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Home based businesses are starting to become the norm as a result of the COVID-19 pandemic. And as every business owner knows, their business is subject to taxes. Yet, most small businesses that qualify as home based businesses do not take advantage of a tax break offered by the IRS. Publication 587 permits such small businesses to take advantage of this deduction mentioned above. We explore and simplify this deduction in detail below. 

What is a Tax Deduction? 

 

Every business has tax liability. Generally, that tax liability comes from a person’s or business’s income. For purposes of this article, a home based business has the ability to claim a deduction if they can prove the elements of this deduction listed below. If the taxpayer successfully can prove they meet the requirements for this deduction, they will have the ability to lower their tax liability. In other words, the home based business taxpayer can offset expenses they incurred in running their business with income they earned from the business. This in effect reduces the business’s gross income and thereby lowers their income that is subject to tax liability. 

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For example, let’s say a taxpayer’s business generated revenue and thus has taxable income of $50,000. To set up the business in their home, the taxpayer had to spend $3,000 in expenses. If the taxpayer can meet an allowable deduction offered by the IRS, they can successfully deduct their taxable income to $47,000. Therefore instead of owing tax on $50,000, they now only owe tax on $47,000. While this may seem like a small difference, such tax savings go a long way in keeping money away from the IRS. However, it sounds like this taxpayer will have to prove the deduction offered in Publication 587 for home based businesses. Let’s find out how they can prove such a deduction. 

 

What Do I Need to Show in Order to Meet the Requirements for this Deduction? 

 

To prove this deduction, there are a variety of elements that need to be proved and are directly laid out in the link attached to Publication 587 above. For the purposes of this article, we are focusing on three of the more important elements to prove: 

 

1) Exclusive Use 

 

To show exclusive use, you must be able to prove that a room in your house is exclusively used for the purpose of your business. (NOTE: You can claim this deduction even if you are not working out of your house. The deduction also applies to apartments, condominiums, mobile homes, boats, or anything that provides living accommodations to you).

 

We must emphasize the exclusivity of this room. For example, if you work out of your living room where your child also plays video games and watches television, you will not be eligible for this deduction. You must exclusively work out of a room solely dedicated to your business. 

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2) Regular Use

 

Regular use of the room is also required. Occasional use of the room for your business will not suffice. 

 

3) Trade or Business Use

 

Finally, you must use it solely for your trade or business. Both this and regular use of the room should be easy to prove as long as the space is regularly used only for trade or business use.

 

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We understand that many small businesses have been started or moved to the owner’s home because of the pandemic. Thus, we urge you to take advantage of this publication. Contact a tax attorney today to determine if you meet this deduction. 

 

Are you forming a new business? If so, the first question you should ask yourself is the type of business entity you are looking to set up. The answer to that question will depend very much on the protections you will prioritize the most. Check out recent JUSTLAW articles for help with determining the right business entity for you. However, if you have already decided you would prefer an PLLC or if you have read our relevant dialogues on the Verdict and have ultimately decided to create a PLLC, this particular article will be extremely important for you to understand.

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When will you be required to form an PLLC?

A PLLC stands for a Professional Limited Liability Company. As you probably could guess, the difference between a PLLC and an LLC is that professionals file for a PLLC.

States differ on the requirement of professionals forming a PLLC. Some states opt to push professionals to create PLLCs. Other states permit PLLCs, but don’t necessarily require it. And other states favor professional corporations (e.g. P.C.) and limited liability partnerships (e.g., LLP) and ban PLLCs.

For straightforward purposes, this article focuses entirely on the states that require PLLCs. In other words, these states mandate that the term professionals, which is regularly defined in the particular state’s limited liability company act, form a PLLC.

In most states, the list of professionals almost always includes:

1) Accountants
2) Architects
3) Attorneys
4) Chiropractors
5) Clinical Social Workers
6) Dentists
7) Doctors
8) Engineers
9) Nurses
10) Physical, Marriage, & Family Therapists
11) Psychologists
12) Veterinarians

If you are not one of these professionals, you most likely do not have to create a PLLC. An LLC should suffice. To the contrary, if you are a licensed professional listed above, we urge you to contact our attorneys before you move forward with an LLC or PLLC. Our well-experienced, top of the line attorneys will quickly advise you as to which form is more suitable for your business. More importantly, our attorneys can also advise you as to whether your state requires PLLCs for professionals.

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What are the steps needed to take to form a PLLC?

