How Do I Withdraw an IRS Tax Lien?

November 15, 2011 by

tax lien
When you owe federal income tax and fail to pay it after receiving notices from the IRS, the IRS will file a lien against you which attaches to any real property you own. You can request that the IRS withdraw the tax lien by filing form 12277 which is more beneficial than a release of a tax lien because a withdrawal expunges the lien immediately from the debtor’s records so it’s as if the lien was never filed. You can request a lien withdrawal either after the lien has been released or after entering into a direct debit installment agreement.

Requesting a lien withdrawal after the lien has been released

If you have paid the tax and have the Certificate of Release of Federal Tax Lien you can apply to have the lien withdrawn. Please refer to IRS Publication 1450 for instructions on how to get a Certificate of Release of Federal Tax Lien.

You will qualify as long as:

1) you are in compliance for the last three years and have filed all your individual and business tax returns; and
2) you are current on your estimated tax payments and federal tax deposits, if applicable.

Lien withdrawal after entering into a Direct Debit Installment Agreement

In order to qualify you must:

1) enter into a direct debit installment agreement, but if you are currently on a regular installment agreement, you may convert to a Direct Debit Installment Agreement; and
2) owe less than $25,000, however if you owe more than $25,000 you may pay down the balance to $25,000 before requesting that the IRS withdraw the lien; and
3) you are in compliance for the last three years and have filed all your individual and business tax returns; and
4) you are current on your estimated tax payments and federal tax deposits which means you cannot have defaulted on your current, or any previous, direct debit installment agreement.
5) your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier.

Contact the Tax Lawyers in Ridley Park, PA at the Law Offices of Spadea & Associates, LLC

If you have any questions please contact the Law Offices of Spadea & Associates, LLC in Ridley Park, Pennsylvania at 610-521-0604.

Filed Under: Tax Law Tagged With: , , , , , , , ,

Why I need a IDGT to qualify for VA AID and Attendant Benefits

November 10, 2011 by

Estate plan
The intentionally defective grantor trust (IDGT) is a powerful tool that can achieve a wide variety of estate planning and asset protection objectives: transferring interests in a family business, qualifying for need-based programs such as VA benefits or Medicaid, transferring assets outside the probate process, or protecting assets from the claims of the grantor’s creditors.

To learn more about the ways you can achieve your own goals through an IDGT, contact the Law Offices of Spadea & Associates, LLC, in Ridley Park, and discuss your situation with an experienced trusts and estates attorney. Our firm’s understanding of the legal and practical considerations involved in IDGTs can significantly expand your options for future financial security while solving highly specific problems.

What Is an Intentionally Defective Grantor Trust?

Like any other trust, an intentionally defective grantor trust involves dividing the legal title to a given asset from the beneficial interest of owning it. A trustee administers trust assets in the interest of named beneficiaries. In a conventional trust, the tax, gift and probate consequences of trust ownership are substantially the same. In an IDGT, differences between federal tax treatment and the transfer’s status for probate purposes open the door toward significantly expanded flexibility for any number of estate planning objectives.

The central feature of an intentionally defective grantor trust is retention by the grantor of certain rights and interests in the trust assets. As a result, the grantor will need to pay taxes on income generated by trust assets, which is what makes an IDGT “defective” in the eyes of the IRS. A business owner can continue to operate business trust assets, and a homeowner can continue to exercise the powers of residence and ownership of real estate transferred into an IDGT.

When properly established, however, the asset transfers necessary to create an IDGT will be recognized as valid under state probate law. They will also be recognized as valid exercises of an estate reduction strategy for purposes of Veterans Administration programs and Medicaid eligibility. The specific uses of an IDGT for these purposes can include:

  • Taking title to residential property for the sake of qualifying for Medicaid
  • Protecting the proceeds of the sale of a primary residence during the lifetime of an applicant for VA pension benefits
  • Preserving income tax exemptions for the proceeds of sale of a primary residence during the grantor’s life
  • Taking the value of a primary residence out of VA Aid and Attendance benefits eligibility calculations
  • Avoiding tax liability for asset appreciation during the grantor’s lifetime

Integrating an IDGT Into VA Benefits and Medicaid Eligibility Planning

There are many reasons to transfer assets into trust, including a preference to transfer them outside of probate, or to reduce the size of an estate for tax planning purposes. Transferring assets into an IDGT can also protect eligibility for such need-based programs as Medicaid or Veterans Aid and Attendance benefits.

