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Author: Scott Arden

Categories
Advice Management Strategy

Minimizing Liability Risks: Leveraging an LLC to Lease Vehicles to Your Operating Companies

Introduction 

When it comes to protecting your business and its assets, mitigating liability risks is of paramount importance. One strategy that entrepreneurs and business owners can employ to safeguard their cash flow and shield their operating companies from potential liabilities is utilizing a Limited Liability Company (LLC) to own and lease vehicles. This approach offers a dual benefit: it allows companies to write off vehicle expenses while keeping potential liability issues separate from the core business. In this article, we will explore the advantages and considerations of using an LLC to own vehicles and lease them back to your operating companies. 

The Role of an LLC 

An LLC is a popular legal structure that provides personal liability protection for its members while offering flexibility in terms of taxation and management. By creating an LLC specifically for vehicle ownership, entrepreneurs can effectively separate the liabilities associated with their business operations from those related to vehicle usage. 

Advantages of Using an LLC for Vehicle Ownership 

1. Asset Protection: By establishing an LLC as the owner of vehicles, you create a legal barrier between your operating companies and potential liability claims arising from accidents involving those vehicles. This arrangement can help safeguard your business’s assets and shield them from claims or lawsuits that may arise from a vehicular incident. 

2. Tax Benefits: Leasing vehicles from an LLC allows your operating companies to write off all vehicle-related expenses, including depreciation, maintenance, insurance, and fuel costs. This can result in significant tax savings, as these expenses are considered legitimate business deductions. By maximizing tax benefits, you can optimize your company’s financial position and improve its bottom line. 

3. Enhanced Control: Centralizing vehicle ownership within an LLC provides better control and oversight. You can implement strict policies and guidelines for vehicle usage, maintenance, and safety, ensuring compliance across all operating companies. This control mechanism helps maintain consistency in operations, reduce risks, and streamline management processes. 

Considerations and Best Practices 

While utilizing an LLC for vehicle ownership and leasing presents several advantages, it is important to consider the following points: 

1. Proper Legal Structuring: Ensure that the LLC is established as a separate legal entity with its own operating agreement, finances, and tax records. Commingling funds or neglecting the legal formalities of the LLC can jeopardize the protection it offers and potentially expose your operating companies to liability risks. 

2. Adequate Insurance Coverage: Although an LLC can shield your operating companies from direct liability, it is crucial to obtain comprehensive insurance coverage for the leased vehicles. Consult with an insurance professional to determine the appropriate coverage levels, including liability, collision, and comprehensive insurance, to address potential risks adequately. 

3. Compliance with State Laws: Be aware of specific state regulations regarding vehicle ownership and leasing structures. Consult with one of our experts who is familiar with your jurisdiction’s laws to ensure compliance and avoid any legal issues. 

4. Professional Guidance: Given the complexity of legal and tax matters, seeking guidance from an expert is advisable. Controllers, Ltd can help you establish and maintain the proper structures and documentation required for an LLC-owned vehicle leasing arrangement. 

Conclusion 

Employing an LLC to own vehicles and lease them back to your operating companies offers a practical solution for reducing liability risks and maximizing tax benefits. By separating vehicle ownership from your core business, you can protect your assets while enabling your operating companies to deduct vehicle-related expenses. However, it is essential to follow proper legal and financial procedures, maintain adequate insurance coverage, and comply with state regulations to ensure the effectiveness of this strategy. 

Consult with one of my Experts who will provide the necessary guidance to implement this approach effectively and safeguard your business from potential liability issues. Book a complimentary appointment today at www.calendly.com/stephan-controllers or give us a call at (775) 384-8124. 

Categories
Advice Strategy Wealth

Should My Corporation Or LLC Own A Vehicle

People ask me all the time, should my Corporation or LLC own or lease a vehicle? There are a lot of great benefits for having your entity own or lease a vehicle, such as being able to deduct all vehicle payments, insurance, and maintenance costs. You can additionally take advantage of the Section 179 deduction which allows for accelerated depreciation on vehicles weighing over 6,000 pounds. That is why you see people buying G Wagons and other large SUVs to capture that write off in their company. However, there are some things you need to consider before buying a vehicle in your company. 