If you have proceeded to this step, that either means you are a licensed professional listed above, you believe you may have to create a PLLC, or you just love reading JUSTLAW content. Or maybe it’s all three? Anyways, here are the steps you will take when forming a PLLC:

1. Check eligibility of PLLCs in your state.
As we said above, an attorney will be able to tell you whether your state requires, permits, or bans PLLCs. Check out your state’s “limited liability company act” if you would like to proceed without an attorney.

2. Create your Articles of Organization.
If you’re reading “Articles of Organization” and are scratching your head, don’t worry. The name of this document varies by state, and is sometimes called “Certificate of Organization”, “Articles of Incorporation”, etc. The bottom line is that every PLLC needs to include such a document. The main purpose of the document is to name a registered agent, along with their relevant contact information. Members can be registered agents. In addition, you will also need an Employer Identification Number (hereinafter referred to as “EIN”). To receive an EIN, you’ll simply just need to file for one with the IRS and they will appoint you one. Moreover, other details that should be included in the Articles of Organization consist of your principal place of business, the services your business will offer, and all of the members of the PLLC and their relevant contact information. (Note: All members should be of the same profession. Speak with a JUSTLAW attorney now to determine if your profession or professions are covered.)

3. Prepare an operating agreement.
An operating agreement will detail how your business will be run. Such details will include information such as: (1) Capital contributions; (2) Members and their ownership rights; (3) Voting requirements for business-related decisions (votes by unanimous decision or 2/3 vote); and much much more. This is required for all PLLCs.

4. Show proof of all member’s licenses to practice their profession.
Finally, and one of the more obvious components of forming a PLLC, includes providing proof of your license to practice your profession.

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JUSTLAW is on a mission to ensure legal insurance becomes a norm. Sign up for our JUSTLAW membership today and receive a free consultation on whether you need to create a PLLC for your business.

Bylaws display specific information about a corporation. They are one of the most important documents that a corporation must have. When you are creating a corporation, a partnership, or even an association, you will want experienced attorneys to aid you in drafting such a document to ensure that your business is legally sound and protected. Bylaws are different for each corporation. Thus, explore our recommended pieces of information that must go into such a document below:

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What are ByLaws?

Bylaws outline the operation of your business. In other words, if there are any rules you want for your corporation in particular, they must go in your bylaws.

Do you want to set rules for how your Board of Directors should operate? Put it in your bylaws. How many officers and executives do you want in your corporation? Put it in your bylaws. How do you want such positions to be elected? Put it in your bylaws. What about something as simple as the corporation’s name? Put it in your bylaws. You get the idea.

However, do not confuse this with a corporation’s Articles of Incorporation. This document is much different. Bylaws outline the rules of a corporation, whereas the Articles of Incorporation display the basic anatomy and inception of the company. Therefore, generally, Articles of Incorporation include names of the directors, the number of shares available, and even the location of the corporation. Accordingly, if you are looking to create a document to portray the operation of your business, and not the mere inception of the business, look no further than the corporate bylaws.

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In addition, a corporation’s Articles of Incorporation, otherwise known as a charter, differ from its bylaws based on how they can be amended. To amend the charter, you have to comply with the state law of where you filed your charter. In some states, for instance, you’ll be required to hold a shareholder meeting to make the changes. Unlike the charter, corporate directors have much more freedom to amend the bylaws. In fact, rarely is a formal shareholder vote required. Therefore, ordinarily, you will want to explicitly state your amendment process in the bylaws themselves.

Accordingly, some of the information we display below that should be included in the bylaws, could also be included in an Articles of Incorporation or even a Certificate of Insurance. However, based on key differences such as the one displayed above, it may make more sense for you to put certain information in your bylaws.

Various Pieces of Information in a Organization’s ByLaws:​ (​not limited to these​)

