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Phillip Monroe Smith

Phillip Smith’s Answers

1,342 total

  • Can a S Corp invest in a separate LLC? Treating investment as current year expense, and deferring tax until LLC k-1?

    I own a S corp in VA. I have an opportunity to invest in a LLC owned by ten partners. If I invest, I will become one of the ten partners. Can my S corp be that partner? If so, can I deduct the investment (I need to buy shares) into the...

    Phillip’s Answer

    The purchase of the interest in the LLC is a capital contribution and not a business expense. Capital contributions and purchases of capital assets such as a membership interest in an LLC' are not deductible.

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  • If you were my lawyer, and baby's dad did not disclose his second job, works with 2 different SS Numbers, what forms, actions?

    If I retained you to represent me in court, and the reason for returning to court is because "dad" needs to be reassessed for child support due to fact he only disclosed one of his two jobs, how would you proceed in my case? What forms would you f...

    Phillip’s Answer

    I have chabned this post to Family Law because it is not a tax question.

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  • The EDD is hounding my company because it believes that contractors that we are using should be employees.

    I manage a consulting company that provides seminars to healthcare professionals. We have 30 employees - w2 who are full time, benefited, etc. these are admin, and executive roles. We contract (1099) with 50 IC's who present various topics mainly...

    Phillip’s Answer

    This sounds like a case where you represented yourself. You need to retain experienced tax counsel to review your case. This is a very serious matter that could generate substantial taxes, penalties and interest if it is not properly handled. You need to act immediately because the problem ins an ongoing problem.

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  • Have a LLC and would like to know In the even of being sued or any financial issues,will my personal assets and wealth affected?

    Filed joint taxes with husband.

    Phillip’s Answer

    Attorney Doland is correct. I would have attorney who is experienced in asset protection review your operating agreement to be safe side, and have an understanding of what the legal issues are if you are sued.

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  • Owner of corporation for workers compensation. I and my partner own all of the shares in our corporation. We are contractors and

    perform services including installation of materials and other related work for customers. My partner asked if we need workers compensation for ourselves, in other words what if we get hurt? Our corporation pays us as employees. I was told that we...

    Phillip’s Answer

    Every California employer using employee labor, including family members,
    must purchase Workers’ Compensation Insurance (Labor Code Section 3700). If you fail
    to have Workers’ Compensation Insurance for your employees, it can be expensive as the
    DLSE is required to issue and serve a stop order/penalty assessment prohibiting further
    use of employee labor until you do purchase Workers’ Compensation
    Insurance. Effective January 1, 2011, the penalty assessed for failure to have Workers’
    Compensation Insurance is based upon the greater of (1) twice the amount the employer
    would have paid in workers’ compensation insurance premiums during the period the
    employer was uninsured, or (2) $1,500 per employee.

    There are exceptions for partnerships, if the only persons performing labor are the partners, and corporations where the corporate officers are the sole shareholders; in which case, the corporation, officers and directors come under the Workers’ Compensation provisions only by an express election indicating that they do not want to be covered.

    The corporate officer must be an officer and a shareholder must make an election with their insurance carrier, and in their employment agreements.

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  • My husband had several yrs unpaid taxes from before we married. I was only one with income for the year. Can irs take refund?

    Married in Nov 2011. Husband owed for 2000, 2002, 2005 & 2007. He was unemployed all of 2011. Can my entire refund be taken to pay off his debt? Doesn't IRS only have 10 yrs to try and get payment?

    Phillip’s Answer

    This is occurring you are filing joint tax returns. File separate in the future.


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  • What terms should be used in a Term Sheet for an LLC where I have an equity stake for a technology product?

    My company was presented with a 35% equity stake in an LLC with my partner for a mobile app we're building. Some of the terms from my review that were missing: 1)Voting Rights 2)Unit Purchase Agrement 3)Pre-money valuation 4)Price Per Share 5)Con...

    Phillip’s Answer

    Present your prospective "partner" with a written counter offer with the terms and provisions that you believe should be in the agreement.

    Also be concerned that this transaction could be a "security" transaction under relevant law.

    Good Luck!

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  • Would it be more financially advantageous for the properties I manage to be incorporated as an S Corp or left as an Individual?

    I currently own over 50 rental properties and gross over $300K a year as a individual. Tax bracket to tax bracket, would I be able to keep more of my hard earned money if my company was making $300K and I simply took a salary of $39K a year? My CP...

    Phillip’s Answer

    This is my response to a similar question; "This is a REALLY BAD IDEA unless you are a business like a hotel, shopping center, or commercial office building. There is such a thing as BUILT IN GAINS which accumulate on real property inside of a corp. When the property is sold or transferred out of the corp. the accumulated equity becomes computed less the purchase price and improvement create a GAIN which may be taxed to the corporation and you (DOUBLE TAXATION)."

    Note that an LLC would provide you with limited liability without the creating the built in gain issue.

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  • Does a non-active member of a LLC pay taxes on income that is not distributed?

    I know that on passive income you don't pay income tax in a LLC but what if its non-passive income and you are not an active member? I think in a corporation you do have to pay even if the income or profits are reinvested in the business. Thanks...

    Phillip’s Answer

    Your belief that you don't pay income tax in a LLC is incorrect. Passive income is taxable for income tax but not self-employment tax. You have not provided enough information to assist in any additional determination in your choice of business structure.

    Good Luck.

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  • I'm filing form 2553, w/ the IRS. What is Part II (Selection of Fiscal Tax Year), Section O-R asking me in lehmans terms?

    I recently formed an LLC and I'm requesting an s-corp status. Not sure which year to select (natural business year or ownership tax year)-Question P. And what is a back-up section 444 election? (In question Q&P). Help.

    Phillip’s Answer

    You need to hire a professional to make our election because there another form to be file before you file form 2553. This a complicated process which is not for laymen.

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