Dahman Law goes to D.C.!

Dahman Law’s robust website has drawn the attention of Google.  Among other things, Dahman Law credits its website for:

  • Communicating the firm’s creed of exceptional client-focused legal services via pre-determined fixed-fee arrangements.
  • Highlighting the firm’s seasoned litigators and insightful business lawyers.
  • Serving as a professional, informative primary point of contact for new clients.

In recognition of this, Google has designated Dahman Law as a Google Ambassador and invited it to attend the national Google Ambassador Summit in Washington, D.C. this week.

American Taxpayer Relief Act of 2012: Estate, Gift, and GST Provisions

On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, which President Obama recently signed into law.  The Act contains the following estate, gift and generation skipping tax provisions:

  • The maximum rate for the estate, gift and generation-skipping transfer taxes is 40 percent. This represents an increase from the rate in 2012 (35 percent) but is less than the pre-2001 rate (55 percent).
  • The gift and estate tax exemption amounts remain unified with one another and are indexed for inflation from 2011. Although the Internal Revenue Service has not made an official announcement, it appears the unified exemption amount for lifetime gifts and decedents’ estates in 2013 is $5.25 million.
  • The exemption amount for the generation-skipping transfer tax remains the same and is indexed for inflation from 2011 as well. Accordingly, despite no official announcement from the Internal Revenue Service, the exemption amount in 2013 for generation-skipping transfers appears to be $5.25 million also.
  • The unused unified exemption amount of a predeceased spouse may continue to be used by the surviving spouse for gift tax purposes and by the surviving spouse’s personal representative for estate tax purposes, provided a proper portability election was made at the death of the predeceased spouse.
  • The Act did not, however, address previous proposals to limit the advantages of grantor trusts, make 10 years the minimum term of grantor retained annuity trusts and narrow the availability of valuation discounts. Although there has been no meaningful discussion about if or when these proposals will be considered by Congress, they should be borne in mind as a possibility and may be reason to consider estate planning in 2013. Nonetheless, the Act, with its certainty, provides a welcome change from the last few years.

American Taxpayer Relief Act of 2012: Business & Investment Incentives

On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, which President Obama recently signed into law.  The Act extends a number of business and investment incentives. Significant items include:

  • Two-year extension of the research tax credit (through 2013).
  • Two-year extension of the new markets tax credit program (through 2013). Unused new markets tax credits may be carried over until 2018.
  • Two-year extension of the empowerment zone tax incentives for certain economically depressed census tracts and the tax incentives for issuing New York Liberty Zone bonds (through 2013).
  • Two-year extension of the 15-year straight-line amortization for qualified leasehold improvements, qualified restaurant property and qualified retail improvements (through 2013), to apply to property placed in service on or before December 31, 2013.
  • One-year extension of 50 percent bonus depreciation for new qualified property placed in service before January 1, 2014 (and before January 1, 2015 for certain long-lived and transportation property), and a one-year extension to allow taxpayers to elect to accelerate some alternative minimum tax credits in lieu of bonus depreciation (through 2013).
  • Two-year extension of the 2011 Section 179 expense amount and phase-out limitations so that for tax years 2012 and 2013, the Section 179 expense amount is increased to $500,000, reduced on a dollar-for-dollar basis to the extent that the cost of qualifying property exceeds $2 million. For taxable years beginning in 2014 and later, the maximum expensing amount is $25,000 and the phase-out limitation is $200,000.
  • Two-year extension of temporary 100 percent capital gains exclusion for individuals who sell “qualified small business stock” (through 2013).
  • Two-year extension of the five-year holding period for S corporation built-in gains tax for sales of S corporation stock occurring in 2012 and 2013.
  • Two-year extension of the work opportunity tax credit (through 2013).
  • Two-year extension of the Section 956(c)(6) look-through rule for dividends, rental and royalties received by a controlled foreign corporation from a related controlled foreign corporation for two years (through 2013).
  • Two-year extension of Subpart F exemption for active-financing income (through 2013).
  • Two-year extension of the inclusion of a regulated investment company within the definition of a “qualified investment entity” for purposes of the FIRPTA rules (through 2013).
  • Two-year extension of enhanced charitable deductions for contributions of food inventories to designated institutions (through 2013).
  • Two-year extension of the exception to unrelated business taxable income regarding payments of rent, royalties, annuities or interest income by a controlled organization to its tax-exempt controlling parent pursuant to a binding written contract in effect on August 17, 2006 (through 2013).
  • Two-year extension of rules relating to “interest-related dividends” and “short-term capital gain dividends” received by regulated investment companies (through 2013).
  • The Act also extends certain energy-related provisions, including:
  • One-year extension of the renewable electricity property wind production tax credit to apply to a facility placed in service, or for which construction begins, before January 1, 2014. Further modifies Section 45 to allow renewable energy facilities for which construction begins by December 31, 2013 to qualify for the production tax credit. Extends taxpayer’s right to elect the 30 percent investment tax credit in lieu of the production tax credit for renewable energy facilities for which construction begins by December 31, 2013.
  • Two-year extension of the $1 per gallon tax credit for biodiesel, the 10 cents per gallon small agri-biodiesel producer tax credit and the $1 per gallon tax credit for diesel fuel created from biomass (through 2013).
  • Two-year extension of the tax credit for certain energy-efficient improvements to residential homes (through 2013).
  • Two-year extension of the new energy-efficient home credit to qualifying homes purchased before January 1, 2014, and of the tax credit for energy efficient dishwashers, clothes washers and refrigerators (through 2013).