First, your entity is assuming ALL of the liability of the vehicle. What do I mean by that you may be asking? This vehicle travels down the road at 50, 60 and sometimes 70 miles an hour. Should that vehicle be involved in an accident, and someone files a lawsuit, the liability is going to fall back to the company and the driver. Now, you may be saying, that is what insurance is for. If someone claims negligence or punitive damages, insurance companies will always find a way out of the equation and not be responsible for paying. This means that if there is a judgement, the creditor could go after the assets of the business and you personally. 

This leads me to the next thing you need to consider. When you switch the vehicle over to an entity, you are now going to have to deal with a whole different type of insurance. Since the vehicle is no longer a personal vehicle, it is now a business vehicle, you will need to obtain fleet insurance. This means that if you do not have a fleet of vehicles, your premiums could be astronomically high. You really need to consider the burden vs. the benefits and speak with an expert! 

So, you may be asking yourself, then how can my business write off a vehicle and not have it be a liability to my primary income source? There are strategies that you might want to consider taking advantage of. Give my office a call at 775-384-8124 or book an appointment with my Sr. Strategist. https://www.controllersltd.com/booking-calendar/complimentary-consultation?referral=service_list_widget. 

Follow me for more tips and tricks and read my next article on: “How To Write Off Your Vehicle Without All The Risk!” 

Categories
Advice Best Practices Management

 Can a Corporation or LLC build its own Credit? 

Starting a business can be a daunting but exciting task. There are countless things to consider before taking the plunge; from creating a plan and budget, to finding the right investors, vendors and employees. One of the most important aspects of starting a business is building your credit, which is often one of the biggest hurdles entrepreneurs face. Fortunately, corporations and Limited Liability Companies (LLCs) have the ability to build their own credit in order to access financing for their business endeavors.

Having multiple corporations or LLC’s gives you more borrowing power than if you only had one entity. Having several entities also allows you to diversify your funding sources and manage credit risks better as well as gain benefits that come with doing business with multiple lenders. For example, lower interest rates can be accessed when dealing with several creditors instead of just one. Additionally, having several corporations or LLC’s mean that you have more options when it comes to loan types such as lines of credit or term loans that best suit your purposes for different projects.

While having multiple entities may seem like a complicated structure, it does not have to be difficult when done correctly. You should work closely with an experienced team who can help set up each company in accordance with state regulations as well as recommend tax strategies that fit your individual situation. It’s also helpful to establish an ongoing relationship with lenders so they become familiar with your businesses and recognize their value; this helps build credibility which makes it easier to obtain funding when needed. Not only will this increase your chances of getting approved for loans but also provide access to more flexible terms and lower interest rates over time.

Ultimately, understanding how corporations and LLC’s work together will give you an advantage when seeking funding for business endeavors; having multiple entities gives you more borrowing power while also providing added financial flexibility through different loan types and terms offered by various lenders. Working closely with experienced advisors who understand both corporate structures as well as financing options can help ensure success in leveraging all available resources in order to build strong foundations for long-term success in business ventures.

Schedule a call today with one of my experts http://www.calendly.com/Stephan-controllers or call my office for a complimentary consultation at 775-384-8124. 

 Much Success, 

Scott L. Arden, CEO Controllers, Ltd www.controllersltd.com 

Categories
Best Practices Management Personal Development

Employing Your Children

As the IRS website states: “One of the advantages of operating your own business is hiring family members.” That family member can be a spouse, sibling, parent, or even a child (between the ages of 3-18). In fact, while hiring a child may not seem like a top- of-mind move for many businesses owners, if you play by the rules there can be a surprisingly broad array of tax benefits to doing so!

With the Tax Cuts and Jobs Act increasing the Standard Deduction up to $12,200.00 (in 2019), children employed in a family business can earn that much in income and enjoy a zero-tax rate on their income. In addition, many states will also permit children employed in the business to avoid unemployment (FUTA) taxes and children working for their parents’ sole proprietorship, partnership, or LLC, may also avoid employment (FICA) taxes as well , which can be a material tax savings for many families, especially those with high-income parental business owners. This allows you to reduce the amount of income you need to take home personally by $12,200.00 per child which results in paying less in personal taxes.

