time.
Ready to Establish a Board of Directors
The shareholders of an S corporation are not responsible for overseeing all of the activities of that corporation. The body responsible for that task is referred to as the board of directors. This board is elected by the shareholders so if an organization believes it is ready to establish its own board of directors it will need the shareholders of an S corporation to do so. These board members appoint officers and executives for the corporation, determine the mission of the corporation and decide the policies regarding the overall management of the corporation.
Our Raleigh Business Startup Attorneys Can Help
The shift from operating a single-member LLC to managing an S corporation can be a major one. Preparing to establish a board of directors, accommodating shareholders, and completing ownership transfers are all large steps that are vastly different from running a business as an LLC.
Knowing when you are ready to begin filing as an S corporation can make the change in filing easier for you to manage. The team at Wilson Ratledge has the experience and expertise to help your business grow the right way – contact us today to schedule a consultation!
What Is A 1031 Exchange And How Can It Help With Taxes?
In the world of real estate, the term 1031 exchange is a type of purchase that is allowed under Section 1031 of the United States Internal Revenue Code. The purchase allows either a business or the owner of an investment property to defer the federal taxes on certain real estate exchanges.
The term comes from the Internal Revenue Code Section 1031 which allows the exchange of real property that is not being held primarily for sale for other business or investment property.
Section 1031 Explained
A 1031 exchange, also known as a like-kind exchange, is one that occurs when one investment property is swapped for another. These transactions are taxable sales but if you meet the requirements of a 1031 exchange you will have limited tax or no tax at the time of the exchange. Essentially you are changing the form of an investment without cashing out or recognizing a capital gain as the Internal Revenue Service would see.
Benefits of a 1031 Tax Exchange
A 1031 tax exchange has many benefits for the average property owner. The primary benefit of a 1031 exchange is that you can sell one property, buy another property and avoid capital gains tax through the transaction. Doing this can save you a substantial amount of money while allowing you to purchase a new property and sell another property. It also helps you to avoid paying what could have been a hefty tax amount.
Time Limits
There are time limits associated with a 1031 exchange that must be strictly adhered to. When completing an exchange a new property must be purchased within 180 days. Failing to stay within this timeframe could have dire consequences. When completing any 1031 exchange you must be sure to complete your new property purchase within the time limit.
Rules for 1031 Tax Exchanges
In addition to the time limits, there are rules associated with 1031 tax exchanges that you should be aware of.
The first and foremost rule is that the replacement property should be of equal or greater value than the original property. You should not get a lower-cost property when doing a 1031 tax exchange.
Second, you can purchase up to three properties without regard to their fair market value as long as their aggregate value does not exceed 200 percent of your original property’s sale price.
Third, you have to identify your replacement properties within 45 days of selling the original property. Finally, the replacement property (or properties) purchase must be completed within 180 days of the initial property sale.
How Can a 1031 Exchange Help With Taxes
A 1031 exchange can help you with taxes by allowing you to avoid short-term capital gains taxes. Capital gains are the profits made from selling an asset such as a car, land, house, or boat. Typically, an individual is taxed on these profits but by completing a 1031 tax exchange you can avoid this tax entirely.
Other Benefits of a 1031 Tax Exchange
There are several benefits associated with a 1031 tax exchange – one being that it resets the clock on depreciation. Depreciation is the percentage of the total cost of an investment property that is then written off each year. It also allows you to consolidate multiple properties into one property for the purpose of estate planning.
Alternatively, it gives you the option of dividing one single property into multiple assets. Perhaps most importantly a 1031 tax exchange allows you to defer the capital gains tax. This frees more capital for investing in the replacement property.
Getting The Most Out Of a 1031 Tax Exchange
There are several benefits associated with a 1031 tax exchange and it is important that you take advantage of as many as possible. Getting the most leverage out of the exchange can help you in the long run with taxes, other purchases, and more.
In order to learn more about this type of tax exchange and find out how they can help you talk to a qualified and experienced tax attorney. The tax attorneys at Wilson Ratledge can review your unique financial situation and determine how a 1031 tax exchange can be used to help you. We can help you in planning your course of action, fill out the documentation for you, communicate on your behalf, and much more.
If you have more questions or are ready to move forward with a 1031 tax exchange, reach out to our office today to schedule a consultation!
SALT cap here to stay… for now.
The state and local tax (SALT) deduction allows taxpayers of to deduct state and local tax payments on their federal tax returns. The tax plan signed by President Trump in 2017, called the Tax Cuts and Jobs Act, instituted a cap on the SALT deduction.
On Monday, April 18, 2022, the United States Supreme Court declined to hear New York, New Jersey, Connecticut and Maryland’s plea to reverse the federal cap on state and local tax deductions that was instituted under former President Donald Trump’s signature tax plan.
