Category: Taxes

Business Lawyer – What are the Benefits?

Launching a business has a very small margin for error. New entrepreneurs need to make judicious decisions regarding tasks to perform in-house v. outsourcing. The value of time, effort, and costs cannot be underestimated.

The Business Lawyer can assist with the following:

Business Registration and Formation

Registrations and permits can vary among cities and counties, creating a mountain of checklists and paperwork.

The attorney can advise on selecting the most suitable business structure (e.g. is one of the goals to be acquired in the future?), preparing the Bylaws or Operating Agreement, obtaining the employer identification number (tax I.D.), and obtaining permits for the specific trade or industry.

Preparedness and Business Operations Counseling

The business attorney’s first hand experience of the most common business disputes can assist the entrepreneur with preventing or mitigating complications, such as partnership or shareholder disputes, tax compliance, foreign shareholder tax issues, vendor disputes, customer disputes, unfair competition, and employee issues.

The business attorney can also assist with shareholder transactions, minutes, officer and board decisions, board and shareholder meetings and notifications.

There are also ongoing regulatory reports and tax filings that need to be timely made in order to prevent penalties, failure to do so could end with the suspension or revocation of the business license.

Investment Capital and Financing

The business attorney through his or her network organizations and connections can assist the entrepreneur with financing and capital needs. Sometimes regular banking channels are unwilling to provide financing, so private capital providers may be of interest or necessary.

Don’t Put Your Estate in the Hands of a Machine

Recently there has been a lot of discussion and predications about the impact of automation and artificial intelligence on the legal profession.

While technology has made administrative repetitive tasks more efficient, it is still far off from substituting the counsel of an experienced attorney.

In terms of Estate Planning, the use of document providers such as Legal Zoom has gained in popularity. The most touted benefit is the cheaper cost.

However, you get what you pay for. Translation: What is the value, quality, and assurances provided?

Value Factors

Fiduciary

Tax Advice

Legal Advice

Court Experience

Translations

Trust Funding

Insurance

Trust Administration

 

Attorney

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

 

Document Provider

No

No

No

No (Represent Yourself)

No (Own Comprehension)

No (Do it Yourself)

No

No (Do it Yourself)

 

Issues Not Likely Addressed by Document Provider

  • How to transfer and effectuate ownership of specific assets (e.g. real estate) into the the Trust.
  • How to relate financial assets to the Trust only held in the name of an individual (e.g. Life Insurance and Retirement Accounts.)
  • Tax planning and management of each specific asset. (Assets have differing tax characteristics, application to beneficiaries, and the method and sequencing of distribution.)
  • Cross-border considerations and International Tax implications.
  • Advice regarding scenarios that are more likely to cause disputes, legal actions or delays.
  • Insights regarding the Trust or Estate administration. When you die what is required of those in charge to effectuate your testamentary wishes? Common tasks include tax valuations and tax returns, legal notices, legal filings, and distributions.

In conclusion, technology is a great thing, but it is still a tool that is only as good as the operator and the person providing the input. Savvy customers should ask themselves if they want to hire someone to delegate responsibility for complex and sophisticated matters, or rely on their own education, skill, and capability.

Disclaimer

The Dangers of Naming a Foreign Relative a Co-Owner On Title to U.S. Real Property

A common occurrence is for a U.S. citizen or permanent resident to buy U.S. real estate with the assistance from a Non-Resident Alien (“NRA”) relative such as a parent, sibling, or grandparent.

Usually the initial contact person will be a real estate broker. In California, the vast majority of real estate brokers will use standard California Association of Realtor (“CAR”) forms.

It is important to know that the standard CAR disclaims  responsibility for any legal or tax advice. This obligation and risk is contractually put onto the purchaser or seller, meaning the purchaser or seller is obligated to separately consult and arrange for any legal or tax advice.

Since the real estate broker is being paid on commission, his or her main interest will be to complete the sale of the property as soon as possible. Any due diligence regarding the condition of the property, tax planning, or consideration of legal implications will be viewed by the realtor as a potential risk of causing the sale to be delayed or fall through.