For Medicaid planning, it is essential that assets be transferred out of the applicant’s estate at least five years before the time of need. Otherwise, the transfer will be disregarded for purposes of determining eligibility, and nonqualifying asset transfers can be recovered by the agency upon review after the grantor’s death.

For Veterans Administration programs, transferring assets into an IDGT will normally be effective to preserve or achieve eligibility for pension and other benefit programs, but VA benefits and Medicaid have somewhat differing eligibility rules that can complicate the situation for people who need to protect their ability to qualify under both systems. At Spadea & Associates, LLC, our attorneys work closely with each client in order to make sure that our estate planning solutions are carefully tailored to individual circumstances and goals.

Our familiarity with the legal and practical aspects of VA benefits eligibility planning can help ensure that the estate planning solution we recommend is well matched to the demands of your situation. Depending on your circumstances, the advantages of using an IDGT for protecting VA benefits can include: capital gains exemptions for the sale of the grantor’s home, deferred recognition of asset appreciation during the grantor’s life, disregard of assets for purposes of veteran’s pension qualification. In many cases, the important objective of protecting Medicaid eligibility can be advanced as well.

Not everyone will find it advisable to use an IDGT in connection with VA benefits eligibility planning. Because the grantor will continue to be liable for taxes on trust income, you will need to make sure you can afford tax payments. At the same time, excess income on trust assets could affect VA benefits eligibility.

Estate Planning Solutions in Philadelphia and Southeastern Pennsylvania

If an intentionally defective grantor trust can help you and your family, our lawyers can help you establish an IDGT on terms that take full account of your specific needs and goals across a wide variety of circumstances. For more information about the ways an IDGT can serve important estate planning or asset protection needs in your situation, including the need to protect access to income-tested government programs, contact Spadea & Associates, LLC in Ridley Park.

Filed Under: Estate Planning Tagged With: , , , , , ,

What Do I Do If I Get a DUI (Driving Under the Influence) or DWI (Driving While Intoxicated) in Pennsylvania?

November 10, 2011 by

Man with drink being handed car keys
If you are facing a first offense DUI charge in Pennsylvania you may be want to consider an alternative program to the traditional criminal court case and that is known as the ARD program. ARD stands for Accelerated Rehabilitative Disposition.

The ARD program was implemented by Pennsylvania to accelerate the court process in criminal cases such as first offense DUI’s that would not jeopardize the general public’s safety if the defendant were released back into society.

Pennsylvania saves time and court resources and the defendant can have their DUI expunged from their criminal record two years after they are accepted into the ARD program.  Please contact Spadea & Associates, LLC to assist you in getting the record expunged.

Only first time DUI offenders in Pennsylvania may be eligible for the ARD program. The district attorney makes the decision as to whether or not a defendant will be admitted into the ARD program. Just because you are facing a first offense DUI charge does not mean that you are automatically admitted into the ARD program.

The new penalties enacted in February 2004 fall into a new three tier punishment system for DUI’s throughout Pennsylvania.

Tier 1: Tier 1 is considered General Impairment. General impairment is meant to describe those with BAC levels between .08% and .099%, and no property damage resulting from the DUI offense.

1st Offense DUI: No loss of driving privileges, six months maximum of probation, fine of $300 dollars, attend and complete safe driving classes, complete a drug and  alcohol evaluation, complete a 30 minute CRN evaluation and  complete 8 to 16 hours of community service .

Tier 2: Tier 2 is considered a high rate of blood alcohol. This is for those with BAC levels between .10% and .159% (the BAC level must be measured within 2 hours of actually operating the vehicle), and those with resultant property damage or personal injury from the DUI offense. Even those with General Impairment BAC levels (less than .10%) can be placed in the Tier 2 category if there was property damage or personal injury.

1st Offense DUI: driver’s license suspended for 12 months (occupational license eligibility after 60 days), jail time from 48 hours to 6 months, fine between $500 – $5,000, attend and complete safe driving classes, complete a drug and alcohol evaluation, complete a 30 minute CRN evaluation, complete 16 to 32 hours of community service.

