StoneDimensions

There is an old saying: “You can’t take it with you.” It probably would be better stated as: “You shouldn’t try to take it with you, or the U.S. Government will take its fair share.” Even though we are into the new year, it is important to keep in mind some of the basic gifting laws and regulations which may allow you to take advantage of some tax free mechanisms to allow you to transfer wealth, over a period of time, with minimal tax consequences.

Q: WHAT IS THE ANNUAL GIFT TAX EXCLUSION?

A: Each individual tax payer can gift up to $13,000 per recipient tax free. This is known as the annual gift tax exclusion. Spouses can make unlimited gifts to each other.

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Now that the election is over, and President Obama has secured another 4-year term in the White House, private businesses can focus on the very real possibility that the Affordable Care Act (in some form) will be implemented in 2014. Of utmost importance to most businesses are the “shared responsibility” portions of the Act otherwise known as the penalty provisions. All businesses should analyze the Act and the penalty provisions and determine how it could impact them in 2014.

Q: DO THE PENALTY PROVISIONS OF THE ACT APPLY TO ALL BUSINESSES?

A: No – the penalty provisions of the Act only apply to those businesses which have (on average) at least 50 full-time equivalent employees on business days during the prior calendar year. In other words, to determine whether your business will have to worry about the penalty provisions of the Act in 2014, you will look at the average full-time equivalents which you have during 2013.

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Because of record unemployment, and the downsizing of many larger employers, many individuals have chosen to start their own businesses out of necessity. If you are serious about following the “American Dream” and working for yourself, there are a number of things that must be seriously considered. The freedom, flexibility, and control associated with being your own boss can easily be overshadowed by legal and tax problems which may arise if you fail to properly plan.

Q: SHOULD I CREATE A BUSINESS ENTITY?

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Almost everyone has heard the acronyms “ADA” used before. But what do they mean? ADA refers to the federal Americans with Disabilities Act of 1990. The Act was officially signed into law by President George H.W. Bush and later modified and expanded upon by amendments which were effective in 2009. The ADA is a broad reaching piece of legislation which provides protections to individuals with disabilities in various contexts. It affords disabled individuals with rights similar to what was afforded via the Civil Rights Act of 1964 which prohibited discrimination based upon race, religion, sex and national origin. The definition of “disability,” for the purposes of the ADA, is very complex. For purposes of this Article, it is sufficient to state that a disability includes both physical and mental impairments which substantially limit a major life activity. The protections afforded under the ADA are classified into several subcategories, including:
Employment (Title I);
Public Entities and Public Transportation (Title II);
Public Accommodations (Title III); and
Telecommunications (Title IV).

Although we will briefly summarize each of the subcategories of the ADA in this Article, the focus will be upon the Public Accommodations section as it has the most relevance to contractors and other members of the MIA.

Q: IN THE DEFINITION OF “DISABLED INDIVIDUAL” THE DISABILITY MUST LIMIT A MAJOR LIFE ACTIVITY, WHAT IS MEANT BY A “MAJOR LIFE ACTIVITY?”

A: For purposes of the ADA, examples of “major life activities” are caring for oneself, performing manual tasks, seeing, hearing, eating, sleeping, walking, standing, lifting, bending, speaking, breathing, learning, reading, concentrating, thinking, communicating and working.

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During the recent recession, it is unquestioned that lending institutions have tightened their reigns with regard to their lending dollars. In fact, the increased lending criteria that has been put in place has made it nearly impossible, in some circumstances, to obtain financing to fund real estate transactions, sales of businesses, and purchases of major capital equipment. Many transactions which would have routinely been financed through traditional lending vehicles a decade ago, are now being denied because of such things as: (i) a lack of the requisite down payment amount; (ii) a lack of credit history; (iii) a lack of operational history; or (iv) a lack of sufficient collateral to secure the loan. In these situations, the only way to move forward with the contemplated transaction is if the seller agrees to privately finance the deal or in other words “carry the lending paper” and act like the bank for the transaction. Faced with the alternative of not finalizing the contemplated transaction, or going through with the transaction and assuming the risks of private financing, many sellers have little choice but to elect the private financing route.

