LLC New York Business Taxation

by Fred Abramson on March 3, 2010 · 1 comment

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The IRS allows owners of LLC’s to make the decision themselves about how they want the company to be taxed.  The LLC can be taxed as in two general ways:

  • As a pass-though entity, like a s-corporation, sole proprietorship
  • Like a c-corporation

What is a pass though entity?

Usually business owners planning on forming a LLC at the startup stage decide that the LLC should be a pass through entity. What this means is that the corporation itself does not pay any taxes.  All tax profits and losses are reported by each business member on their tax return.  Like a sole proprietor, each owner files a schedule c.

If your LCC has more than 1 member be aware that each member must file the IRS Form 1065 and must be the same one used by the LLC.

How to Change your tax treatment

What makes LLC’s unique is the ability of its members to change the way it is taxed. You can elect to be taxed as a S or a C corporation.  To make this change, you only have to check the box that you wished to be taxed in form 8832 and simply file it with the IRS.  You can make this election at any time.  You will now be required to file corporate tax returns.

If you are interested in the entity being taxed as an S, simply file IRS Form 2553.  Be aware that to file as an S corporation, you have to meet its conditions.  Unfortunately, if you wish to change the way your LLC corporate taxed back to a partnership, you will have to wait five years to do so.

If you have any questions regarding starting a business in New York and tax issues related to it, contact me at the Law Office of Frederic R. Abramson at 212-233-0666.

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On July 4, we celebrate the entrepreneurs who were our founding fathers who made a difference by bringing social change to America. Unlike July 4, there is nothing particularly unique about the date of March 4.  On that date back in 2006 final contact was attempted with Pioneer 10 by the Deep Space Network. Unfortunately, no response was received.

NYConvergance recently noted that the New York Tech scene has matured. One sign of its maturity is the bevy of tech events in the New York City area.

What could be better than making March 4, 2010 special by spending the evening celebrating the power of entrepreneurs to change the world.  According to the press release:

The event will feature a panel that brings together the nation’s most prominent advocates for both early stage investment and social enterprise.  Fred Wilson, founder of Union Square Ventures, is an advocate for early stage investment and the single most read blogger in the venture capital community.  Jacqueline Novogratz is the founder of the Acumen Fund, a global nonprofit venture philanthropy fund that hat uses entrepreneurial approaches to solve the problems of global poverty.  They are joined by Roger Ehrenberg, founder of IA Venture Strategies and one of the most active angel investors in New York and Jacob Gray, partner at Murex Investments. The panel will be moderated by Scott Edward Anderson, founder of the and a frequent commentator on the FOx Business Netowrk. This rare combination of finance and philanthropy leadership reflects GoodCompany Ventures’ unique mission to help social entrepreneurs develop scalable, for-profit businesses to address unmet social needs.

Here are the details:

Date:   March 4, 2010

Time:  6-8 PM


Green Spaces NY
394 Broadway
5th Floor
New York, NY 10013

Cost: $35

For more information: GoodCompany Ventures

Drop me a line and let me know if you are planning to attend.  I would love to meet up with you!

The Law Office of Frederic R. Abramson is not affiliated with the above event.  If you have any questions regarding legal issues concerning entrepreneurship, contact the Law Office of Frederic R. Abramson at 212-233-0666.

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Senators Dick Luger and John Kerry introduced today a new piece of legislation entitled “The Startup Visa Act of 2010.” This visa would permit immigrant entrepreneurs to stay or immigrate into the  United States if they have secured “significant” funds to start a new company. The goal of the act is to bring new jobs, opportunity and investment to the US.

To make the visa available, a new EB-6 category would be created. This new visa category would draw from visas under the existing EB-5 category.

One potential sticking point for many budding entrepreneurs is the proposed legislation’s definition of “significant” funds. The bill requires investment capital available from a sponsoring US venture capital or angel investor of at least $100,000 in an equity financing of not less than $250,000. If after 2 years the immigrant entrepreneur can show that he or she has generated at least 5 full time jobs or attracted at least $1 million in additional capital or revenue, then he or she would achieve legal status.

Clearly, this bill is aimed at attracting startup immigrant all-stars. Perhaps the young entrepreneur from Russia who started Chatroulette would qualify.  It will also help young entrepreneurs with great ideas who have recently graduated from college who have  obtained venture funding.