Tier 3: Tier 3 is reserved for the highest BAC level offenders. A Blood Alcohol Concentration of .16% or greater that is measured within 2 hours of operating a motor vehicle will land you in a Tier 3 status. Anyone who refuses to submit to a chemical test and have their BAC measured will be placed into Tier 3 status as well. In addition to a high BAC, any illegal drug will also land you in Tier 3 status.  Note if you have a prescription drug without a valid prescription it is considered an illegal drug.

If you are found guilty of first offense DUI you will have your  driver’s license suspended for 12 months (occupational license eligibility after 60 days), jail time between 72 hours and 6 months, fines between $1,000 – $5,000, attend and complete safe driving classes, complete a drug and alcohol evaluation, complete a 30 minute CRN evaluation and complete 32 to 64 hours of community service.

What happens after I get my preliminary hearing court date?

If your attorney cannot get the DUI charges dismissed you should waive your preliminary hearing and submit your ARD application as soon as possible and within three weeks of your arraignment date. Usually five weeks after the preliminary hearing date you have an Arraignment which is also waived unless you receive notice from us that your ARD application has been denied.

A few weeks after the scheduled arraignment date, you will be sent a certified mailing advising of the back-up pre-trial conference date (usually six months after the arraignment date) and the name of the judge assigned to the case.   The reason why the pre-trial conference date is set so far in the future is to allow sufficient time for the District Attorney’s office to review the ARD application.  Generally, ARD hearings are scheduled anywhere from 3 to 6 months after the arraignment date.  If the ARD hearing is not scheduled or if ARD is rejected, you must come to court for the Pre-Trial conference.

After you arraignment date if you do not receive a removal letter from the District Attorney,  you should try to complete 8 hours of community service as well as complete the drug and alcohol evaluation  and CRN evaluation, and safe driving course  prior to your ARD hearing date and pay all the fines if you can.  If you do receive a removal letter contact Spadea & Associates, LLC immediately.  If you cannot pay the total fines by the ARD hearing date you can get on a payment plan.

Filed Under: Criminal Law Tagged With: , , , , , , , , , ,

What is a Corporation Supposed to do at the Annual Shareholder Meeting?

October 26, 2011 by

Businessman Standing at a Podium and Giving a Speech to a Conference Room Full of Delegates
The simple answer is to reinforce corporate formalities.  The regular observance of corporate formalities is an important aspect of maintaining the protections and advantages of being incorporated, not the least of which is the protection of shareholders against personal liability for the financial obligations of the corporation.   Three of the most important areas of corporate formalities are shareholder decision making, director decision making, and separation of corporate assets from personal assets.  For example the corporation should never pay the shareholders or directors personal expenses from the corporate bank accounts.

Federal and state tax returns, employment tax returns, and annual reports and similar filings are also required, depending on where the corporation is incorporated and qualified to do business.   The shareholders should take action to elect the board of directors of the corporation annually. In addition, certain specified fundamental changes in the corporation require the consent or approval of the shareholders, including, but not limited to:

1. Amendment of the Articles of Incorporation.

2. Sale of all or substantially all of the assets of the corporation.

3. Merger or consolidation of the corporation with or into any other corporation.

4. Winding up and dissolution of the corporation.

Matters of more general operating policy should be considered and authorized by the company’s board of directors. Although there is no statutory requirement with respect to how frequently the board of directors should act, it is typical that the board meets at least annually if not quarterly and calls special meetings in which action is required before the next regular meeting.

Matters appropriate for director action include the following:

1. Annual appointment of officers, setting of salaries, and declaration of bonuses.

2. Corporate borrowing and the giving of security in connection therewith.

3. Contracts for the acquisition or lease of significant assets or services or the disposition of assets, or for the rendition of services outside the ordinary course of the business of the corporation.

4. Policy decisions with respect to the corporation’s operating budget.

5. The adoption of pension, profit-sharing, bonus, and other employee benefit plans.

6. The declaration of dividends or the redemption of shares.

7. Amendment of the bylaws.

8. Review of financial statements of the corporation and appointment of auditors, if any.

9. Any action that requires a shareholder vote.

10. The issuance and sale by the corporation of additional shares or the grant of options to purchase additional shares.

Contact a Ridley Park, PA Business Law Attorney at Spadea & Associates, LLC

At the Law Offices of Spadea & Associates, LLC, in Ridley Park, we represent individuals and businesses throughout southeastern Pennsylvania, including Delaware County, Montgomery County and Camden County. We also work with clients in Philadelphia and Burlington Counties.

