How is an LLC different from an LLP?

A Limited Liability Company (LLC) is a hybrid organization that takes aspects of corporations and combines them with the framework of a partnership. The owners of an LLC benefit from the ability to choose to be taxed at the company level, much like a corporation, or using pass-through taxation, as found in partnerships. An LLC generally has the management flexibility of a partnership as well. In Texas, this organizational structure may be owned by a sole individual or by a group. Either way, members have limited personal liability for the actions of the LLC.

A Limited Liability Partnership (LLP), on the other hand, cannot be considered a separate taxable entity, and therefore is restricted to pass-through income taxation. An LLP is essentially a General Partnership in which each partner is not liable for certain acts of other partners. Each partner is, however, directly impacted by any profits or losses that the LLP encounters. If one partner obligates the LLP to a debt, be it to creditors, landlords, lenders, etc. each partner can, to some extent, be held personally responsible.

If you are considering forming a business in Texas, contact Peterson Law Group.

What is a sole proprietorship?

A sole proprietorship is the common and form of business. Most small businesses begin as sole proprietorship, and many family-run businesses continue to use this form. In a sole proprietorship, a single individual engages in a business activity. There is no formal paperwork required by the state of Texas in order to start or form a sole proprietorship.

If the business is conducted under a name other than the surname of the individual, then an assumed name certificate (or "DBA" for doing business as) should be filed with the County Clerk's office where the business is located. If there is no formal location for the business, then an assumed name certificate should be filed with the county clerks in all counties where business is conducted.

One drawback of the sole proprietorship is that the business owner has liability for all of the debts of the business and any other claims against the business, such as tort liability.

Typically, a sole proprietorship will use the social security number of the individual owner and will pay taxes using Schedule C attached to the owner's 1040 tax form.

If you need a Texas business lawyer, please contact Peterson Law Group.

How to form an LLC in Texas

Many companies in Texas choose to use a limited liability company (or LLC) for their business. LLCs are great small business entities because they provide limited liability while also providing flexibility for taxing purposes.

To form an LLC, the first step is to choose a name for your limited liability company. You can use almost any name you want, except for names that are too close to the names of existing LLCs, violate someone else's trademark, or a few restricted names. You can check the LLC name options by contacting the Texas Secretary of State's Office.

The second step is to file a Certificate of Formation. This certificate, which used to be called Articles of Organization, lists basic information about your limited liability company. The information you will need includes:

1. Name of the LLC

2. Name and address of the Registered Agent

3. Address of the LLC's principal office

4. Names and addresses of the LLC Managers

The registered agent is a person that will receive formal notices from the State of Texas about matters involving the LLC. The registered agent will also be the person that will be served with any lawsuits involving the limited liability company. The LLC managers are essentially the same as a board of directors; they will manage the day to day operations of the limited liability company.

The third step is to file the Certificate of Formation and the required filing fee to the Texas Secretary of State. Once you receive confirmation (Certificate of Filing) from the Secretary of State, your limited liability company will be official and the LLC formation complete.

However, you probably also need to:

1. create an LLC Operating Agreement

2. sign initial LLC meeting minutes (or a written consent)

3. order a corporate record book and issue the LLC membership units (LLC stock)

4. apply for a federal tax id number

5. apply for any licenses or permits needed for your business

If you need help in starting an LLC, Peterson Law Group has 2 ways to help you. You can use our full service law firm or you can use our self help virtual law firm.

How to form an LLC in Texas

Many companies in Texas choose to use a limited liability company (or LLC) for their business. LLCs are great small business entities because they provide limited liability while also providing flexibility for taxing purposes.

To form an LLC, the first step is to choose a name for your limited liability company. You can use almost any name you want, except for names that are too close to the names of existing LLCs, violate someone else's trademark, or a few restricted names. You can check the LLC name options by contacting the Texas Secretary of State's Office.