The U.S. Supreme Court turned down the case in which states argued that the $10,000 federal cap on state and local tax deductions was coercive in violation of the U.S. Constitution’s 10th and 16th amendments. Further, the states claimed that the cap harmed states with higher state and local tax burdens by increasing their residents’ federal tax bills and effectively raising the cost of home and property ownership.
Federal lawmakers have been debating over the last year whether to actually increase the cap, but have been unable to reach an agreement on such a proposal, partly because lawmakers on both sides of the aisle have agreed that a higher deduction would primarily benefit high-earners. It is worth noting that, absent further legislation, the SALT deduction cap will sunset at the end of 2025.
In its legal filings, Treasury acknowledged that if the cap was viewed in isolation, its limitation may increase the federal tax liability of certain individuals who reside in the states challenging the provision. Nevertheless, states are free to address their own tax policy, and more than 20 states, including North Carolina, have put pass-through entity tax workarounds in place after the Internal Revenue Service and Treasury issued guidance indicating they would be a permissible method to bypass the cap. Pass-through entities include S corporations, partnerships, and limited liability companies taxed as partnerships or S corporations.
What Are Tax Extensions and How Do They Benefit Taxpayers?
Tax extensions are an additional period of time granted to a tax filer to prepare and file their taxes. In addition to giving a tax filar additional time to file their taxes, a tax extension gives an individual an opportunity to better review their forms prior to filing.
A tax extension gives individuals six extra months to file their taxes. This extension pushes the tax filing deadline from April 15th to October 15th. Requesting a tax extension can aid an individual or couple who realize they are not prepared to file their tax returns by the Internal Revenue Service’s deadline.
Extensions Can Increase Accuracy
Tax extensions have multiple benefits with the first benefit being an increase in the overall accuracy of the tax return. Mistakes can often occur at the height of the hectic tax season leading to delays in processing tax refunds and increasing the chances of being audited.
These mistakes are sometimes attributed to stressed-out filers or rushed accountants and those errors can ultimately cost the tax filer money. Requesting an extension can help ensure that the tax return is accurate making the tax season a smooth one for you and your family.
Extensions Can Save Accountant Fees
Accountant rates tend to increase during tax season and they often spike sharply the week of the filing deadline. Seeking help during the height of the tax season can be costly. Filing for an extension allows taxpayers to save money by giving them an opportunity to consult with an accountant outside of the busy tax season.
Taxpayers can expect to save a significant amount of money in accountant fees if they request an extension moving their tax filing deadline back. These savings can add up with each tax season and become very beneficial.
Most Tax Extensions Are Automatically Approved
Most tax extension requests are honored automatically. Certain people like deployed active duty military members receive extensions without having to file form 4868. Simply make sure your information such as your legal name and social security number are correct. Errors on the form could result in rejections delaying your ability to receive approval quickly or result in a rare rejection.
Tax Extensions Can Reduce Late Penalties
The IRS imposes late penalties when a tax return is filed late without an extension being requested. There are two types of late penalties that can be charged to the taxpayer:
- 5% fee on any tax due for each month or fraction of a month
- Late payment penalty of between 0.5 and 25%.
If you request an extension, you only have to pay one of these fees regardless of how much taxes you owe. If you pay estimated tax when filing your extension, there is generally no penalty at all.
Extensions Can Improve the Accuracy of The Return
When a tax filer is hurrying to meet a looming tax deadline the chances of them making a tax filing mistake increases. Requesting an extension gives you extra time to go over the return to ensure accuracy prior to sending it to the IRS. The extension can provide you with an opportunity to avoid errors and improve the overall accuracy of your tax return.
Extensions Can Preserve Your Tax Refund
There is a three-year deadline for receiving a tax refund check from the IRS if you are owed one. This three-year period begins on the original filing deadline for that tax year which is typically April 15th.
The statute of limitations is extended by six months when an extension is filed for. Even if a taxpayer is behind on submitting tax returns they can benefit from this extension and preserve their ability to receive a tax refund.
Extensions Cut Down on Confusion
The request to file a tax extension signals to the IRS that you are required to file a tax return for the season. This can reduce confusion if you are a person who does not always file a tax return. Requesting a tax extension lets the IRS know that you meet the requirements for filing and avoids some potential issues that might otherwise arise.
Contact Our Tax Controversy Attorneys Today
If you are having issues with audits, IRS collections, or any other tax-related controversies, it’s important that you contact a qualified tax attorney today. The tax controversy attorneys at Wilson Ratledge are here and ready to help. Contact our office today to schedule an initial consultation so we can help guide you through the resolution process with your tax issues.