For a free initial consultation with an experienced business lawyer, call us at 610-521-0604 or e-mail contact us online today.

Filed Under: Business Law Tagged With: , , , , , , , , , , , , ,

Understanding “Intentionally Defective” Grantor Trusts

October 19, 2011 by

Despite its odd name, the intentionally defective grantor trust (IDGT) is a powerful estate planning tool that can achieve a wide range of objectives: reducing the size of the grantor’s estate, transferring assets outside the probate process, removing assets from the reach of the grantor’s creditors, and reducing the future tax liability upon transfer or sale of an appreciating asset. The IDGT can be an especially effective device for transferring small business ownership from one generation to another.

To create an IDGT, the grantor first sets up an irrevocable trust funded with cash or other liquid assets in an amount approximately 10 percent of the value of the other assets to be transferred into the trust. Once the IDGT comes into being, the grantor can then sell assets to the trust in exchange for promissory notes, which can either call for interest-only payments with a balloon or amortization of the principal amount of the debt.

Using the IDGT to Transfer Interests in a Closely Held Business

The most common IDGT sales transactions involve transfer of a non-controlling interest in a business owned solely or principally by the grantor, who retains certain rights in the assets transferred – mainly, the right to substitute trust assets or manage them on a non-fiduciary basis. This retention of rights with respect to trust assets is what makes the trust “defective” for income tax purposes. The grantor will need to pay tax on income produced by trust assets, because the IRS will regard the transfer of assets as a sale by the grantor to him or herself.

For estate and gift tax purposes, however, a properly created IDGT will be recognized as valid. Beneficiaries of the trust will take title to the assets free of income, capital gains or estate tax. Because asset values are determined at the time of the grantor’s transfer, subsequent appreciation of assets can be essentially tax-free when the beneficiaries come into title.

Accurate asset valuations are an indispensable part of making an intentionally defective grantor trust work. The installment note taken by the grantor at the time of sale to the trust should be based on current values. When the assets “sold” are interests in an LLC or S corporation, the values can generally be discounted to reflect the non-controlling nature of the interest and the lack of marketability.

Upon the grantor’s death, the grantor’s estate may be liable for tax on any unpaid balance of the installment note at the unappreciated asset value. Transferring an appreciating asset (interest in a closely-held business) in exchange for a non-appreciating asset (the installment note received upon sale) by itself is one of the ways that an IDGT helps families manage estate tax liability for the intergenerational transfer of business interests.

Ridley Park Trusts and Estates Lawyer: Call 610-521-0604

Metro Philadelphia estate planning attorney Gregory J. Spadea has advised many Pennsylvania business owners about their options for protecting asset values while reducing tax liability through the proper use of trust instruments, gift transfers and asset protection strategies. To find out whether the IDGT can help you meet your estate planning objectives, contact Spadea & Associates in Ridley Park. To learn more about the firm and its lawyers’ experience, visit its website at http://spadealawfirm.com.

Filed Under: Estate Planning Tagged With: , , , , ,

Why I Must Claim my Child as my Dependent Even if He or She is Over 18

October 14, 2011 by

Young man studying in library
Besides the personal and spousal exemptions, you should also claim an exemption for each of your dependents. The reason is that unless your dependent had taxable income of at least $20,000 in 2010 they will not be able to use the entire $2,500 of education tax credits because their income tax will be less than $2,500. However, your child must realize they may not claim themselves when you claim them as a dependent. If they do take a personal exemption for themselves, then they would have to file an amended return if you wanted to claim them as a dependent on your return. Spadea & Associates, LLC would gladly assist them in amending their return.

Briefly, if the individual meets all of the following tests, he or she is your dependent and is not permitted to claim an individual exemption on his or her own tax return:

• the member-of-household or the relationship test
• the citizenship test
• the joint return test
• the gross income test
• the support test

Member of Household or Relationship Test

If your child or other dependent died during the year but would otherwise have met all five tests, you can still claim the exemption for the dependent. Conversely, if your child was born on the last day of the year and met all five tests above you can claim him or her them as a dependent. If the individual is not a close relative under the IRS’s definition, he or she can still meet the first test for dependent status by living with you for the entire year as a member of your household.