Most immigrant entrepreneurs who contact my office have great ideas but only limited access to capital.   I field a few calls a week from potential immigrant entrepreneurs who have amazing business plans which would be inexpensive to implement, but would fall short of the capital requirements.  I am not sure Bill Gates would qualify for a visa under the Startup Visa Act of 2010 if he hailed from Bangalore when he started Microsoft.

Nevertheless, this proposed law is  a step in the right direction and I support the bill.

Full Text of Proposed Legislation of The Startup Visa Act

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2010 tax year brings several changes to small business tax law.  I know, the thought of taxes isn’t a pleasant topic to think about, unless you are an accountant. However, a look now at the tax position of your company can help you assess how your business can benefit and comply with the amendments to the tax code.

Listed below are 6 amendments to the 2010 tax laws that could have an impact on your small business. This list is subject to change, especially since President Obama outlined in his State of the Union address that there will be more aid for small businesses.

  1. Reduced Mileage Rates. The mileage rate that businesses can use to deduct for automobiles has been lowered.
  2. Home Based Businesses and the First time owner tax credit. If you run your business out of your home and plan to purchase a home for the first time, there is a $8,000 tax credit. Be aware that you need to purchase your home by April 30, 2010.
  3. Cancellation of some Business Debt. The rules are a bit complicated, but certain businesses can decide to delay recognition of income from the cancellation of business debt in both 2009 and 2010.
  4. Domestic Production Activities Deduction. “Domestic production” applies to a restricted group of businesses including architectural, construction, engineering or a few other companies. In 2010 this deduction is upped to nine percent of qualifying business net income.
  5. Tax Credit for Research and Development. This tax credit was set to end in 2009. The House of Representatives has voted to extend the credit, however the Senate has yet to vote on it.
  6. Depreciation and Section 179 Expenses. Small Business had been able to deduct up to $250,000 of the cost of machinery, equipment, vehicles, furniture and other such propertused during 2009. In 2010, this limit is due to drop to $135,000.

These are just a few of the changes.  For more see, Tax Changes for Business by the IRS or contact my office at 212-233-0666 if you are in New York State.

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While litigation may sometimes be your only recourse, many times it is a result of signing a bad contract or not fully examining the contract you have signed.  Here are ten things to know before entering into an agreement in New York that can help protect your business and your assets:

1.      Know the Other Party

Be sure that the business you are contracting with is registered to do business in the state in which you operate your business.  Should there be a problem later on, it will be much easier to institute a lawsuit as the states maintain addresses for service of process on registered corporations.  In addition, if the business is not properly registered in the state, there could be legal issues with your contract.  The business should also be licensed in the specific type of business it conducts, if this is required.

2.       Pricing Issues

If you are a buyer or a seller, know what you are paying or getting paid, when the money is due, how it is to be paid, where it is being paid to.

3.      What is the Exact Product or Service

While this may seem obvious there are thousands of lawsuits on just this issue.  Be sure you and the other party are on the same page, literally and figuratively.

4.      Delivery of the Goods or Services

Specify exact time frames for delivery of the product or service and when payment is due in relation to this time frame.

5.      Condition of the Product or Service

Are the items new or used?  If used, how much?  If new, in original packaging or repackaged?  If a service contract, specify who will be doing the service and his or her credentials?

6.      Warranties

What are the guaranties on the product or service?  What period of time do they cover?  What is the procedure for repairing or replacing an item or correcting a service mistake?

7.      Getting out of the Contract

While most contracts are made to avoid getting out of them, you can sometimes negotiate an “out” clause for poor performance or lack of proper delivery or other essential things.

8.      Renewal of the Contract

Is there an automatic renewal?  Is there any option to renew?

9.      Default

There are several ways to default on a contract. Two prevalent ways are non-payment and non-performance.  Non-payment can include not getting paid in full, on time or at all.  Non-performance can be not doing the job properly, in full, or not how you expected it to be done.  All of these can be combated with remedies in the contract.

10.  Remedies

Make sure the contract has a section dealing with remedies for defaults.  Remedies are compensation to the injured party for such defaults.  Outside of the contract there are other ways to be compensated for default in contracts, including state statutes, federal statutes like the UCC, fraud actions and illegality of the contract, dealing with minors, duress, undue influences, etc.

If you have any questions regarding contract law, contact me at the Law Office of Frederic R. Abramson at 212-233-0666

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