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Business Structure Part 2: Which Business Entity Structure Is Right For You?

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Just south of ‘Sawmill Creek…..
Hi Attorney Kevin Pritchett here

Business Structure Part 2
“Which Business Entity Structure Is Right For You?”

    Today, I’ll cover the ‘Sub Chapter S’
 Corporation structure. Let’s dive in.
Sub Chapter S Corporation
     The  most simple corporation structure is the Sub Chapter S Corporation.

       Like all corporations, the Sub S gives you :

TAX ADVANTAGES
and
LIMITED LIABILITY.

Pros of Sub Chapter S :
==organizing business activity separately

==provides limited liability. Protects your business   
losses and liabilities from your personal assets.

==significant business deductions allowable

== no tax at the corporation level

==income and deductions are ‘passed through’  to the
individual

Cons of SP:
==limited number of shareholders allowed
(100)==shareholders must be individuals (and certain
types of trusts)

==must hold annual meetings and keep corporate   
formalities like minutes, resolutions, notice for   
meetings etc.

==annual cost to state for annual report filings

Take Home Message For Sub Chapter S
A Sub Chapter S corporation is the easiest
of the entity structures to use.  You get to ‘pass through net income ( your gross income subtract business expenses including reasonable salary and what’s left over is what’s taxed…not at a corporate level but at your individual level.

    This ‘pass through’ characteristic gives you MUCH greater control over what amount of income is ultimately taxed and in what deductions you have available to offset income.

     As opposed to W-2 employee income where you get taxed IMMEDIATELY and you keep what’s left…with a Sub S you deduct off of the gross income and you get taxed on what’s left…huge difference!!!!More money in your pocket !!!

Real Estate Investors and Sub Chapter S
    If you own INVESTMENT real estate  that you
buy, fix and flip, a Sub Chapter S Corporation is the preferred structure. 

    For example,  the short term gains you make in a ‘fix and flip’ (gains earned in less than 12 months) which are taxed at the highest rate: ordinary income, can be greatly offset by the costs and other business related expenses allowed in a Sub Chapter S
corporation.  
  
     Since there is no corporate tax in a Sub S this net income is passed through to your individual tax situation and you pay less tax over all than you would if you earned that same income as a sole proprietor or in another type of corporation that had a tax at the corporate level…make sense?

     Next time, I’ll go over Limited Liability Companies

Reach Out To Me If You Have Questions.  
If you have comments or questions about any of this…send me an email :ironkop@gmailcomor if reading on my blog or Facebook page leave your questions or comments below.

Remember…..
“Things Don’t Get Better With Neglect…..”

Kevin Pritchett, Esq
Law Office of Kevin Pritchett, Inc.
312-505-1957  
 ironkop@gmail.com
www.KevinPLaw.com

Business Structure Part 1: ‘What Business Entity Structure Should You Use?’

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Just south of ‘Sawmill Creek…..
Hi Attorney Kevin Pritchett here
Business Structure Part I”Which Business Entity Structure Is Right For You?”
     As you can see from the chart above the answer to the “which entity structure’ should I use?” question is REALLY about…..

TAXES
     More specifically, saving taxes.  Also

PERSONAL LIABILITY

  Starting with this newsletter, I will explain each of the business structure types revealing the pros and cons of each focusing on taxes and personal liability.

    Today, I’ll begin with ‘Sole Proprietor’ structure. Don’t worry…you won’t have to be a CPA or Tax Geek like me to understand…I’ll keep it super simple and common sense…fair enough? Let’s dive in.

Sole Proprietorship (SP)
     SP is the most basic way to conduct
business.  You conduct business in your own name (even though you can and should register your sole proprietor business with a dba or ‘Doing Business As’ registration with the County Clerk where you conduct business.