Foster children (or adults) can be treated as dependents if they live with you for the entire year, unless you receive payments as a foster parent from a state government, a political subdivision, or a tax-exempt child-placement agency. If you receive any such payments, you can’t claim a dependency exemption for the child. If you receive some payments as a foster parent, you can claim a charitable deduction for the excess expenses, if your actual expenses for the child are higher than the amount of payments you receive.

Citizenship Test

This test for dependent status is met if the person is a U.S. citizen or resident alien, or is a resident of Canada or Mexico for at least part of the calendar year in which your tax year begins.

Joint Return Test

This test for dependent status refers to the tax return filed by the dependent, not your own tax return. In most cases, you can not claim a dependency exemption for any married person who files a joint return with his or her spouse. The exception to this rule is if neither the dependent nor his or her spouse is required to file a tax return, but they file one merely to get a refund, and neither the dependent nor his or her spouse would owe any tax if they filed separately rather than jointly.

Gross Income test

The dependent must either (a) be your child who is age 18 or younger, or under the age of 24 and a student, or (b) have gross income that is less than the amount of the dependency exemption for the year, which means less than $3,650 for 2010.

Therefore even if your child was over 18 and in college and earned more than $3,650 in 2010, you should still claim that child on your return if you provided more than half of their support and you are in a higher tax bracket. The reason is that you can take advantage of the $1,500 Hope Education credit and $1,000 American Opportunity Credit which your child may not be able to use because they may not have enough taxable income to get the full education credit as stated earlier.

Remember the education credits are not refundable tax credits like the Earned Income Credit so if your child does not owe tax of less than $2,500, they will not be using the entire education credit that you would be eligible for assuming you are in a higher tax bracket.

Support Test

The final part of the test for dependent status requires that you provide more than half of the person’s total support during the calendar year.

Planning Point for Self Employed Parents

If your child is 15 or older you can hire him or her and pay them up to $3,650 in 2010 and they will pay no income tax and you can still claim them as a dependent.

However, household employees or foreign exchange students that live with you will not qualify as dependents.

Filed Under: Tax Law Tagged With: , , , , , , , , ,

Why Do I Need a Real Estate Lawyer To Buy My First Home?

September 30, 2011 by

Interior View Of House
A real estate lawyer can help you negotiate and read the real estate sales contract, and make sure you understand all the terms and that your interests are protected. Remember, Spadea & Associates, LLC work for you and only you whereas the Realtor works for the seller. We will also ensure all the inspection and mortgage application deadlines are realistic.

Spadea & Associates, LLC can also help you find a title insurance company that will provide the proper coverage required by Pennsylvania or New Jersey law at the lowest cost.

If you need a survey, the Firm will assist you in hiring a surveyor or architect. I will also help you read the survey.

We will help you find and hire a home inspector and ensure the sales agreement allows you enough time to get the required inspections for radon and or termites before moving forward with the sale.

Spadea & Associates, LLC will help you find a mortgage broker or credit union to get the lowest mortgage rate based on your credit report, loan to property value ratio and interest rates. I will help you interpret the Good Faith Estimate to ensure you do not pay any unnecessary fees or points.

Prior to closing we will inspect the mortgage commitment letter, title commitment letter and settlement sheet to ensure they are accurate and reflect the sales agreement terms.

At closing we will go over all the settlement documents with you and ensure you receive a copy of the settlement sheet, mortgage, deed and note. I will also recommend some property insurers to protect your new home with the correct coverage.

After closing we will review your real estate tax assessment and file a real estate tax appeal with the County if the purchase price is less than the assessed value of your new home multiplied by the common level ratio in effect at the time of the closing.

If you are trying to buy a property in Pennsylvania or New Jersey, feel free to call Spadea & Associates, LLC at 610-521-0604.

Filed Under: Real Estate Tagged With: , , , , , ,

Occupational Drivers License Application Process in Pennsylvania

September 16, 2011 by

A form from the DMV suspending a driver's license.