American Taxpayer Relief Act of 2012: Income Tax Provisions

On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, which President Obama recently signed into law.  The Act extends a number of Bush-era income tax provisions and reinstates a number of Clinton-era income tax provisions with certain modifications. Significant items include:

  • Permanent extension of the 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent individual income tax rates.
  • Beginning in 2013, reinstatement of the 39.6 percent individual income tax rate for taxable income of more than $450,000 for married filing jointly filers (more than $225,000 for married filing single taxpayers), more than $425,000 for head of household filers or more than $400,000 for single filers.
  • Beginning in 2013, the rate for certain long-term capital gains and qualifying dividends for taxpayers in the new 39.6 percent income tax bracket is increased to 20 percent, not including the new 3.8 percent Medicare tax on net investment income. Furthermore, there is a permanent extension of the favorable current capital gain rates (e.g., 0 percent/15 percent) for certain long-term capital gains and qualifying dividends for all taxpayers except those whose taxable income puts them in the new 39.6 percent income tax bracket.
  • Beginning in 2013, reinstatement of the personal exemption phase-out (PEP) for taxpayers with adjusted gross income of more than $300,000 for married filing jointly filers (more than $150,000 for married filing single filers), more than $275,000 for head of household filers and more than $250,000 for single filers.
  • Beginning in 2013, reinstatement of the repeal of the phase-out of up to 80 percent of itemized deductions for taxpayers with adjusted gross income of more than $300,000 for married filing jointly filers (more than $150,000 for married filing single filers), more than $275,000 for head of household filers and more than $250,000 for single filers.
  • Permanent extension of the “marriage penalty” relief standard deduction, the 15 percent rate bracket for married filers and the earned income tax credit provisions.
  • Permanent extension of the $1,000 child tax credit and a five-year extension (through 2017) of the 2009 modification that provided that earnings above $3,000 would count toward refundability.
  • Permanent expansion of the student loan interest deduction and the dependent care credit.
  • Permanent extension of the adoption credit and the employer-provided child care tax credit.
  • Permanent patch of the alternative minimum tax (AMT) by (i) increasing the exemption amounts for 2012 to $50,600 for single filers and $78,750 for married filing jointly filers, (ii) indexing the exemption and phase-out amounts for inflation and (iii) allowing nonrefundable personal credits against the AMT.
  • Five-year extension of the “third-child” earned income tax credit rules included in the American Recovery and Reinvestment Act of 2009 (ARRA) (through 2017).
  • Two-year extension of the deduction for certain expenses of elementary and secondary school teachers (through 2013).
  • Two-year extension of the election to deduct state and local sales tax in lieu of state and local income taxes (through 2013).
  • Two-year extension of the special rule regarding contributions of capital gain real property by individuals for conservation purposes and the exclusion from gross income for distributions from an IRA that are “qualified charitable distributions” (through 2013).
  • Two-year extension of the qualified tuition deduction (through 2013).
  • Two-year extension of the deduction for mortgage insurance premiums (through 2013) and a one-year extension of the mortgage debt relief provisions (through 2013).
  • Two-year extension of the increase in the monthly exclusion for employer-provided van pool and transit pass benefits (through 2013).
  • Beginning in 2013, the employee Social Security tax rate will revert to 6.2 percent (from the stimulus level of 4.2 percent) for wages up to $113,700.