  Pros of SP:
==organizing business activity separately
==inexpensive and simple to start==no annual meetings
or other corporate formalities
==limited business tax write offs

Cons of SP:
==not able to claim totality of available business   
deductions
==no personal asset protection…i.e. someone   can sue
your SP and ALL your personal assets   not just the SP
assets are at risk

Take Home Message For SP
A SP is how many people begin operating
business because of its simplicity and low cost. 

     However, in my opinion (and in my over 30 years of legal practice) the cons of personal liability and limited tax deductions clearly outweigh the cons.

     Next time, I’ll go over the different types
of corporations and other entity options.

Reach Out To Me If You Have Questions.  
If you have comments or questions about any of this…send me an email :ironkop@gmailcom or if reading on my blog or Facebook page leave your questions or comments below.

Remember…..
“Things Don’t Get Better With Neglect…..”

Kevin Pritchett, Esq
Law Office of Kevin Pritchett, Inc.
312-505-1957
ironkop@gmail.com
www.KevinPLaw.com

What Is A ‘Roth IRA’?

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Just south of ‘Sawmill Creek…..
Hi Attorney Kevin Pritchett here
“What Is A Roth IRA?”
   There are two basic types of IRA retirement accounts. 
  ==The Regular IRA 
  ==The Roth IRA

   A Regular IRA:
   ==$6,000 annual deposit limit ($1,000 catch up if over age 50)
   ==money grows tax deferred during your working years 
==at retirement you get taxed on withdrawals  ==withdrawals prior to age 59 1/2 incur tax penalty

A Roth IRA:
 ==$6,000 annual deposit limit($1,000 catch up if over age 50)
==  money grows tax deferred
==  NO TAX on withdrawals!!!
== INCOME LIMITS:
      If you are single, you must have
    a modified adjusted gross income
    under $135,000 to contribute to a
    Roth IRA for the 2018 tax year, but
    contributions are reduced starting at
$120,000. If you are married filing jointly,
    your MAGI must be less than $199,000,
    with reductions beginning at $189,000.

True TAX FREE Income
    If you meet the income guidelines the Roth IRA is one of only two strategies that allow you to achieve truly TAX FREE GROWTH AND TAX FREE INCOME.

Converting A Regular IRA To A Roth IRA
   A question I get all the time is

“Kevin,  can I convert my regular IRA into a Tax Free Roth IRA?”  
    The answer is YES!!!  There is of course a catch…..Every dollar you convert from a Regular IRA to a Roth IRA is taxed as ordinary income. Even with this conversion tax, it almost ALWAYS makes sense to convert…..the real barrier is the psychological impact of paying the tax.

     In future newsletters I’ll discuss this topic of Roth Conversion in more detail.

Reach Out To Me If You Have Questions.  
If you have comments or questions about any of this…send me an email :ironkop@gmailcom or if reading on my blog or Facebook page leave your questions or comments below.

Remember…..
“Things Don’t Get Better With Neglect…..”

Kevin Pritchett, Esq
Law Office of Kevin Pritchett, Inc.
312-505-1957 
ironkop@gmail.com
www.KevinPLaw.com

What Is A ‘Power of Attorney For Health Care’ And Why You Need One?

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Just south of ‘Sawmill Creek…..
Hi Attorney Kevin Pritchett here:

“What Is A Power of Attorney For Health Care?”  
   A Power of Attorney For Heath Care is a document you sign that gives the person you designate the power to make medical decisions for you in the event you are unable to make decisions for yourself.

     A Power of Attorney For Health Care is”Durable” if it stays in effect even after you become incapacitated.

“Ok..But Why Do I Need A Power of Attorney For Heath Care?”
    Glad you asked!! 
   
Let’s assume you suffer a stroke or massive heart attack and you are incapacitated.  You’re on life support, a machine to help you breath and your medical prognosis is uncertain.

    What should your family do? 
==Keep you on all life support indefinitely?

==Take you off life support?  If so, when?

I Personally Had To Live This Nightmare
    I can tell you from personal experience(having had to make this agonizing decision for my mother, my father and my sister,its a living Hell not knowing.

