Author name: David Kervin

Should you form an LLC or a corporation? That is a question a lot of people ask including myself.  Which is easier?  Which is cheaper and which saves the most in taxes. As far as asset protection goes and protecting your personal assets from seizure, they both offer about the same protection. But forming a corporation is more involved and more expensive to maintain. With a corporation, you have a lot more formalities to deal with compared to a limited liability company.  A corporation requires a board of directors and a shareholder agreement. Corporations also must file their own tax returns with the IRS and possibly your state.  How much money in self-employment taxes can be saved by switching from flow thru LLC to s-corp tax status? Switching from a flow-through Limited Liability Company (LLC) to an S-Corporation (S-Corp) tax status can potentially save you money on self-employment taxes, primarily Social Security and Medicare taxes. However, the exact amount saved depends on various factors including your business’s net income, salary you pay yourself, and other deductions. Here’s a simplified overview of how savings can be calculated: Self-Employment Taxes for LLCs: As an LLC, all business profits pass through to the owners (members), who report this income on their personal tax returns. The entire profit is subject to self-employment taxes (Social Security and Medicare), which is 15.3% (12.4% for Social Security on income up to the Social Security wage base, and 2.9% for Medicare with no cap, as of my last update in April 2023). Taxes for S-Corps: S-Corps also pass through income to owners, but owners are required to pay themselves a “reasonable salary” for the work they do in the business. This salary is subject to Social Security and Medicare taxes, but it’s split between the employee and employer (the S-Corp), each paying half. Profits distributed beyond the salary are not subject to self-employment taxes, only income tax. Example of Potential Savings: Let’s say your LLC earns $100,000 in profit. As an LLC, the entire amount is subject to self-employment taxes. If you elect S-Corp status and determine a reasonable salary is $50,000: As an LLC, you’d pay 15.3% in self-employment taxes on the $100,000, which equals $15,300. As an S-Corp, you’d pay Social Security and Medicare taxes on your $50,000 salary, which totals about $7,650 (split between you and the S-Corp). The remaining $50,000 in profit distributed to you would not be subject to these taxes. In this simplified scenario, switching to S-Corp status could save around $7,650 in self-employment taxes. However, there are additional considerations: S-Corps require more administrative work, including payroll tax filings. You must pay yourself a reasonable salary, which the IRS scrutinizes. There may be state-level tax implications. To get a precise calculation and ensure compliance with all tax regulations, it’s recommended to consult with a tax professional or accountant who can provide advice tailored to your specific situation. What are the elements or factors IRS looks at to determine whether a salary is reasonable? The Internal Revenue Service (IRS) considers several factors to determine whether the salary paid to an S-Corporation shareholder-employee is “reasonable” for the services rendered. This assessment is crucial because it affects the taxes owed by both the S-Corp and the employee. While the IRS has not provided a definitive formula for calculating a reasonable salary, the following factors are commonly considered in making this determination: Industry Comparables: Salaries paid to employees in similar positions within the same industry can provide a benchmark for what is considered reasonable. Employee Qualifications: The employee’s education, experience, training, and responsibilities within the company are considered to gauge if the salary is commensurate with their qualifications and contributions. Nature and Scope of the Employee’s Work: The complexity and scope of the work performed by the employee are assessed. More responsibilities and higher-level tasks generally justify a higher salary. Time and Effort Devoted to the Business: How much time and effort the employee puts into the business also plays a significant role. Full-time dedication often warrants a higher salary. Dividend History of the Company: The IRS may look at how profits are distributed between salaries and dividends. A pattern that minimizes salary in favor of dividends may raise red flags. Compensation Agreements: Formal agreements or policies for compensation within the company can provide a basis for determining reasonableness. Financial Condition of the Company: The company’s profitability and revenue can influence what is considered a reasonable salary. The salary must be sustainable by the company’s financial performance. Payment to Non-Shareholder Employees: Salaries paid to non-shareholder employees for similar roles can also serve as a guideline for what is reasonable. Comparison with Previous Years: The employee’s salary history, especially if they have been with the company for many years, can be a factor in assessing reasonableness. The IRS may use a combination of these factors in their evaluation and has discretion in their interpretation. It’s important for S-Corporations to document the rationale behind the salaries paid, ensuring they can justify the amounts as reasonable based on these factors. Given the subjective nature of what constitutes a “reasonable salary,” S-Corporation owners are often advised to seek guidance from tax professionals to ensure compliance and minimize the risk of audits and penalties.

