Garrett Sutton
Own nothing and control everything. (Location 139)
which entity NOT to use. • Sole proprietorships • General partnerships (Location 201)
or visit www.corporatedirect.com about switching to a good entity. (Location 344)
You will (Location 1058)
pay an annual fee of $325 in Nevada and $50 in Wyoming, but that’s all. (Location 1058)
you will use some in Nevada and some in Wyoming to make it even more difficult for predators to try to seize your assets. (Location 1064)
If you live in California know that you will have to do a lot more planning (and may have to pay more in state taxes) when using these strategies. (Location 1144)
learned, the best states for legally reducing your tax obligation as well as protecting your assets are Nevada and Wyoming. (Location 1312)
keep your name off public records, use entities that are not legally tied to you, and take ownership in a form that is difficult to reach. (Location 1407)
Diane and Eric are California real estate investors and own a fourplex near Lake Tahoe in Truckee, California. They are aware that California’s asset protection laws, as enforced by the courts in California, are among the weakest in the nation. Their advisor suggests they form a Wyoming LLC to take advantage of the Equality State’s superior asset protection laws. (Location 1431)
They then take title to the fourplex in the Wyoming LLC. (Location 1434)
They learn that one additional step must be taken. (Location 1435)
In such a case, you want the strongest asset protection law available. California’s law, as we have discussed, is very weak. If the LLC was formed under California law, the attacker would have the ability to pierce through the LLC and force a sale of the buildings. (Location 1469)
as Diane and Eric continued to acquire real estate, they used a mix of Nevada and Wyoming entities to hold the LLCs formed in the states where the property was located. (Location 1499)
Structure, the use of limited liability entities to structure your assets from attack, is argued by others as the best way to proceed. (Location 1502)
I prefer structure for several reasons. First, many of the privacy strategies do not provide any asset protection. (Location 1504)
The only way to protect each property in this scenario is as follows: (Location 1531)
Which begs the question: Why even use a land trust? Your best option is to use one or more LLC’s to begin with. (Location 1534)
Attorneys realize how hard it is to get through a properly structured Wyoming or Nevada plan. Privacy has its place. Nominee officers and managers can lower profiles, and Wyoming does not list LLC (Location 1557)
Managers on their internet database. But when it comes to protecting your assets, the use of limited liability entities and structures is the best way to proceed. (Location 1558)
One strategy is to use only a California entity for California activities, and keep all other income out of California and beyond the reach of their very zealous, and often abusive, Franchise Tax Board. (It will be interesting to see when the citizens of California finally wake up to how many productive people are being driven from their state by California’s Franchise Tax Board.) (Location 1613)
Land Trusts are not registered with the state. As such, there is no legal separateness and thus no asset protection. (Location 1645)
Consider using Wyoming and Nevada LLCs to hold and own your in-state LLCs, to gain better protection against Attack #2. (Location 1647)
However, incorporating does not protect a professional against liability for negligence or malpractice. (Location 1696)
Thus, asset protection planning for the professional’s other personal assets must be implemented. The limited liability shield of the corporation can protect professionals from personal liability for the negligent acts of other professionals in the incorporated professional practice. (Location 1699)
For protection, your outside assets (real estate, brokerage accounts, etc.) should be placed in separate protective entities. (Location 1726)
Check for name availability and consider separately protecting the name. (Location 1770)
Trademarks are very important to a business. For more information on trademarks see our companion volume Run Your Own Corporation. (Location 1826)
For an LLC, a corporation—for any business no matter what form—it is prudent to follow the basic formalities. Here are the simple rules: 1. Annual Filings. After filing your initial articles of incorporation you will need to file an annual report and pay an annual fee to your state. (Location 1847)
In Wyoming, for example, you send in a one-page list of officers and directors along with a check for (Location 1852)
Minutes of Meetings. Most states require a corporation’s shareholders and directors to meet once a year. It is good protection and proper corporate form to prepare minutes of these meetings. (Location 1854)
Corporate Notice. (Location 1858)
Separate Bank Account. (Location 1863)
Separate Tax Returns. (Location 1866)
Never go a year without holding an annual meeting. Minutes of annual meetings—documents proving you understand the difference between you and the corporation on a (Location 1933)
continuing basis—are an absolute must. The annual and consistent preparation of meeting minutes is worthy of greater discussion. (Location 1934)
Minutes of Meetings An excellent way to prevent having your corporate veil pierced is to type up and keep minutes of your board of directors and shareholder meetings. (Location 1936)
Minutes of the First Meeting of Shareholders of XYZ, Inc. (Location 1946)
Organizational Minutes of the Board of Directors of XYZ, Inc. (Location 1968)
Minutes of Annual Meeting of Shareholders of XYZ, Inc. (Location 2068)
Minutes of Annual Meeting of Board of Directors of XYZ, Inc. (Location 2084)