     With a Power of Attorney For Heath Care you literally tell your designated representative what YOU want them to do.    Typically the form you complete states YOUR wishes and desires.  

Eliminates The Agony of Not Knowing What To Do
       A properly drafted Power of Attorney For Health Care gives your designated person your EXACT wishes and eliminates the agonizing guess work a family member would otherwise have to go through trying to decide what to do.

Reach Out To Me If You Have Questions.  
If you have comments or questions about any of this…send me an email :ironkop@gmailcom or if reading on my blog or Facebook page leave your questions or comments below.

Remember…..
“Things Don’t Get Better With Neglect…..”

Kevin Pritchett, Esq
Law Office of Kevin Pritchett, Inc.
ironkop@gmail.com
www.KevinPLaw.com
312-505-1957

“Do I Pay Tax On My Social Security Benefits?”

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Just south of ‘Sawmill Creek…..
Hi Attorney Kevin Pritchett here
“Are My Social Security Benefits Taxed?”    
There’s good news and bad news….

     The good news:  If you don’t have any other income other than your Social Security, chances are you won’t pay much tax.

The bad news:  If you’re like MOST people
and you’re receiving other income other than just your Social Security, your Social Security benefits WILL be taxed..and in some cases up to 85%!!

Social Security Benefit Tax Rates    
To determine the percentage of your Social Security benefits that are taxable , calculate your “provisional income,” which is your adjusted gross  income (not counting Social Security benefits), plus any nontaxable
interest and half of your Social Security
benefits.

     If that total is less than $25,000 if you’re
single  or $32,000 if married filing jointly, your
Social Security benefits are not taxable. 

     If your provisional income is more than $34,000
on a single return or $44,000  on a joint return,
85% of your benefits may be taxable.

Social Security Taxes Are Different
An entirely different issue, and one that infuriates many people, is the amount of Social Security tax you pay on your regular income.

    The issue of course is

  “If I pay tax on  my income initially to fund my
Social Security, why should I pay tax on it again?“

     This is an entirely different tax and issue…more on this in a later newsletter.

Reach Out To Me If You Have Questions.  
If you have comments or questions about any of this…send me an email :ironkop@gmailcomor if reading on my blog or Facebook page leave your questions or comments below.

Remember…..
“Things Don’t Get Better With Neglect…..”

Kevin Pritchett, Esq
Law Office of Kevin Pritchett, Inc.  
312-505-1957
ironkop@gmail.com
www.KevinPLaw.com

What Is A Will And Why Should You Have One

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Just south of ‘Sawmill Creek…..
Hi Attorney Kevin Pritchett here

Estate Plan Series:    
‘What Is A Will And Why Should You Have One’  
In previous newsletters I’ve shared that a proper Estate Plan has 5 components:  1. Last Will;
2. Power of Attorney For Healthcare; 3. Power of Attorney For Property and5. Revocable Living Trust.

   Today I’ll explain EXACTLY what a Willis and isn’t.

A Will Is A Roadmap Through The Probate
A ‘Last Will and Testament’ is a written declaration of how you wish your estate assets to be distributed.

    To start the estate distribution process, your heirs file your will with a Probate Court.
   Probate Court is the official, legal and binding court process that reviews your Will and declares that it is valid and that your assets may be distributed according to the provisions of the Will.

   A Will in effect, is the ‘roadmap’ a Probate Judge will use to determine how your estate will be distributed.

Heirs And Creditors Can Challenge
    Every possible heir gets a copy and notice of the Probate Court filing and has the opportunity to challenge any provision of the Will.
     Possible creditors (people you may owe money to) also get notice of the Probate filing through a required notice that gets posted in a local newspaper.  Any creditor who believes you owe them money can file a petition with the Probate court.
     As you can see, the entire Probate process can be quite lengthy and as a result can become enormously expensive if there are numerous challenges from heirs and creditors.