The second step is to file a Certificate of Formation. This certificate, which used to be called Articles of Organization, lists basic information about your limited liability company. The information you will need includes:

1. Name of the LLC

2. Name and address of the Registered Agent

3. Address of the LLC's principal office

4. Names and addresses of the LLC Managers

The registered agent is a person that will receive formal notices from the State of Texas about matters involving the LLC. The registered agent will also be the person that will be served with any lawsuits involving the limited liability company. The LLC managers are essentially the same as a board of directors; they will manage the day to day operations of the limited liability company.

The third step is to file the Certificate of Formation and the required filing fee to the Texas Secretary of State. Once you receive confirmation (Certificate of Filing) from the Secretary of State, your limited liability company will be official and the LLC formation complete.

However, you probably also need to:

1. create an LLC Operating Agreement

2. sign initial LLC meeting minutes (or a written consent)

3. order a corporate record book and issue the LLC membership units (LLC stock)

4. apply for a federal tax id number

5. apply for any licenses or permits needed for your business

If you need help in starting an LLC, Peterson Law Group has 2 ways to help you. You can use our full service law firm or you can use our self help virtual law firm.

IRS Small Business Guide is available online now

The Small Business Resource Guide 2008, a one stop source for all the information a small business owner needs to comply with federal tax laws, is now available on IRS.gov.
You can also order a CD version online, or call (800) 829-3676 and ask for Publication 3207, revision March 2008.

EPA issues new regulation on lead-based paint

The Environmental Protection Agency has come out with a new lead-based paint rule that will affect the building and remodeling industry. The poress release follows:

"To further protect children from exposure to lead-based paint, EPA is issuing new rules for contractors who renovate or repair housing, child-care facilities or schools built before 1978. Under the new rules, workers must follow lead-safe work practice standards to reduce potential exposure to dangerous levels of lead during renovation and repair activities.

"The "Lead: Renovation, Repair and Painting Program" rule, which will take effect in April 2010, prohibits work practices creating lead hazards. Requirements under the rule include implementing lead-safe work practices and certification and training for paid contractors and maintenance professionals working in pre-1978 housing, child-care facilities and schools. To foster adoption of the new measures, EPA will also conduct an extensive education and outreach campaign to promote awareness of these new requirements.

"The rule covers all rental housing and non-rental homes where children under six and pregnant mothers reside. The new requirements apply to renovation, repair or painting activities where more than six square feet of lead-based paint is disturbed in a room or where 20 square feet of lead-based paint is disturbed on the exterior. The affected contractors include builders, painters, plumbers and electricians. Trained contractors must post warning signs, restrict occupants from work areas, contain work areas to prevent dust and debris from spreading, conduct a thorough cleanup, and verify that cleanup was effective. "

More information: EPA's lead program (http://www.epa.gov/lead)

Texas Vehicle Exemption for Personal Vehicle Used in Business

The following reminder comes from the Texas Association of Realtors:

"Don't ignore April 1 deadline for exempting your vehicle from taxationYou already know you aren't required to pay property tax on your personally owned vehicle that you also use for business purposes. But do you know how your local appraisal district is handling this exemption?
"Each of the 253 appraisal districts in Texas is handling the exemption of these so-called mixed-use vehicles from taxation differently. Some districts don't require an exemption form for such a vehicle if the owner was not charged property tax on that vehicle in 2007. If you haven't previously had to pay property tax on your personally owned vehicle that you use for business, check with your local appraisal district before you make the decision to not file an exemption form. Without filing an exemption form, there is no guarantee that the appraisal district won't tax you. A list of county appraisal districts with each district's contact information is available online. Those districts that require an exemption to be filed must receive your 2007 exemption by April 1; your 2008 exemption is due April 30."

For all of your legal needs, contact us at 979-680-9993 or via our website, BrazosLawyers.com.

Business Mileage Rates Increase for 2008

This just came out from the IRS:

Beginning Jan. 1, the 2008 optional standard mileage rate for business use of a car (including vans, pickups or panel trucks) is 50.5 cents per mile. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile.