I am currently working on a negotiation course that I plan to offer on Udemy and on my own platform Podnah. Here is the current draft of the outline: How to Win in Business Negotiation Introduction In this course we will focus primarily on business negotiations and negotiations you will encounter when making significant purchases or sales. When you are negotiating, your instincts can be relied on and you can draw from them.  It is important to remember though, like any other skill, these instincts can be honed and your negotiation abilities can be improved by learning the process of how to prepare for and work through a complicated negotiation.   I discovered this when I first started trading with people.  Sometimes you make a good trade, sometimes you regret the trade.  You should learn from each trade. When you experience your first win at a negotiation, you may well become hooked.  You may want to negotiate all the time.  But know that negotiation doesn’t have to always be adversarial nor does it have to be in a “winner takes all” format.  Many successful negotiations end with both sides feeling like they made the best deal. My experience negotiating took me from working at a pawn shop while in college, where I had to buy and sell merchandise on a daily basis, to working as an insurance and injury lawyer where I had to negotiate large civil litigation settlements between two warring parties. What I learned at the pawn shop would stay with me for the rest of my life.  And I would apply those lessons as a lawyer, real estate investor and startup founder. As I entered the workforce as a young lawyer, I was often lured away from my instincts in order to follow what other lawyers were doing.  I found myself moving away from my instincts and it seemed like I had lost my edge.   After finishing law school I found myself negotiating with other lawyers to settle personal injury or property damage cases.  These negotiations might be on the phone, by correspondence or in the form of a mediation that was typically administered by a mediator or a judge. I noticed that negotiating on behalf of a client was very different from negotiating for myself.  I also noticed that negotiating a personal injury settlement was very different from haggling over price when buying something on behalf of the pawn shop.   In a personal injury case, there are multiple considerations in play: will any of the money be taxable?  Will it be enough to cover future surgeries or treatment?  Will the defendant require the plaintiff to sign a confidentiality agreement? To name just a few. I discovered that negotiating on behalf of other people, as lawyers or professional negotiators often do, seemed much more difficult than if I personally negotiated to buy a house or commercial building as an investment property for my own portfolio.  Why was that? I believe it was for several reasons.  First, the lawyers are not the actual parties, but representatives of the parties tasked with the responsibility and duty of negotiating on their behalf and in their best interests.  This dynamic changes things – a lot.    When you are negotiating for someone else, you may feel a duty to not make things worse, or you may feel like pushing the envelope perhaps too far.  Everyone is different but in my own experience, I find myself a little more conservative when negotiating on a client’s behalf because I don’t want to make things worse. Also, interjecting lawyers and mediators complicates the process because now there are more cooks in the proverbial kitchen.  It adds another layer of complexity to an already complex situation.   How does the client know who to trust?  How does the client know the lawyer or mediator isn’t looking out for their own self-interests over theirs?  If the lawyer is pushing the client towards settlement, is it because the lawyer needs money now, or is it because they don’t think they can win at trial? Your instincts tend to be suppressed and your “duties to your client” take charge.  This inner conflict I believe is counter-productive.   Fear of messing up your client’s case can cause you to be too conservative.  On the other hand, if you are overly confident without a rational basis, you can maybe bypass a good outcome in settlement and decide to try the case instead. Also, I learned that in particularly long negotiations, like we might experience in a multi-party, and multi-day wrongful death mediation, exhaustion can set in and the parties may agree to an unfavorable deal simply because they want the process to end. In my experience, the more people that get in the way of me trying to negotiate, the worse I perform.  I do best when I deal with my own interests directly with the other person and their interests. If you are taking this course, you will probably be negotiating on your own behalf or on behalf of your company.  I will share with you the approach and techniques I’ve used that have worked in the past and also the mistakes I have made along the way. What I’ve learned negotiating for a living is that negotiating is more an art than a science.  And, like any art, the more you do it, especially with the help of some training, the better you’ll get at it.  Like learning to play guitar, winning at negotiation can be learned intellectually, but it really needs to be practiced in order to improve your skills. Let’s get started! Key Concepts / Definitions Distributive Negotiation Distributive Negotiation is the type used when each side is trying to maximize their own benefits without regard to any ongoing relationship. Integrative Negotiation “Integrative Negotiation,” on the other hand, is when the negotiating parties have a relationship they value and so they want to explore outcomes where both parties maximize benefits.  This is also known as a “win-win” approach. Mixed

The aftermath of a truck accident can be devastating and disorienting. Knowing what to do in the moments during and after can help you take the right steps to protect your best interests and financial recovery. Accidents involving commercial trucks can result in insurmountable tragedy and property damage. Rarely do those involved walk away without any injuries at all. Driving next to a commercial truck on the highway can be intimidating, and understandably, since they can weigh upwards of 80,000 pounds if fully stocked. Your standard passenger car only weighs around 3,500 pounds, which means that vehicle and those inside are likely to endure the worst. If you ever find yourself in a truck accident that was caused by a trucker or another party, it is wise to consider speaking with a truck accident lawyer about your compensation eligibility.  Call The Police Remain at the scene and call 911 immediately. An officer can help divert traffic, get injured people the medical care they need, and clear the wreckage. The police will also do their own investigation and assessment of the accident, and write findings in an official report. If you are thinking about suing the truck driver or other party who caused the accident, then having a copy of this police report will be influential. In most cases, you can easily obtain a copy at your local law enforcement office.  Get Emergency Care Even if you are not obviously hurt after the collision, have emergency responders check you out to see if there are injuries that need treatment right away. The adrenaline surge and shock that often comes with being in a serious personal injury accident may keep you from being fully aware of your injuries and their severity. There are some injuries, such as concussions, that may not have symptoms until days later. By having a medical team and your doctor do an examination, it prevents injuries from exacerbating to critical or life-threatening in the days to follow. When in doubt, get medical care anyway.  Collect Witness Contacts Eyewitnesses can be impactful when it comes to legal claims. Those involved in the truck accident may be too disoriented to collect their thoughts. But if there were bystanders who saw what happened moments prior to, during, or after the crash, then they can be useful witnesses. As our friends at Cohen & Cohen would agree with, you don’t have to ask witnesses to provide you with a statement at the scene, all you need to do is get their name and reliable form of contact so they can be reached out to at a later time.  Truck accidents can be traumatic events to go through. While no one expects to be in a truck crash as they go about their day, it can happen. Knowing what to do and who to seek help from can protect your health and best interests. Don’t hesitate to get medical attention, gather witness contacts, and then speak with a lawyer about compensation for your injuries and damages. 

How better road signage can lead to fewer car accidents.

Check out my new book just published on Amazon. I wrote this from my experience working with hundreds of clients as a bankruptcy and debt relief lawyer.