One question that will have to be decided at the time of purchase is who and how to take the title to the real property. Often the NRA relative who is contributing money will want to have some control or interest and be named as co-owner to the real property.

The impact of this decision, without proper legal and tax planning, runs a significant risk of a surprise tax hit or legal claims. Depending on the objectives there may be alternate solutions to meet the objectives of the contributing NRA relative.

The best time to properly structure an acquisition or sale of California real property is prior to the acquisition, or immediately thereafter.  As one builds equity over time, the longer the wait, the higher the risk of the tax implication. Another factor is how the property is transferred, by gift or by sale, or a combination of both.

If you are a foreign investor interested in acquiring California real property, there are significant and complex tax, legal, and business cost considerations. You do not want to be caught unaware and wind up paying more money than is necessary, with less remaining for your family members.

For additional information on structuring a California real property investment, please contact the Law Offices of Hanlen J. Chang.

Additional information can also be found in this prior post.

Disclaimer

Pre-Immigration Tax Planning to the United States

Purpose of Pre-Immigration Planning

Because a U.S. citizen or resident alien is taxed on his or her worldwide assets and income, a prospective immigrant from a lower territorial tax country needs to seriously consider pre-immigration tax planning.

U.S.  Residence for Income Tax Purposes

An individual is considered a Non-Resident Alien, and is thus not considered a resident for U.S. tax purposes, if the weighted number of days spent in the U.S. within the last 3 years combined is less than 183 days, or the individual spent less than 31 days in the U.S. in the most current year.

U.S. Domicile for Transfer Tax Purposes

For transfer tax purposes, an individual is a U.S. resident if he or she intends to remain in the U.S. indefinitely as determined by the totality of circumstances.

Taxation of Non-Resident Alien

If one is neither a resident for U.S. income tax or transfer tax purposes, one is considered a Non Resident Alien (“NRA”) and is subject to taxation on income effectively connected with a U.S. trade or business or from passive U.S.  sourced investments such stocks, bonds, and rental income.

Mitigating the Impact of U.S. Taxation

For those seeking to mitigate or avoid higher U.S. taxes or in some circumstances double taxation from two jurisdictions, there are various strategies. The most commonly utilized strategy is pre-immigration gifting of assets, including partial disposition with retention of income stream through an Non-U.S. irrevocable trust or legal entity. Other options include capitalizing on the home country’s lower capital gains tax rate by selling assets with substantial appreciation.

Disclaimer

California Real Property County Taxes – Proposition 13 and 19

Under California Proposition 13, each County in California collects an annual real property ad valorem tax not to exceed 1% based of the value at time of the purchase with annual increases restricted to an inflation factor not to exceed 2% per year.

As the rate of return of real property tends to grow faster than the 2% cap, over time the lower tax base becomes a valuable asset.

Proposition 13 disincentivizes sales in instances where the assessment value is lower than the market value. This is because selling and purchasing a comparable real property at the same price point would result in a significantly higher annual assessment.

For residential real property owners, there is a parent to child reassessment exemption credit of 1 million dollars (at the time of transfer – difference of Fair Market Value minus present annual property tax assessment.) This credit is for one residential property only. No second property or rental property qualifies.

In order to keep this Proposition 19 parent to child credit, one must live at the subject residential property for at least one year post transfer.  The county may physically verify that you are actually living there.

Also under Proposition 19, those age 55 or older can transport the preexisting proposition 13 rate to a new property in another county.

For real property held and owned by a legal entity (e.g. LLC), a change of majority control or ownership results in a reassessment. This has encouraged fractionalized ownership where no one person owes more than 50%.

Assuming real property values exceed 2% growth over time, Proposition 13 has an elevated impact for long-term investors who need to be extra cautious when structuring ownership and title upon acquisition, and prior to lifetime dispositions and death. Failure to do so can result in otherwise avoidable partial or total reassessment.

Disclaimer