Related Link:
IR-2007-192, IRS Announces 2008 Standard Mileage Rates; Rate for Business Miles Set at 50.5 Cents per Mile

New service from the IRS -- verifying Social Security information and identities

The IRS now has a website that allows employers to verify social security numbers and match them to the correct names. The announcement from the IRS with links is below:

"Use the Social Security Number Verification Service to verify your employee names and SSNs match Social Security's records. "

This should be a nice feature for small business owners that need a fast way to accomplish this with new employees.

For small business advice, contact Peterson & Swearingen, LLC at 979-680-9993 or through our website, BrazosLawyers.com.

What changes were made to the minimum wage law?

The Fair Labor Standards Act increases the federal minimum wage in three steps:

July 24, 2007, $5.85 per hour

July 24, 2008, $6.55 per hour

July 24, 2009, $7.25 per hour

See the U.S. Department of Labor’s Wage and Hour Web site or call the DOL toll-free help line at 1-866-4US-Wage (487-9243) for more information and a copy of the poster every employer with employees subject to the Fair Labor Standard Act’s minimum wage provisions is required to display at their business.

For any legal matter involving your business, please contact Peterson & Swearingen, LLC at 979-680-9993 or through our website BrazosLawyers.com.

Do I geta tax break for officing at home?

Yes, you can but it is subject to certain rules. The IRS website generally explains them as follows:

"If you use a portion of your home regularly and exclusively for business purposes, you may be able to take a percentage of your expenses as a home office deduction. Expenses may include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting and repairs."

Related Links from the IRS:
Publication 587, Business Use of Your Home
Form 8829, Expenses for Business Use of Your Home
Form 8829 Instructions
FS-2006-25, Home Office Deduction Reminders
Publication 4035, Home-Based Business Tax Avoidance Schemes

For all of your business' legal needs, contact Peterson & Swearingen, LLC at 979-680-9993 or through our website, BrazosLawyers.com.

How do we report taxes for a small business owned by my husband and I?

New legislatiev changes by Congress have simplified this procedure. The following article is from the IRS website and explains these changes.

"Legislation signed last week simplifies reporting for husband and wife owned businesses.
The new law, effective for tax years beginning after Dec. 31, 2006, allows a husband and wife who file a joint return to elect to report income or losses in proportion to their interest in the business and not as a partnership.

"The husband and wife must be the sole owners of the business and both spouses must materially participate in the business to make this election.

"See page 10 of the technical explanation of the Small Business and Work Opportunity Tax Act Of 2007 for more information on the Section 8215, Family Business Tax Simplification."

If you are a small business owner and need legal advice or help in starting up, please contact us at 979-680-9993 or via our website, BrazosLawyers.com.

What can I depreciate in my business?

The rules for what can or has to be depreciated are promulgated by the Internal Revenue Service. The following is an explanation from the IRS about the general rule on depreciation:

"In general, if business property is expected to last more than one year, the entire cost cannot be deducted as a business expense in the year you place it into service. It must be depreciated over the property’s useful life (as defined by the Internal Revenue Code). Most types of tangible property (except land) such as buildings, machinery, vehicles, furniture, and equipment are depreciable. Likewise, certain intangible properties such as patents, copyrights, and computer software are depreciable.

"You can elect to recover all or part of the cost of certain qualifying property (not buildings), up to a limit, by deducting it in the year you place the property in service. This is the section 179 deduction.

"Related Links:
FS-2006-27, Depreciation Reminders
Publication 946, How to Depreciate Property "

For more help with small business questions, please contact us or check our website, BrazosLawyers.com.

How often do I have to pay my employees?