Ohio’s Minimum Wage Increases to $7.85/hr.

On January 1, 2013, the minimum wage in Ohio will increase by 15 cents, from $7.70 per hour to $7.85 per hour. The Ohio minimum wage for “tipped employees” will increase 8 cents from $3.85 per hour to $3.93 per hour, plus tips.

Employers in Ohio with annual gross receipts of more than $288,000 must pay Ohio’s minimum wage. Ohio employers with annual gross receipts of $288,000 or less must pay the federal minimum wage of $7.25 per hour.

These increases are the result of an amendment to Ohio’s Constitution passed by Ohio voters in 2006, which tied Ohio’s minimum wage to the rate of inflation as measured by the Consumer Price Index.

You can view the Ohio Department of Commerce’s new minimum wage poster for 2013 here.

Dahman Law founder Samir Dahman selected as Rising Star by Ohio Super Lawyer magazine

Samir Dahman, founder of Dahman Law, was selected as 1 of only 30 Business Litigation Rising Stars in Columbus by Ohio Super Lawyer magazine for the second year in a row.

After an extensive nomination, vetting, and selection process, Ohio Super Lawyer magazine awarded Samir Dahman, founding attorney of Dahman Law, his second consecutive Rising Star award.  It is a distinction reserved for the top 2.5 percent of lawyers in Ohio who are younger than 41 or have been practicing for less than ten years.

The Rising Star General Survey

Lawyers are asked to nominate the best attorneys who are 40 or under, or who have been practicing for 10 years or less.  They are instructed to nominate lawyers they have personally observed in action — whether as opposing counsel or co-counsel, or through other firsthand courtroom observation.

The Research Process

In addition to the general survey, the attorney-led research team reviews the credentials of potential candidates and assigns points based on a set of defined evaluation criteria.  The research staff also confirms that nominees are properly licensed, in good standing with the state licensing agency, and, when possible, that they have no history of disciplinary action that would warrant removal from the list.

The Final Selection Process

The point totals from the general survey and research process are then added to arrive at a final tally. The lawyers are ranked by point totals and those with the highest point totals are named to the Rising Stars list. No more than 2.5 percent of the lawyers in the state are named to the list.  To ensure a diverse and well-balanced list, the research staff considers factors such as firm size, practice area and geographic location.

Business Names: How do they Work?

What is a Trade Name?

A trade name is the name the business uses for advertising and trade purpose.  In Ohio, a trade name is a name used in business or trade to designate the business of the user and to which the user asserts a right to exclusive use.  An example of a trade name is the use of the name “Sam’s Burger Joint” by a company whose official, registered name is Dahman Restaurants, LLC.  Trade names are names that are generally viewed by the public on signs, on websites, and on advertisements.  It is important to understand that a business’ trade name may be different from its registered name.

 What is a Fictitious Name?

A fictitious name is a name used in business or trade that that the user has not registered or is not entitled to register as a trade name.  If a business is using a trade name that is different from the registered name of its business, it needs to file a fictitious name statement (also known as a d/b/a/ statement, which stands for “doing business as”).  Users of fictitious names are required to file a fictitious name statement with the county because doing so allows the public to know who is actually running the company.  Fictitious name statements are typically registered with the Secretary of State.