Anyone arrested for drunk driving in Pennsylvania can expect to have their driver’s license suspended. Other serious traffic violations can also result in a suspension, but many drivers can avoid the worst consequences of an interruption in their driving privilege by applying for an Occupational Limited License (OLL) before or after their suspension has begun.

Not all drivers will qualify for an OLL. For example, if you have driven on an occupational license in the last five years, you are ineligible to apply for another one. Certain specified violations will also disqualify the driver from a conditional or limited license during a period of suspension. To understand your eligibility for an OLL during your suspension, discuss your situation with an experienced Pennsylvania traffic violations lawyer. Contact the law firm of Spadea & Associates, LLC, in Ridley Park for a free initial consultation about your specific situation.

Find Out if You Are Eligible for an Occupational Limited License

Working with Spadea & Associates, LLC on your drivers license suspension issues can offer many advantages. First of all, you can coordinate your defense on the criminal charge with your driver’s license protection strategy. If the offense charged against you is of a kind that will disqualify you from an occupational license, we might be able to find a way to negotiate a plea to a different charge that will protect your ability to drive.

Next, Spadea & Associates, LLC can give you a specific idea of what to expect at every stage of the process in terms of cost, timing and the critical details that can make or break an application for limited driving privileges. When you have an accurate understanding of your rights and the procedures involved in activating them, you will avoid mistakes and the waste of time or money involved with solutions that cannot work.

Many violations will disqualify the driver from an occupational limited license, and you should get a clear idea of your legal and practical options if you are charged with any of a number of disqualifying criminal or motor vehicle offenses, including:

  • DUI or refusal to submit to alcohol testing (both with certain exceptions)
  • Homicide by vehicle
  • Underage alcohol violations (with certain exceptions)
  • Unlawfully passing a school bus
  • Reckless driving
  • Fleeing a police officer
  • Driving on a suspended license (with certain exceptions)
  • Failing to maintain financial responsibility, or driving without insurance

CDL holders need to understand that there is no way to recover commercial driving privileges through the OLL process, but they can still apply for an occupational license to permit restricted operation of their own private vehicles.

Understanding the Occupational Limited License (OLL) Application Process

Applications for the OLL are made by certified mail to the Pennsylvania Department of Transportation in Harrisburg mail. To protect your interest in driving without interruption, you need to make your application on the Occupational License Petition form at least 20 days before your suspension is due to begin. The petition must be accompanied by an application fee and proof of insurance.

Assuming that the application is submitted in correct form by a driver eligible for an occupational license, PA Department of Transportation’s decision to grant or deny the OLL will be based on the applicant’s driving record and current violations. If granted, you will be notified that your current license will be valid for a limited period pending your surrender of the license and your receipt of the occupational license. You send your current license, once again by certified mail, within 15 days of receiving your notice of approval.

If your application has been denied, you have the right to an administrative appeal and a hearing. It can be difficult to win an appeal of an unfavorable decision on an occupational license petition, however, and you should seek legal advice before pursuing any appellate rights.

Contact Spadea & Associates in Ridley Park: 610-521-0604

To learn more about the eligibility standards and application process for occupational drivers licenses during a period of suspension in Pennsylvania, contact the law firm of Spadea & Associates in Ridley Park. To find out more about our firm and our approach to client service, visit our website at http://spadealawfirm.com.

Filed Under: Criminal Law Tagged With: , , , , , , , , , ,

Learn About the Advantages of Organizing as an LLC

September 1, 2011 by

LLC benefits clipboard
Anybody interested in starting a new business, or in formalizing the organization of an existing sole proprietorship, should pay careful attention to the entity selection decisions they will need to make. An experienced business law attorney can guide you through the considerations that will affect your decision to form a C corporation, an S corporation, a limited liability company (LLC), any form of partnership, or stay with a sole proprietorship in your own name.

Though they are relatively new in the United States, LLCs have emerged as a highly popular and flexible way of organizing a new business entity. Virtually unknown in this country 40 years ago, LLCs can be formed today in every state, and in some industries, they represent the standard form of business organization.

Flexibility and Ease of Formation

Although the details vary from state to state, an LLC combines certain features of the business partnership and the business corporation. The personal liability of an LLC’s members is protected in much the same way that a corporation shelters its shareholders from liability. Unlike corporations, however, most LLCs are taxed on a pass-through basis to its individual members. In other words, the LLC pays no taxes on its profits, but each member pays income tax on his or her share.