The Texas Payday Law ("Texas Payment of Wages Act") governs how and when employees of private employers get paid. Executives and professionals (like lawyers or doctors) must be paid at least once per month (i.e. monthly). All other employees must be paid at least twice per month. Each pay period should include about the same number of days. Therefore, most employers pay on a set schedule like biweekly, semimonthly or weekly.

If you have other small business questions, please feel free to contact us through our website, BrazosLawyers.com, if we can be of assistance.

I just started a business. What does it mean that I have to pick an "accounting year" and "accounting method?"

This is often confusing for folks who are just starting a business. The IRS website helps explain the different options available:

"All taxpayers – including small businesses – must report income and expenses on an annual basis.

"The most common accounting period is the calendar year – January 1 through December 31.
The other option is a fiscal year which is 12 consecutive months ending on the last day of any month except December – for example July 1 through June 30.

"An accounting method must also be established and generally does not change.
The most common is the cash method where you report income in the tax year you receive it and deduct expenses in the tax year you pay them.

"Another option is the accrual method where you report income in the tax year you earn it, and deduct expenses in the tax year you incur them, regardless of when payment is made.

"Related Links:
Recordkeeping
Publication 538, Accounting Periods and Methods
Tax Years "

I usually suggest that most small business owners use a cash accounting method and a calendar year because these are the same method and year that are usually used for personal income tax returns.

As always, feel free to contact us through our website, BrazosLawyers.com.

Where should I go for tax return preparation?

We use a certified public accountant in our local area who commonly deals with small business owners. However, there is no right or wrong answer to this question. The IRS website does offer some very practical tips on choosing a tax preparer. They recommend the following:

• A paid preparer must sign the return as required by law.
• Avoid preparers who claim they can obtain larger refunds than other preparers. If your returns are prepared correctly, every preparer should derive substantially similar numbers.
• Beware of a preparer who guarantees results or who bases fees on a percentage of the amount of the refund. A practitioner may not charge a contingent fee (percentage of your refund) for preparing an original tax return.
• Understand that the most reputable preparers will request to see your receipts and will ask you multiple questions to determine your qualifications for expenses, deductions and other items. By doing so they have your best interest in mind and are trying to help you avoid penalties, interest or additional taxes that could result from an IRS examination.
• Choose a preparer you will be able to contact and one who will be responsive to your needs. Ask who will actually prepare the return before engaging services. Avoid firms where your work may be delegated down to someone with less training or some unknown worker. You should know exactly who works with your tax matters at all times and how to contact him or her; after all, you are paying for it. Determine if the preparer is exporting your return to a foreign country for preparation. Foreign countries do not have the same security and privacy laws as the United States nor is there any recourse should your information be compromised as a result of lax or nonexistent privacy procedures.
• Investigate whether the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs, the state’s bar association for attorneys or the IRS Office of Professional Responsibility (OPR) for enrolled agents.
• Determine if the preparer’s credentials meet your needs. Is he or she an Enrolled Agent, Certified Public Accountant (CPA) or Tax Attorney? Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection actions and appeals. Other return preparers may represent taxpayers only in audits regarding a return that they signed as a preparer.
• Find out if the preparer is affiliated with a professional organization that provides or requires its members to pursue continuing education and holds them accountable to a code of ethics.
• Check IRS.gov for information regarding abusive shelters and other tax schemes and scams. Remember, if it sounds too good to be true, chances are it is.
• The IRS can help many taxpayers prepare their own returns without the assistance of a paid preparer. Before seeking a paid preparer, taxpayers might consider how much information is available directly from the IRS through the IRS Web site.

For the full article from the IRS website, click here.

As always, please feel free to contact us through our website, BrazosLawyers.com, if we can be of assistance.

What will my business pay under the new Texas Franchise Tax?

Every business is obviously different, so it is hard to answer. But, the Texas State Comptroller has just released a new calculator that can help you figure out what your business can expect to pay under the new Texas Franchise Tax. Click here to go to that calculator.

As always, please feel free to contact us through our website, BrazosLawyers.com, if we can be of assistance.