The following list contains some of the items to be reviewed by the officers and directors and reflected in the minutes: • Electing officers of the company • Amending the articles of incorporation • Amending the bylaws • Adopting a stock option plan • Approving the issuance of securities and granting warrants and options • Declaring stock splits or dividends • Entering into a buy-sell agreement (see Chapter 17) (Location 2111)
Entering into employment contracts with key employees • Approving contracts, leases, and other obligations • Borrowing significant sums and the granting of security in connection therewith • Acquiring other businesses • Buying or selling significant assets • Forming subsidiaries • Merging or reorganizing the company • Responses to tender offers • Resistance to proxy contests • Approval of proxy statements • Taking other actions (Location 2125)
material to the business The formalities are not that difficult. And it is certainly worth the protection. And since you are following the formalities, now you can take advantage of all the deductions… (Location 2141)
The difference in how businesses are taxed (last—after everyone else is paid) versus how employees are taxed (first and forever—on the very first and the very last dollar of income) is a crucial one to (Location 2161)
understand. For in the ability to take business tax deductions comes one of the finest, most beneficial, and thoroughly legitimate ways to reduce your taxes. (Location 2162)
Entrepreneurs can deduct four types of business expenses: • Start-up expenses • Operating expenses • Inventory costs • Capital expenses (Location 2167)
Capital Expenses Cars, equipment, office furniture, and other assets that have a useful life of over one year are considered capital assets. (Location 2184)
A great option for small business owners involves Section 179 deductions. Instead of depreciating capital assets over a period of years, Section 179 allows annual deductions of up to $125,000 as of this writing. (Location 2189)
Meals Theresa, along with Tony and their children, could have meals at T&T, Inc.’s expense as long as they were furnished on (Location 2227)
the premises of the business. That was easy: On occasion they went into the spare bedroom for a tax-free business meal. (Location 2228)
Also note that only 50 percent of your meal costs can be deducted while traveling. (Location 2231)
On a salary up to $110,100 (as of (Location 2247)
this edition), the employee and the corporation split the 15.3 percent tax that goes for Social Security and Medicare. On a salary above $110,100 (again, as of this writing), the Medicare tax of 2.9 percent is split between employee and employer (T&T, Inc.). (Location 2247)
Achievement Awards A corporation can give up to $400 a year for a nonqualified achievement award or up to $1,600 under a defined qualified plan. While the qualified plan requires a written plan that does not favor the top paid employees, the nonqualified plan has no specific guidelines. So Theresa (Location 2262)
gave herself a $400 award for being T&T, Inc.’s best employee. It did not matter that she was the only employee. This was a tax free gift to her and a deduction for the corporation. (Location 2265)
Group Term Life Insurance T&T, Inc., provided each (Location 2276)
employee (Theresa) with $50,000 worth of term life insurance. This was a valuable benefit to Theresa and a deduction for the corporation. (Location 2277)
Dependent Care T&T, Inc., could pay up to $5,000 in dependent care services per employee. (The amount is $2,500 if you are married and filing separately.) This deduction is only available for dependents under the age of thirteen. (If you have children over age thirteen, a cafeteria plan, described below, can be used.) This deduction of $5,000 was valuable to Theresa because with all her work she needed help covering the children after school. (Location 2279)
In order to maximize deductions for day care and term life insurance, Theresa looked into instituting a cafeteria plan. This is a benefits package that allows employees the choice of receiving cash or qualified benefits. (Location 2284)
Building Corporate Credit Another advantage of owning a corporation is the ability to build a corporate credit rating separate from your personal credit. (Location 2329)
Most businesses move through a series of three levels in building business credit. It is important to know these three levels, and where you fit among them. (Location 2354)
Level Three: Established (Location 2387)
Business Credit Level Three is where your corporation establishes its own business credit rating completely separate from your personal credit rating. At Level Three, you will have: (Location 2387)
The biggest difference, though, is that with corporate credit you must start building credit before you get your first credit reference. (Location 2413)
If your business operates as a corporation and is sued, the corporation will protect your outside assets (your house and other nonbusiness assets) from attack. But your inside assets, the ones held by the business, may be reached in a lawsuit against the business. So in that case business insurance will assist in protecting business assets. (Location 2453)
If you’re working out of your home, make sure your insurance agent knows it, because if it’s not noted in the policy that some of your personal property is part of your business, the policy may exclude it, either intentionally or unintentionally. (Location 2466)
Many liability protection policies not only protect you and your personal assets in the event of a suit for injury, libel, or slander, they also afford you the additional benefit of having the insurance company’s legal team on your side if you are sued. (Location 2496)
The following is a useful Insurance Coverage Checklist: (Location 2539)