Q: WHAT TYPES OF TRANSACTIONS ARE BEING CONSUMMATED THROUGH THE USE OF PRIVATE FINANCING?

A: All types of commercial transactions are using private financing, including:
real estate transactions;
the sale of businesses;
the sale of major capital equipment; and
capital improvements.

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By now you have undoubtedly read numerous articles and have seen several newscasts regarding the recent Supreme Court decision and its impact on the future of health care in the United States. Since the decision was issued shortly after my article was completed for last month’s newsletter, I have taken some time to reflect upon the decision and its future application before writing this article. I am certain that everyone is aware, however, I want to reiterate that the mandates issued by the decision will not go into effect until 2014. Because a Presidential election is forthcoming, there is a possibility, if the Republicans take control of the White House and Congress, that the Act could be repealed or significantly watered down by the plug-in date in 2014. Nonetheless, I believe that a working knowledge and summary of the Act and what exactly the Supreme Court decision upheld is warranted.

Q: WHAT EXACTLY DID THE SUPREME COURT DECISION DO?

A: It upheld the heart of the Act which will require most Americans to purchase health care insurance by 2014 or pay the federal government a tax penalty. The constitutionality of such a mandate was upheld and the mandate was characterized as a “tax” which may be lawfully imposed by Congress.

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In the aftermath of the Supreme Court’s decision upholding The Affordable Care Act (“Obama Care”), there is an uncertainty and skepticism about the cost of health insurance premiums in the future. Nowhere is this felt more than in the small business sector where the cost of providing health insurance for employees has sky-rocketed in the past decade. Many small businesses have simply decided not to offer health care coverage for their employees or have drastically reduced the portion of the premium which is paid by the employer.

Although the full impact that The Affordable Care Act will have on the costs of premiums will likely not be known until after the Act’s implementation date in 2014, there is a tax credit available to small businesses designed to help and encourage small businesses to provide health insurance for their employees. The credit is commonly known as the “health care tax credit” and it has been on the books for some time, but is not widely publicized or utilized.

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In this recession, the word bankruptcy has been common place both in the individual and commercial arenas. Individual and commercial bankruptcies have reached an all-time high and the protections afforded by the federal bankruptcy code have come under scrutiny as being too debtor friendly and too damaging to creditors. It is not uncommon for a commercial bankruptcy to have a trickle down effect on other individuals and businesses which are dependent or critically involved with the debtor-business that filed for bankruptcy protection.

Article 1, Section 8 of the United States Constitution gives Congress the right to adopt and enact “uniform laws on the subject of Bankruptcy.” The current version of the bankruptcy code has undergone several modifications since our founders initially gave birth to the power. The bankruptcy code is currently codified in Title 11 of the United States Code. The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure.

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Unexpected events, which impact the operations of a business, can happen at any time. In these trying economic times where cash reserves and margins are tighter than ever, one unexpected financial event can result in a small business shutting its doors. As a business owner, it is imperative that you take steps to minimize the impact that these unexpected events will have on the long-term viability of your operations. You cannot eliminate the risks associated with these events completely; however, you can minimize the impact that these events can have by having proper business insurance in place. It is recommended that all businesses review their business insurance (at least on an annual basis) to ensure that the coverage in place continues to be adequate to protect the business and its on-going operations. Often times, businesses grow quickly or develop new product or service lines, and if the insurance needs of the business are not periodically updated to keep up with these changes, the results can be devastating.

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In a previous legal article found in The Cutting Edge dated November 2010 entitled INCREASED SCRUTINY REGARDING WORKER CLASSIFICATION INDEPENDENT CONTRACTOR VS. EMPLOYEE, readers were made aware of the importance of properly classifying workers as employees or independent contractors. It was reported that there are significant distinctions between the two classifications which can have profound impacts upon the various taxes, benefits, and insurance which a company must pay on behalf of, or offer to, a worker. Typically, classifying a worker as an independent contractor instead of an employee is significantly cheaper (from the employer’s perspective) because of cost savings on employment taxes, unemployment, Workers’ Compensation, and employee benefits which must be paid on behalf of the employee, but do not have to be paid on behalf of independent contractors. The federal government receives less income when a worker is classified as an independent contractor because it does not receive social security or payroll taxes.

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