Objective Is To AVOID Probate With A Trust
    As a result of these possible delays and expense involved the planning objective is almost always to AVOID PROBATE.

   The simple and effective way to avoid Probate is to create A Revocable Living Trust and use it in conjunction with a ‘Pour Over Will. ‘

    A Trust is simply a legal entity that can own and distribute assets.  A Trust avoids probate  because:

==A Trust is a private document that    does NOT require filing.    All provisions made in a trust    remain absolutely private.

==Since there are no court filings    there are no delays and extensive    legal fees like those associated with    a Probate proceeding which is in essence  a trial if there are legal challenges.

 A ‘Pour Over Will’
     So if a Trust is the preferable way to transfer Estate assets why have a Will at all…?

    The problem with not having a will is if for some reason your heirs or creditors challenge or there is some other challenge that must be resolved in court.

     Without a Will, the Probate Judge will be required to apply the Law of ‘Intestate Succession’ ( the priority of persons who receive your assets ) with all the
delays and expense of Probate.As a result of this law,  your assets will be divided according to that
arbitrary law rather than by your wishes.

     So the solution is to create a special Will called a ‘Pour Over’ Will that states that your intention is that all your assets are distributed through your Revocable Living Trust and not the Will.

     As a result, if for some reason your estate is brought into court, a valid Pour Over Will must be upheld and honored by a Court and your Estate will be divided according to your Trust and not through Intestate Succession or by any heirs or creditors contrary desires.

   Stay tuned for upcoming installments of this Estate Plan Series where I’ll explain the components of a Trust in more detail. 

Reach Out To Me If You Have Questions.
   If you have comments or questions about any of this…send me an email :ironkop@gmailcom or if reading on my blog or Facebook page leave your questions or comments below.

Remember…..
“Things Don’t Get Better With Neglect…..”

Kevin Pritchett, Esq
Law Office of Kevin Pritchett, Inc.
312-505-1957
ironkop@gmail.com
www.KevinPLaw.com

Business Owners: You Need To Do This One Thing…RIGHT NOW!!

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Just south of ‘Sawmill Creek…..

Hi Attorney Kevin Pritchett here

The Biggest Business Mistake You’re Probably Making      
One of the biggest mistakes you’re making right now with your business is…….

YOU HAVE NO SUCCESSION PLAN BUILT INTO YOUR OPERATING DOCUMENTS!!!

I’m right about that aren’t  I ???? 

      You’re so busy building and growing you pay no attention to how to pass the business  to the next generation.   Big problem…..easy solution!

Add Succession Language In Your Entity Documents   
Fortunately this is the kind of problem that has an easy solution…AS LONG AS YOU PAY ATTENTION AND ADDRESS IT!!

   Decide who you want to take over your business when you either quit, retire or die. Then make sure your Bylaws or Operating Agreement provide for whatever decision you make.

What Happens When You Become Disabled Or Die
   Further, make sure your documents state what happens to your business interests should YOU become disabled or die.  The last thing you want is for your business to be rudderless should you not be at the helm.

   If you want a family member to take over be sure to weave in language including your personal Estate Plan including Power of Attorney For Property and Revocable Living Trust.

 Be Sure To Provide For Succession Funding  
If your succession plan calls for a purchase of business interests by existing partners or employees, make sure there is a funding mechanism in place that will provide the cash required to complete the succession transaction.

   Structured correctly and purchased early enough, a cash value life insurance policy can be purchased by the company and used to pay for the purchase whether or not you die

Reach Out To Me If You Have Questions. 
If you have comments or questions about any of this…send me an email :ironkop@gmailcomor if reading on my blog or Facebook page leave your questions or comments below.

Remember…..”Things Don’t Get Better With Neglect…..”

Kevin Pritchett, Esq
Law Office of Kevin Pritchett, Inc.
www.KevinPLaw.com
ironkop@gmail.com
312-505-1957

“Kevin Can I Earn More Than 3.5%…”

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Just south of ‘Sawmill Creek…..