So What’s the Difference between a Trade Name, a Trademark, and a Service Mark?

People often confuse trade names with trademarks and service marks.  Many small businesses assume that once they have chosen a business name and registered that name with their state of incorporation, they have unlimited rights to the name in connection with their business.  This is not the case – registering a trade name does not provide any trademark or service mark rights to the registrant at all.

A trademark is any word, name, symbol, or device, or any combination thereof, other than a trade name in its entirety, adopted and used by a business to identify their goods and distinguish them from similar goods made or sold by others.  Trademark rights include the right to use something to identify goods and services and to distinguish them from competitors’ goods and services.

A service mark is any word, name, symbol, or device, or any combination thereof, other than a trade name in its entirety, adopted and used by a person in the sale or advertising of services to identifytheir services and distinguish them from similar services of others.

Normally trademarks appear on products or on their packaging, while service marks appear on advertising for services.  A trade name, on the other hand, is simply the name under which a company does business, not a name for specific products or services.

A trade name can be used as a trademark, to identify its products or services, but only to the extent that it does not infringe upon existing trademarks.  Because trademark infringement is not always obvious, it is easy to get into trouble by using names that are sufficiently similar and likely to cause customer confusion. Having to change your businesses’ name or spend money to correct advertising, or even worse, having to pay for the lost profits of the holder of the registered trademark and just some of the problems that can arise with confusing trade names and trademarks.  If you want to use your trade name to represent your products or businesses, be sure to consult with an attorney, such as Dahman Law, who can help you avoid these problems.

Starting a Small Business: How does S Corp Taxation Compare to LLC Taxation?

When many people think about S Corps and LLCs, they think that the two are different types of entity structures.  In reality though, “S Corp” is a taxation election, not a separate business entity.  As an S Corp, income, losses, deductions and credit pass through to their shareholders for federal tax purposes.  Typically, LLCs are taxed as partnership flow-through entities, but they can elect to be taxed as an S-Corp under certain circumstances.

What is S Corp Tax Status?

To qualify for S Corp status, the corporation or LLC must meet the following requirements:

  • Be a domestic corporation or LLC
  • Have only allowable shareholders or members
    • including individuals, certain trust, and estates and
    • may not include partnerships, C-corporations or non-resident alien shareholders
  • Have no more than 100 shareholders
  • Have one class of stock
  • Not be an ineligible corporation i.e. certain financial institutions, insurance companies, and domestic international sales corporations.

How are LLCs Taxed?

The federal government does not recognize an LLC as a classification for federal tax purposes. Thus, an LLC business entity must file either a corporation, partnership, or sole proprietorship tax return.  An LLC that is not automatically classified as a corporation can file Form 8832 to elect their business entity classification.  An LLC with at least 2 members can choose to be classified as an association taxable as a corporation or a partnership, and an LLC with a single member can choose to be classified as either an association taxable as a corporation or disregarded as an entity separate from its owner, a “disregarded entity.”

Some Differences Between S Corp Election and LLC Partnership Taxation

Personal Liability:  Shareholders in a corporation taxed as an S Corp and members in an LLC (taxed as either an S Corp or a flow-through partnership) are typically not held personally responsible for business debts and liabilities.

Taxation:  For both an S Corp and an LLC, there is no tax at the entity level.  Rather, the income in both the S Corp and LLC are passed through to the shareholders or members.  Thus, neither an LLC nor an S Corp are subject to double taxation.

Self-Employment Tax:  In both an S Corp and an LLC, salary is subject to self-employment taxes.  In an S Corp, however, shareholder distributions are not subject to employment tax.

Transferability of Interest:  In an S Corp, interest is transferable if done in compliance with IRS regulations concerning who can own stock.  With LLCs, interest may be transferrable, but if and how such transfers are made depends upon the restrictions outlined in the operating agreement.