1. Name of the business. This is one of the more obvious pieces of information that are vital for your bylaws. What is the name of your business and who is responsible for creating it? As a quick side note, while this does go in the bylaws, it more importantly should be in your Certificate of Insurance. This document actually determines the name of your business and is the mechanism for potentially changing your name.
2. Location. Your location is another obvious piece of information that is placed in the bylaws. However, keep in mind, location is more important for your Articles of Incorporation because those are directly filed with the state of which you are operating in.
3. Purpose. Here, you will want to answer the question, “what end goal am I serving with the creation of this business?” (This also appears in the Certification of Insurance as well)
4. Board of Directors. Now comes the more dense parts of your Corporate ByLaws. In this section, you are referring to the group of people that govern your organization. Therefore, you will want to include information on how a Director is selected, how many directors your board will encompass, how empty board seats are filled, specific duties of directors, any relevant qualifications needed to be a director, payment of a director if any, and how long they may serve for.
5. Board of Director Meetings. On top of the prior section, include the details of how you want the Board of Director’s meetings to operate. How many times should they meet annually? Furthermore, this section should also establish how many votes are needed when the Board votes on various decisions to be made. Generally, majority rules. However some corporations elect to increase the amount of votes needed in order to decide an issue, with utmost unison.
6. Amendments. Finally, end your bylaws with a section on how an amendment of the bylaws will operate. Keep in mind, that bylaws should be amended every so often in order to keep them up to date.

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We hope this article helped you! ​JUSTLAW offers some of the best corporate law attorneys and can help any corporation, partnership, association, etc. effectively draft their corporate bylaws.

 

Demand letters are some of the most highly sought after forms of legal actions taken by business owners and the general population who feel they have been unjustly hurt by another’s actions. This article is meant to help you understand the basics of a demand letter, when you should utilize one as an offensive legal strategy, and how you should respond to one in the event it’s served upon you. Keep in mind that while this article will touch on the actions to take if you receive a demand letter and how to respond, there are ​third parties available to help​ in the event a DIY approach isn’t sufficient, However, keep reading below for an analysis of some preliminary points you need to grasp regarding a demand letter.

What is a Demand Letter?

A demand letter is an attorney drafted letter sent to another party because of a wrong suffered at the hands of that other party. Perhaps, they did not pay you under a contract (breach of contract) or they just generally committed a legal wrong against you. Either way, a demand letter can be a great form to fix your legal dilemma.

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How is a Demand Letter Structured?

A demand letter is typically structured in 5 consecutive major points:

1. 1. Highlight the previous exchanges between yourself and the opposing party.
   2. Describe the problem that you face as a result of the opposing party and illustrate the damages you have suffered.
   3.  If needed, point out any previous times you have tried to procure payment or performance.
   4. As a result of non-payment or non-performance, spell out your official demand for the party to abide by in order to make you whole. In this section of the demand letter, you should also put a date that the opposing party must respond by.
   5. If they do not respond in a timely manner or fail to respond in a satisfactory way, thoroughly explain the following steps you will inevitably pursue.

When is it Time to Send a Demand Letter?

At this point, you have most likely attempted to procure payment or performance of the opposing party, numerous times. Furthermore, you have most likely failed in all those attempts. Thus, it’s time to send that demand letter.
The situations that produce the most demand letters include, but are not limited to:

1. Opposing party has breached a contract. This is usually as a result of a failure to pay or a failure to perform under a contract. However, breach of contract claims can arise in a variety of ways, thus in most situations the common denominator of a demand letter is a breach of contract.
2. Damages to your property. Perhaps, you are a landlord and your tenant refuses to pay you for a damaged portion of the apartment they rented out from you. Or perhaps, you are a homeowner, and your neighbor damaged your property. In both scenarios, if you have failed to have the other party pay you for the damages to your property, a demand letter should be sent.
3. Cease and Desist Letter. Imagine you find out that your neighbor is continuously damaging your property. You have asked politely and maybe even demanded rudely that they must stop. Unfortunately, your verbal demands have not been met favorably. Therefore, it is time to send a demand letter to your neighbor in the form of a cease and desist letter.
4. Insurance claims. These claims almost always arise as a result of an injury you have suffered. In order to get compensated for your injury, you will have to present a demand to the insurance company in order to cover your medical expenses in relation to your injury.

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What Response Should you Expect?

Generally, there are four likely responses to a demand letter:

1. The demand letter was accepted quickly. You received payment or procured a performance. Congrats!
2. The opposing party sends a counter offer. It is to your liking, so you accept.
3. The opposing party responds by denying your claim and explicitly states they will not comply with your demand. Now is the time to take them to court.
4. The opposing party ignores the letter and fails to respond. Again, now is the time to take them to court.

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We hope this article has helped you make a thorough analysis of whether you need to utilize a demand letter. There are several online vendors offering affordable, ​top-quality legal advice through licensed attorneys​ who have years of experience dealing with thousands of demand letters that have achieved favorable results for clients. Whether you choose such a vendor or other legal help, or do it on your own, hopefully your situation gets resolved favorably.