Hi Attorney Kevin Pritchett here

   “Kevin can I earn more than 3.5%…….?”

Yes and No
A client recently asked me this question…and like I told that client…yes…and no!!

   First..legal disclaimer.  I am NOT an investment advisor, securities representative nor do I play one on TV.  If you have questions about your securities (stocks, mutual funds, bonds…) you should seek the advice of licensed professionals.

   Ok…now that I have THAT out of the way….There are ways that are NOT securities that you have the possibility to earn a higher return.

    How?  The insurance industry!!

The Insurance Industry  
I bet you didn’t know that using insurance products, equity indexed annuities and equity indexed life insurance policies you have the ability to grow your money at returns approaching 5.5%-7.5% or higher…all without any stock market risk!!

Upside Return WITHOUT Downside Risk
      Here’s how it works.  When you purchase Equity Indexed Insurance Products you are NOT putting your money into the stock market.

   The insurance company takes your premium (the amount you are putting into the insurance products) and matches it against the return of various indexes. 

When the index you’re matched with goes up, you get a portion of the growth. 

Your Gains Are Locked In
    Here’s the good part…when the index you’re matched with goes down or negative…you get a ZERO return for that period.

  As a result, any gains you make arelocked in..you NEVER have to recover from a loss.

    So here’s all the benefits of this powerful strategy:
==you get upside market growth potential
==with NO RISK OF DOWNSIDE LOSS.

In other words….you get to participate in market gains…and avoid all market losses.PRETTY SWEET!!

Surrender Periods and Charges
     The catch with this strategy is that there are surrender periods and charges…just like with a CD.  You have access to 10% (typically) of your money each year without surrender charge and after the surrender period is over, the surrender charges NEVER reappear…unlike a Bank CD.

   If this approach interests you….

CLICK HERE TO WATCH AN EXPLANATION OF THIS STRATEGY

Another Approach -Guaranteed Fixed Interest Rate     So remember in my answer to my client’s question I said yes…and no…here’s the no part.

If you’re ‘old school’ and you want essentially a CD Replacement and want the certainty of a fixed interest rate for a fixed period of time…then you can choose a GUARANTEED FIXED INTEREST RATE Product like a Bank CD, or an annuity. A bond also if you want stock market exposure.  

Currently the going rate for Bank CDs is 0.5% to 1.5% depending on the term and the amount of the DC.

    Currently the going rate for Guaranteed Fixed Interest Rate annuity products is about 3.5% (this rate varies with market conditions and there is an outlier company with a 4.1% rate but 3.5% is about average for a Guaranteed Fixed Rate Annuity in March of 2019).

    So…if you want the absolute certainty of a certain interest rate..then no you can’t earn much more than 3.5% currently….

Reach Out To Me If You Have Questions.  
If you have comments or questions about any of this…send me an email:ironkop@gmailcom or if reading on my blog or Facebook page leave your questions or comments below.

Remember…..
“Things Don’t Get Better With Neglect…..”

Kevin Pritchett, Esq   
Law Office of Kevin Pritchett, Inc
www.KevinPLaw.com
312-505-1957
ironkop@gmail.com

The Shocking Truth About Your IRA…Its NOT What You Think It Is!!

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Just south of ‘Sawmill Creek…..

Hi Attorney Kevin Pritchett here
Do You Know What Your IRA/401k/403b REALLY Is?
   You probably believe what you’ve been told…that your Qualified Retirement Accounts are a great way for you to save for your retirement….yes and no.

    What you probably DON’T know (unless you’re my client already or attended one of my seminars)is :
“Your IRA/401k/403b (IRA for short)
is a way for the IRS to force you to pay them tax!!!

The Required Minimum Distribution (RMD)
Every retirement account grows money tax deferred.
If you withdraw IRA money before age 59 1/2 you must pay a stiff tax penalty PLUS any amount you take out is taxed as ordinary income.