Starting A Small Business: Limiting Owner Liabilty Behind the Corporate Veil

One of the major reasons companies choose to form a legal entity (such as an LLC or corporation) is to limit personal liability of the shareholders or members.  Simply put, the personal assets of the company’s owner(s) – including their homes, cars, savings, and personal property – are not at risk for actions taken by the company when the company is a limited liability legal entity.  This limited liability is typically referred to as the “corporate veil” because the owners of the company are protected behind it.  It is very important, though, for business owners to understand that there are situations where the corporate veil can be “pierced” to reach the personal assets of the business owners.

The Corporate Veil in Ohio and Michigan

In Ohio, the corporate veil may be pierced (and the owners can be held personally liable) if the following three things are all true:

  1. control over the corporation by those to be held liable is so complete that the corporation has no separate mind, will, or existence of its own
  2. control of the entity is used to commit fraud or wrong or other dishonest or unjust act; and
  3. injury or unjust loss resulted to the plaintiff from such control and wrong.[1]

In Michigan, the following three things must be proven to pierce the corporate veil:

  1. the corporate entity must be a mere instrumentality of another entity or individual,
  2. the corporate entity must be used to commit a fraud or wrong
  3. there must have been an unjust loss or injury to the plaintiff. [2]

How to Avoid Piercing the Corporate Veil

Taking these tests into consideration, here are some steps to take to avoid personal liability arising from your limited liability business:

  • open up a separate business banking account
  • obtain a federal tax ID number for your business
  • maintain corporate formalities
  • have an operating agreement drafted for your business
  • either have enough money in your bank account to cover expected liabilities for the business or take out an insurance policy to cover expected liabilities for the business
  • keep formal meeting minutes for your company
  • maintain corporate records
  • hold at least one meeting per year, even if you are a single member LLC (Dahman Law can serve as the meeting secretary and assist in keeping your corporate records)
  • do not use include personal expenses in those of the business
  • do not comingle personal assets with those of the business
  • do not commit fraud

Starting a Small Business: Does my LLC Need an Operating Agreement?

An Operating Agreement is an agreement among the members of a limited liability company (an “LLC”) which governs how the LLC will operate.  It also contains general procedures as well as member’s financial and managerial rights and duties.

In Ohio, LLCs are governed by the default rules set forth Ohio Revised Code Chapter 1705.  In Michigan, the applicable rules are found in MCL 450.4101 et seq.  Operating Agreements help you guard your limited liability status, head off financial and management disputes, and ensure that your business is governed by your own rules rather than your state’s default rules.  Thus, it is strongly recommended that your LLC have one.  Here are a few of their main benefits:

  1. Operating Agreements protect your LLC’s limited liability status.  In single member LLCs, an operating agreement is a declaration of the structure that the member has chosen for the company and sometimes used to prove (in court or with the IRS) that the LLC structure is separate from that of the individual owner.  An Operating Agreement is necessary documentation that the owner is separate from the entity itself.  In fact, many states, including Michigan, have laws saying that an operating agreement for a single-member LLC is not invalid simply because only one individual signed the document.
  2. Operating Agreements define the LLC’s financial and management structure.  It is essential for multi-member LLCs to document their profit-sharing and decision-making protocols as well as their procedures for handling the additions of and departure of members.  Without an Operating Agreement, even the smallest financial and managerial disputes can cripple your LLC.
  3. Operating Agreements override default rules imposed by a state’s LLC Act.  In order to do so, an Operating Agreement generally addresses the following things:  the initial members of the LLC; the members’ percentage interests in the business; the allocation of profits and losses among members; the capital contributions of members; the members’ voting power; and rules for holding meetings and taking votes; and “buy-sell” provisions, which set out rules for what to do when a member wants to sell his or her interest, dies, or becomes disabled.

This internal agreement, which is agreed upon by the company members, contains provisions for critical rules and provisions relating to how the company is run.  So if you live in Ohio or Michigan and have an LLC, it would be foolish not to protect yourself and your business with an Operating Agreement.