Perhaps the main advantage of the LLC is its flexibility in organization and management. Corporations and partnerships alike are free to vary many of the state laws related to corporate and partnership governance through corporate bylaws and partnership agreements, but the level of default statutory regulation applicable to LLCs is very limited. An operating agreement defines the rights and responsibilities of the membership, and creating an LLC is as simple as filing a certificate of organization (Pennsylvania) or certificate of formation (New Jersey) together with a modest filing fee.

Unlike corporations, LLCs are not managed by boards of directors with specific duties and responsibilities.  Instead, the management functions of an LLC are spelled out in the operating agreement. When the LLC has more than one member, the operating agreement can also spell out details as to the transferability of interests, rights of first refusal and restrictive covenants with respect to proprietary information, customer lists and noncompetition terms.

Tax Election Options for LLCs

Some entrepreneurs or existing businesses might find the tax characteristics of an LLC to be disadvantageous. Because the LLC itself is not taxed, distributions to members are taxed as ordinary income to the individuals. For most startups, however, this will represent no practical difference from self-employment tax. LLCs can also elect to be taxed in any of several ways: sole proprietorship, S corporation, or if there are multiple members, as a C corporation or partnership. LLCs seeking corporate tax treatment can set up a Simple IRA retirement plan and pay themselves a reasonable salary to reduce some of their self-employment tax that they would incur as a sole proprietorship.

When the primary impetus for organizing as an LLC is to shelter personal assets from business liability, the limited liability company form is hard to beat. Many real estate companies, property investment and management firms set up a separate LLC for each building, to ensure that the tort or contract liability for each project is contained to the asset value of that property. The LLC elect to be taxed as partnerships are taxed with the general partner organized as a corporation or another LLC.

Contact Spadea & Associates, LLC in Ridley Park: 610-521-0604

Any business entity selection and formation decision should be based on your own personal and business objectives, needs and characteristics. The Law Offices of Spadea & Associates works with business owners and entrepreneurs in Greater Philadelphia, southeastern Pennsylvania and South Jersey on matters of business law, tax law and estate planning. To learn more about the ways an LLC could meet your objectives in Pennsylvania or New Jersey, contact us in Ridley Park.

Filed Under: Business Law Tagged With: , , , , , , , , ,

Why Should I Have a Will?

August 17, 2011 by

A will is the starting point of any good estate plan. A will is a legal document that directs how your estate is administered and allows distribution of your assets to your named beneficiaries and contingent beneficiaries after your death. A properly drafted will protects your family by helping them meet their future financial needs after your death. A will minimizes your taxes by reducing the size of your taxable estate. Having a will also avoids intestacy proceedings to determine how your estate should be distributed. Having a will also avoids your beneficiaries from posting a bond to probate your estate. It is very important to name an executor who is responsible for settling the estate, filing all the inheritance tax, estate tax and income tax returns and carrying out the provisions of the Will.

It also enables you and your spouse to set up a testamentary trust for your children if you both were to die at the same time. You would also name a trustee that would watch over the trust assets and distribute them to pay for support, education and maintenance of your children until they reach twenty five or any age you and your spouse deem appropriate. A will allows you to name a guardian to raise minor children, which avoids having the Orphans Court appoint a guardian based on the information it can gather after you and your spouse die.

You can state in your will that you may leave a memorandum suggesting the distribution of certain personal items that you want distributed after your death such as jewelry, china, coin collections, memorabilia, tools or golf clubs etc. You can avoid potential conflict by leaving a signed and dated list with your will explaining who should get these personal items.

You should consider updating your will if any of the following occur:

1. Substantial increase or decrease in your estate assets.
2. You retire or sell your residence.
3. If you get married or get divorced.
4. Any new births or deaths in your family.
5. You move to another state or country.
6. You start a business, add a partner or terminate one.
7. The federal estate tax or income tax laws change.
However, a will only covers assets in your name. It does not cover jointly owned assets or assets with named beneficiaries such as retirement or brokerage accounts. Therefore you should regularly update your beneficiary designations on those types of accounts.
The most important thing a will gives you is peace of mind knowing that your family and loved ones are taken care of.

Filed Under: Estate Planning Tagged With: , , , , , , ,

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