Corporate Lawyer Blog

Starting Your Own Company? Officers, Directors and Controlling Shareholders Beware

Starting your own Limited Liability Company or corporation?  Chicago business lawyer Brian J. Thompson wants you to know that officers, directors and controlling shareholders who leave one corporation to start a competing enterprise need to beware of the corporate opportunity doctrine.   A corporate opportunity refers to any business opportunity that becomes known to an officer or director of a corporation due his position within the company.  The corporate opportunity doctrine holds that the directors, officers and controlling shareholders have a duty of loyalty to the corporation and cannot to take such opportunities for themselves without first disclosing the opportunity to the board of directors of the corporation and getting permission from the board of directors.  Failure to follow this procedure can be a violation of the duty of loyalty.  As a result, the corporation may be entitled to a constructive trust of all profits obtained from the violation of the corporate opportunity doctrine.   Contact Chicago business lawyer and CPA Brian J. Thompson for to form your Illniois LLC or Illinois S-Corporation.

Illinois S Corporations

Illinois S Corporations

What are the tax characteristics of Illinois S corporations?  First of all, single-member LLCs are disregarded entities for purposes of federal taxation unless the LLC makes an S election.  As a result, a single-member LLC’s income and loss are reported on Schedule C of the member’s IRS Form 1040.  Furthermore, all of the income is subject to federal employment taxes.  If your single-member LLC has income of several hundred thousand dollars, this can result in substantial FICA taxes as explained below.

Self-Employment Taxes

Social Security or FICA taxes include two separate taxes.  One is the Social Security tax and the other is Medicare tax.  The current tax rate for social security is 6.2% for the employer and 6.2% for the employee, or 12.4% total.  The current tax rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total.  Only the social security tax has a wage base limit. The wage base limit is the maximum wage that is subject to the social security tax for that year.   For 2013, this base was $113,700.  There is no wage base limit for Medicare tax.  Thus, the 2.9% Medicare tax applies to all wages without limit.

Additional Medicare Tax

Beginning January 1, 2013, an Additional Medicare Tax of 0.9% applies to an individual’s Medicare wages that exceed a threshold amount based on the taxpayer’s filing status.  Employers withhold the 0.9% Additional Medicare Tax on an individual’s wages paid in excess of $200,000 in a calendar year.  The Additional Medicare Tax applies only to the employee, to the employer.

When properly structured, S corporations can be useful in minimizing your social security taxes.   So, consider setting up an S corporation to pass through the S corporation’s income free of employment taxes.  If you are considering setting up an S corporation, contact Brian@BrianThompsonLaw.com.

Cost to form Illinois LLC?

Cost to Form Illinois LLC

How much does it cost to form Illinois LLC?  In Illinois, the Secretary of State charges $500 in fees ($614.10 for expedited service).  Illinois Secretary of State fees must be paid whether or not you use an attorney.  New lower IL LLC filing fee . . . Illinois reduced the LLC filing fee to $150 ($255.88 for online filing) effective January 1, 2018.

How much are attorney’s fees to form an Illinois LLC?   Attorneys’ fees to form an LLC vary.  Several online services advertise that they can form limited liability companies for as little as $99 to $359 + state fees.  If that is true, why should you nonetheless choose an attorney to form your LLC?

Your attorney can draft an operating agreement that fits your unique needs and situation. An operating agreement is the basic contract that governs the management of the LLC – who has the legal authority to make binding contracts and decisions, which members contribute capital and who can deduct losses.   Unlike the generic form template supplied by online services, an the attorney can tailor the operating agreement to the client’s actual needs after interviewing the client.

In addition, the newly formed LLC might benefit from other related contracts.  For example, your attorney can include a non-compete contract to prevent a key member or employee from leaving the new enterprise and starting his own competitor.  Similarly, a non-solicitation clause to keep a key member or employee from stealing your clients.  In addition, only an attorney will recognize if you may be violating the corporate opportunity doctrine by leaving your current employer and starting a competing business in the same or similar industry.  An online service will not ask the client the right questions and recognize these legal issues.

Is the gain on the sale of my home taxable?

Is the capital gain on the sale of my home taxable income?  When you sell your home, federal tax law allows exclusion of up to $250,000 for single filers ($500,000 for joint filers) of capital gain if the home has been your principal residence for two of the preceding five years.

With respect to the exclusion of gain from sale of principal residence, the Internal Revnue Code provides that “gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.”  26 USC § 121.

Ways to Lower Your Income Taxes

Looking for ways to lower your income taxes?  Although this article from Kiplinger’s is a few years old, it still contains some good suggestions to lower your income taxes such as increasing your 401(k) contribution, increasing your Flexible Spending Account contribution, harvesting capital losses, and deducting capital expenditures:

http://www.kiplinger.com/article/taxes/T054-C001-S001-10-ways-to-lower-your-taxes.html

How do I resovle IRS Tax Problems?

If you are a taxpayer who owes income tax debts to the Internal Revenue Service, you may be asking yourself: “How to defend against an IRS tax or federal tax levy?” or “How can I resolve my federal income tax problems?” or “What should I do about my unfiled federal income tax returns and unpaid IRS tax debts/federal income tax debts, penalties and interest?” Chicago tax attorney and CPA Brian J. Thompson can assist you in resolving your unpaid federal income taxes and federal income tax problems with the IRS.

What should you do if the IRS sends you a Notice of Tax Due and Demand for Payment, a Notice of Federal Tax Lien, or a Final Notice of Intent to Levy and Notice of Your Right to a Hearing?

Do not ignore collection actions by the IRS which may include seizure and sale of property
held by you or levy of property that is yours but held by someone else (such as your wages,
retirement accounts, bank accounts, rental income, accounts receivable). The first step is to determine your true tax liability to the IRS, including any failure-to-file penalties, failure-to-pay penalties, and interest.  This first step may include filing any unfiled tax returns or correcting prior tax returns.  The next step in resolving your IRS tax debts involves paying the IRS what you owe. If you don’t have the money to pay your unpaid back taxes and federal tax debts now, an installment agreement or offer in compromise might be right for you.