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An LLC Can be Treated as an S-Corporation for Tax Purposes

Insight Michael Moradzadeh Michael Moradzadeh · February 02, 2010

An LLC can be treated as an S-Corporation for tax purposes if it makes an S-Corporation election as long as the entity meets the IRS criteria to be taxed as an S-Corp, files an S-Corp election and gets approved by the IRS to be taxed as an S-Corporation. Without an S-Corporation election, single member LLCs default to be taxed as sole proprietors and a multi-member LLCs defaults to be taxes as partnership since they are considered “disregarded entities”. However, if a single or multiple member LLC agreement meets the IRS criteria to be classified as a small business corporation, the S-corporation election is filed and gets approved by the IRS, then for tax purposes, not legal purposes the entity is an S Corp not a LLC.

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The Criteria for Being Classified as an S-Corporation

Insight Michael Moradzadeh Michael Moradzadeh · February 01, 2010

In order to be classified as an S-Corporation, a company must: be domestic, have no more than 100 shareholders, have one class of stock, all shareholders must be individuals, decedents’ estates, bankruptcy estates, trusts or tax-exempt charitable organizations, or wholly owned by another S corporation, and all shareholders must be residents of the United States (as defined by the tax code not immigration laws). Shareholders of an S-Corporation can not be financial institutions that use a reserve method of accounting for bad debts, companies taxable as insurance companies, taxable mortgage pools, or domestic international sales corporations. So, if a business entity meets these criteria it can be considered an S corporation by the IRS and taxed as an S corporation as long as the S corporation election forms are properly filled-out and approved by the IRS. Many states including California automatically give business entities an S-corporations tax status if it was approved by the IRS.

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The tax benefits of making an S-Corporation Election?

Insight Michael Moradzadeh Michael Moradzadeh · January 31, 2010

Many small business owners incorporate their businesses not only for legal protection, but also to reduce owners’ payroll taxes through S-Corp tax election with the IRS. One advantage of an S-Corp is that it gives business owners the ability to reduce their self-employment taxes. Any small business owner who has not made an S-Corp election and uses Schedule C for their personal tax return for 2010 is subject to both employer and employee FICA and Medicare payroll taxes at 15.3% up to $106,800, 2.9% Medicare for Schedule C net income greater than $106,800, and California SDI for 1.1% up to 93,316. If a business owner pays himself/herself a “reasonable salary”, the rest of the net income is not subject to these payroll taxes.

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Rimon Law Group and Virtual Paralegal Services Announce Partnership

News December 01, 2009
Rimon Law Group, Inc. and Virtual Paralegal Services, Inc. (“VPS”) announce the partnering of their teams to provide cutting edge, highly cost-effective, environmentally friendly, virtual legal services.  This collaboration will allow businesses nationwide to receive top notch legal service at a fraction of the

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The truth, the whole truth and nothing but the truth: The new FTC guidance on endorsements

Insight November 17, 2009

Posted on The Internet Law Advisor Blog November 16, 2009 – By William Galkin, Esq.

Summary: The Federal Trade Commission (FTC) has issued revised Guides Concerning the Use of Endorsements and Testimonials in Advertising(Guides) which will take effect on December 1, 2009. The main purposes of the revisions are (1) to update the application of the Guides to new media and (2) to rescind a safe harbor that previously allowed ads stating positive results experienced by consumers, even though such results could not necessarily be expected by the average consumer, provided the statement “Results not typical” was included in the ad. Now the actual typical results need to be stated in the ad.

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Venture Capital Survey of the Silicon Valley in 2009 Third Quarter

Insight Michael Moradzadeh Michael Moradzadeh · November 16, 2009

Dow Jones VentureSource is one of the most popular nationwide venture capital date reports in the United States. VentureSources published its latest data on the development of venture capital investments in the third quarter of 2009. Below are some overviews observed by VentureSource.

  • With 616 venture deals and $5.1 billion invested, Q3 is a 6% drop over Q2;
  • IT investment barely outpaces health care;
  • Web2.0 investments surpassed the software sector for first time on record;
  • Medical device investments nearly match biopharmaceuticals;
  • Corporations investing instead of acquiring, commitments to VC-backed firms surpasses 2008 total;
  • $5 million median deal size on par with Q1&Q2, but still lowest since 1999.

It is undeniable that the investments and fundraising by venture capitalists remained at low levels in 3Q’2009, but there is room for optimism as the economy is picking up slowly and Nasdaq continued to improve. In addition, with regard to the largest U.S. deals overall in 3Q’2009, eight deals are conducted in California, such as Facebook, Tesla Motors, and Pacific Biosciences of California, etc.

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UK Reporting of Undiscosed Foreign Accounts

Insight Yaacov P. Silberman Yaacov P. Silberman · October 28, 2009

On September 1, 2009, the Government of the United Kingdom implemented the New Offshore Disclosure Opportunity (“NDO”).

The NDO allows those individuals with unpaid UK taxes relating to previously undisclosed income and/or capital gains linked to offshore accounts and/or assets to settle related tax liabilities at a favorable 10% penalty rate.  Ordinarily, penalties are charged at up to 100% of the tax due.

The NDO provisions apply to all UK residents and certain non-UK domiciled individuals (who themselves may be or once were subject to tax in the UK) who have an interest in any Offshore Accounts, Trusts or Corporate entities that would otherwise be subject to UK tax. 

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New Legal Trap for Employers in Hiring Independent Contractors

Insight Michael Moradzadeh Michael Moradzadeh · October 21, 2009

The United States Court of Appeals for the Second Circuit, in a September 10, 2009 ruling, held that an employer can be held liable for discriminatory hiring decisions made by its independent contractors. The case involved an independent contractor acting on behalf of the employer, telling the plaintiff that “they were looking for someone younger”.

The Second Circuit ruled that, even if the hiring decision is made by the authorized independent contractor, the employer was still responsible for the discriminatory hiring decision by the independent contractors. In a worse scenario, even if the independent contractor does not have the actual authority but the applicant thought that it did (“apparent authority” in legal terms), the employer is still liable.

Considering the harsh economy and fewer job opportunities these days, employers should be more cautious since the job applicant is more inclined to sue if he/she cannot get the job. Employers should avoid asking job applicant questions such as race, religion, national origin, gender and age, etc during the interview process; when entering into the independent contractor contract, it is a good idea to add an indemnification clause asking the independent contractor to indemnify the employer for any liability arising from the hiring process conducted by the independent contractor.

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Rimon Law Group Welcomes Mark Radom, Carl Sherer and Frederick Tsien

News October 01, 2009
Silicon Valley, CA Rimon Law Group is pleased to welcome Mark Radom, Carl Sherer and Fred Tsien to the firm. The three attorneys joining Rimon will strengthen the Silicon Valley firm’s financing, corporate, and intellectual property practice areas. Mark Radom has over 14 years of experience in New York, London and Israel advising

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‘Virtual’ Law Firms Thinking Outside the Legal Box

News September 18, 2009
Rimon Law Group was featured on September 18, 2009 in the San Francisco Business times in an article by legal reporter Eric Young. The story describes the continued growth of alternative-model firms, including Rimon, in the midst of a struggling legal industry. Most of the article can be viewed on the San Francisco Business Times' website.

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