Internal Revenue Service

New York Non-Profit 501(c)(3) Legal Checklist

by Fred Abramson on March 11, 2013

Are you looking to form a non-profit organization in New York? Because your entity will enjoy tax exempt status, there is a number of hoops that you will need to go through. Attached, please find my New York non-profit 501(c)(3) formation checklist.

Be aware that this list may not be all encompassing and I suggest that you contact a lawyer first prior to attempting to do this yourself.

If you have any questions regarding this form, call me at the Law Office of Frederic R. Abramson at 212-233-0666.

New York 501c3 Checklist by Fred Abramson

Choosing a Business Entity in New York

by Zachary Nathanson on May 2, 2011

IRS building on Constitution Avenue in Washing...

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When you start a new business or start-up in New York, there are some major legal hurdles you’re going to encounter. It’s important to examine these issues carefully because they’re often confusing. Each issue should be discussed with an attorney because they can affect your business costs, tax structure, business organization, and liability. In forming a new business you need to choose a business entity type. There are four general types of business entities in New York: sole proprietorships, partnerships, S-corporations, and LLCs.

  • Sole Proprietorship: This is a type of business where one person owns all the assets of that business. In a sole proprietorship those assets that belong to you as an individual and not a single shareholder or a corporate parent. With this type of business entity there are low start up costs, there’s less paperwork involved, and there are no corporate taxes. The big problem with sole proprietorships is that you are personally liable for all your debts. Creditors can go after your personal bank account or even your house to absolve your debts.
  • Partnerships: A partnership is where two or more people jointly own and carry a business for profit. Under this type of entity, those entered in the partnership agree to share the business’s profits and/or losses. Unlike corporations, the company does not itself pay any tax, but the partners pay through their income or losses on their individual tax returns. In a partnership both partners are jointly and severely liable for business debts. Creditors can go after you for the debts of your partnership.
  • S-Corporations must make sure there are no more than 100 stockholders, and each must have consent. S-corporations are taxed through the owner’s income without taxing the entity itself, much like in a partnership.  All profits pass on to the owner without any tax from the shareholder to the owner, unlike in a corporation. The stockholders must be a U.S. citizen or a resident and can only have one class of stock. The owner of an S-Corporation can potentially use this structure to pay himself a smaller salary and pay less in taxes, however this can pose significant problems with the IRS. In a case in Iowa the head of an S-Corporation paid himself far less than his qualifications suggested. The IRS filed a case and succeeded in their suit.
  • Limited Liability Corporations (LLC) are a hybrid business entity where its members are treated as shareholders of a corporation but for tax purposes the members are treated as if they’re in a partnership. In LLC’s the owners are not personally responsible for the debts as they are in sole proprietorships and partnerships. Under certain circumstances an individual may be liable: if a member personally guarantees a debt, if the personal funds are intertwined with the funds of the LLC, if there is little capitalization or insurance, or if it fails to pay taxes or violates a state law. A major issue with LLCs is their cost that include formation fees, filing fees, and annual state fees. There are, however, lower insurance costs.

The Law Office of Frederic R. Abramson represents start-up businesses in New York State. If you have any questions about choosing a business entity in New York, contact me at 212-233-0666

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What are the penalties for misclassifying an independent contractor?

by Fred Abramson on April 16, 2010 · 1 comment

I have a technology company as a client who recently retained my office to advise them on a relatively common employment law. The company signed a contract with financial institution to perform help desk related work.  They hired ten people to perform the work and had each of them sign an independent contractor agreement.  All of the workers performed the work on the job site only. The all worked solely for the technology company for 40 hours a week. The company just received an evil notice from the IRS. The IRS believes that the workers are misclassified as independent contractors and should be employees.

The technology company now wonders if there are penalties for misclassifying the workers as an independent contractor.  The IRS looks in part at the intent of the employer.  If the IRS reclassifies a worker from independent contractor to employee, the employer may be liable for a penalty based on the amount of the tax that was not withheld because of the original misclassification. If the IRS finds that the misclassification was an honest mistake on the part of the employer, and the employer filed proper returns, the penalty against the employer is:

• 1.5% of the wages paid to the employee; and

• 20% of the amount that should have been withheld from the employee’s wages for FICA, but was not due to the misclassification.

If the IRS finds that the employer failed to file the proper returns, then, except where the failure is due to reasonable cause and not willful neglect, the penalties double. Then, the penalties are:

• 3% of the wages paid to the employees; and

• 40% of the amount that should have been withheld from the employee’s wages for FICA, but was not.

If the misclassification on the part of the employer is intentional and therefore the employer intentionally neglected to withhold the necessary employment taxes, the limits discussed above do not apply in assessing the employer’s liability. The penalties for intentional misclassification are more severe. Moreover, the limits are not applicable to the employee’s share of the FICA taxes if the worker is a “statutory employee,” nor where the employer withholds federal income tax from the worker’s wages, but does not withhold FICA.

Lastly, if the required to pay an “employee reclassification” tax liability, the employer may not recover the tax assessed from the employee. In addtion, the employer may not deduct the amount of tax assessed from the employee’s wages. The Internal Revenue Code provides further that the employee’s liability for his or her share of the tax is not affected by the assessment or payment of the penalty tax by the employer.

If you have a legal question regarding independent contractors in New York, contact the Law Office of Frederic R. Abramson at 212-233-0666

Your Small Business Must be Aware of 6 New Tax Laws for 2010

by Fred Abramson on January 28, 2010

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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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