Furthermore, employing a child in the business also creates earned income that can qualify the child to make a Roth IRA contribution, and/or qualify the child for other employee benefits. This means that you can take $6,000.00 of the $12,200.00 and place it in a Roth IRA, which will grow completely tax free until your child is able to withdraw it at the age of 59.5 years of age. Just one of the many ways to create Generational Wealth.

With the remaining $6,200.00, it can be put into a children’s bank account with parental control and used to cover things like, Sports, Band, Dance, and other hobbies your child or children may enjoy. When you personally cover these expenses, they are not tax deductible to you as an individual. 

Although the caveat is that employing a child in the business still requires that he/she d o bona fide, age-appropriate work in the business for a “reasonable” wage. The work must also comply with the Federal Fair Labor Standards Act (FLSA) rules which fortunately are flexible for parents employing their children in their own wholly-parental-owned business and state child labor laws as well. 

Let me qualify the above. If your LLC or Corporation is taxed as a “C” Elected or “S” Elected company, you will need to withhold taxes just like any other employee. 

Let’s discuss how you can implement this in your business, contact our offices at 775-384-8124 or send an email to contact@controllersltd.com. 

Much Success, 

Scott L. Arden, CEO 

Controllers, Ltd. 

www.controllersltd.com 

Categories
Entrepreneurship Growth Wealth

Why Incorporate Or Form An LLC?

Over the last 25 years people have asked me what the benefits are of setting up a Corporation or an LLC. I always say, there are a lot of reasons to form one but let me go over the five primary reasons.

  1. Liability Protection: This means that you and your personal assets are separated from any liability that can affect your Company. Yes, insurance is always a first line of defense, however if someone claims negligence or punitive damages, insurance will always find a way to not get involved or remove themselves from the equation, so they do not have to pay. This means that the liability falls through to the business. If you do not have a properly structured Corporation or LLC, this means that you the Proprietor would assume the liability. Should this be a lawsuit situation, that means your personal assets and business assets would all be considered one and could be seized in the event a Judgment is achieved by said Creditor.
  2. Tax Savings: I hear this all the time, “My CPA said not to incorporate or form an LLC until I am making over $50k.” If you are looking to build a successful business, you need to incorporate or form an LLC now. Operating your business or investments as a Sole Proprietor gives you very limited deductions, roughly about 15-30 different deductions on your Schedule C. Whereas, if you use a Corporation or LLC, the IRS Corporate Tax Code is comprised of 81,000 pages, which equates to 233-305 different deductions you can take advantage of that will not only allow you more use of your money upfront, but also reduce your tax payment to whom I like to call our silent partner, “Uncle Sam.” As a Sole Proprietor you are also subject to Self-Employment Taxes if you are in an active business which is equivalent to 15.3% of your hard-earned money. So just know that you will not only pay Federal Income Tax, but State Income Tax and the Self-Employment Tax. This all could add up to 40%-45% of your revenue. When the government talks about taxing the rich, they are talking about W2 wage earners and Sole Proprietors. As the old saying goes, “The more money you make personally, the more money they, (the IRS & State) take.” As a Corporation or LLC, you can play the “game” by the rules that the IRS wants no one to know about.
  3. Protection against Creditors: What does this mean? Let us say you were operating as a Sole Proprietor and had a liability issue that resulted in a judgment or you went through a marital dissolution and your “Creditors” kept coming after every asset you acquire. If you establish a Corporation or LLC, you can limit the amount of how much the Creditors could take. They can only garnish what you draw personally but cannot attack the Corporation or LLC since it was not involved in the previous liability issue. This would be like someone going after your employer if you personally had a liability issue.
  4. Can build its own Credit Score: Corporations and LLCs have the ability to build their own separate credit from you. This will allow you to double if not triple your borrowing ability depending on whether you have one Company or three. This allows you to keep your personal FICO score up & Debt To Income Ratio down since you are not the only credit profile being used. Building credit immediately in your business is essential to not only maintain cashflow but to also build up the credit history of the Company to show that it can manage and sustain debt without you the Principle personally guaranteeing everything.
  5. Estate Planning: If you are looking to build your business to either sell or pass it on to the next generation, you need to form a Corporation or LLC. Corporations and LLCs have perpetual existence which means they do not die; they simply get a new President or Member. When you have a properly structured Corporation or LLC, you will receive a Record Book which contains Ownership Certificates. Once these are issued to your Family Trust, the Company becomes part of your estate plan which allows your estate including the Company to by-pass probate, should something happen to the owners. This is how you create true Generational Wealth.