    And when you reach age 70 1/2 there is a requirement called the REQUIRED MINIMUM DISTRIBUTION (RMD) which REQUIRES you to take money out of your IRA whether you need or want to or not!!

    This is where the IRS springs its TAX TRAP. As I’ve explained in previous newsletters…the IRS would MUCH rather get tax on the growth of your money…and they GUARANTEE THEMSELVES of a cut of your money by REQUIRING YOU TAKE THE MONEY OUT WHETHER YOU WANT TO OR NOT!!

There are proven strategies that can avoid
or at the least mitigate this tax trap…but only if you know them and apply them in time.

Reach Out To Me If You Have Questions.
If you have comments or questions about any of this…send me an email :ironkop@gmailcomor if reading on my blog or Facebook page leave your questions or comments below.

Remember…..
“Things Don’t Get Better With Neglect…..”

Kevin Pritchett, Esq
Law Office of Kevin Pritchett, Inc.312-505-1957ironkop@gmail.com
www.KevinPLaw.com

The 5 Steps To Creating An Estate Plan The ‘Right Way’

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Just south of ‘Sawmill Creek…..

Hi Attorney Kevin Pritchett here

Why You Need An  Estate Plan
So you know you need an estate plan….To die without handling your affairs creates CHAOS and expense for your loved ones.

   So even though you KNOW you need it for all the usual excuses you never seem to get around to it….NOW’S THE TIME!!

 There’s A TON Of Misinformation
       About Estate Planning      
The other problem is that there’s a TON of misinformation about what constitutes a proper Estate Plan (most of it from people like your ‘Uncle Melvin’ or ‘the guy down the block ‘who always seem to have advice to give…..

     So to cut through all the noise…here are the 5 steps to creating an estate plan:

The 5 Steps To Creating An Estate Plan
Step 1:Decide Your Final Wishes
      Before you do ANYTHING you MUST sit down and WRITE OUT what your final wishes are.I use a FINAL WISHES PLANNER for my clients…
   Then after you’ve decided on what you want you complete these 5 steps:

Step 2:  Create Powers of Attorney For Healthcare
             and Property  
Powers of Attorney are documents you create that allow others to act on your behalf…in this case to handle your Healthcare decisions and your business affairs.   
Powers of Attorney are ONLY effective when you are still alive.  Once you pass, other documents takeover.    In Illinois, a Power of Attorney For Healthcare is used instead of a ‘Living Will.’..they both do the same thing…state your Healthcare wishes in the event you cannot.

Step 3:  Create A ‘Pour Over’ Will
    This is where people ‘mess up.’ I will is just one instrument of your Estate Plan. A will is NOT an estate plan in and of itself nor does it  avoid probate.A will is in fact the guide a probate judge will use to distribute your estate. 

      You use a will basically to state that all your assets will be distributed by your Trust (more on Trusts in a moment).     

  If ALL you have is a will your heirs will
still have to go through the expense and delay of Probate

Step 4: Create A Revocable Living Trust  
Ideally you want your Trust to be the document
that distributes your estate assets…not your Will.

     Why?  Your Trust WILL NOT go through Probate, is private and does not have delays and expense of Probate Court.

      There are many types of Trusts but the one used in most simple Estate Plans is a Revocable Living Trust…which means you can change it any time in your life.

Step 5: Update Estate Plan Regularly
      Once you create your Estate Plan make sure you review it at least once every 3 year sor so.  Life changes and your Estate Plan must adapt accordingly.

Reach Out To Me If You Have Questions. .
If you have comments or questions about any of this…send me an email :ironkop@gmailcomor if reading on my blog or Facebook page leave your questions or comments below.

Remember…..
‘Things don’t get better with neglect…..”

Kevin Pritchett, Esq
Law Office of Kevin Pritchett, Inc.
ironkop@gmail.com
312-505-1957
www.KevinPLaw.com