 

If these five primary reasons do not explain to you why you should setup a Corporation or LLC right now, I encourage you to contact my office at 775-384-8124 or send an email to contact@controllersltd.com to schedule a time to speak with my Senior Strategists. We look forward to speaking with you and assisting you in building a more profitable & protected future!

Much Success,

Scott L. Arden, CEO
Controllers, Ltd.

Categories
Entrepreneurship

Having A Corporation Or LLC Is Only Beneficial When Used Correctly

Making the right choice when it comes to setting up a Corporation or LLC is crucial. What is even more critical is giving these entities substance. I hear from a lot of people that I talk to that they were told to setup an LLC, but they are not really sure why, or the benefits they are supposed to receive. Setting up the right entity is imperative because the last thing you want to find out is that you are in the wrong entity and must go back and cleanup/restructure the business, or even worse lose everything you have worked hard for.

With the litigation explosion in today’s society at an all-time high, it is important to have the proper entity setup for liability protection of both personal and business assets. Having a Corporation or LLC is great if you are using it correctly. When I speak to Business Owners and Entrepreneurs throughout the nation about their entity structures there is one common thing that most people overlook, the Minutes and Resolutions. They either do not know how to do it, or they are told that they should form an LLC and are advised that they are easier to use, and you do not have the same compliance requirements as a Corporation. These people have been misinformed by their professionals or friends and are led down a path that can cause serious havoc on their businesses and personal assets.

One example is my firm had a client come to us after an awfully bad situation arose within his business. I will just call this client “Jim.”  Jim has a large construction company who built a custom home for one of our ex-vice presidents in Wyoming. Jim’s company was setup as a Corporation. He had one of the most prestigious CPA firms in the nation and has the most pristine financials. He received a notice of an Audit from the IRS. Jim, knowing that he had a Corporation structured and his financials were in order, was greatly confident that he would prevail in this Audit.

On the day of the Audit, Jim walked into the IRS building with his CPA in tow. Feeling very confident that he was going to overcome, he walked in very proudly and placed all of his documents on the revenue agent’s desk. The first question the revenue agent asked was if he could see the company’s documentation. Jim pushed the financials across the desk to the revenue agent, the revenue agent pushed them back and asked for his Corporate Records. Jim, having a nice fancy corporate book, pushed it across the table. The revenue agent opened the corporate book only to find that Jim had only completed the initial Minutes and Resolutions, had issued himself ownership and had then closed his book. He never kept any documentation (i.e., Minutes and Resolutions) past the initial meeting. The revenue agent closed the corporate book, pushed it back across the table and said, “I now know what I am dealing with, a Sole Proprietorship.” He asked Jim for the financials again. He noticed that Jim had taken advantage of over $250,000.00 in Corporate Deductions over the course of the 3-year Audit. But, because Jim had not treated the entity as a Separate Corporation and more of what would be considered “Alter-ego,” Jim was not entitled to these deductions as a Sole Proprietor. His penalty was to pay the taxes on the $250,000.00 and he was penalized to the tune of 45%. This does not only happen in Audit situations, but this also happens if there is ever any kind of liability issue against the business. If this were a lawsuit, Jim would have lost everything he and his wife had worked so extremely hard to obtain and pass on to their children to create generational wealth.

Jim is now a client of mine and is in full compliance. You see, the Government, Courts, IRS, etc., allow us as business owners to reconstruct documentation based upon recollection. This does not mean we are back dating documents. Back dating is 100% illegal. However, reconstruction is fully admissible.

With all that being said, the definition of a Corporation/LLC is:  It is an artificial person created by law. It can do anything you want it to do but think and speak for itself. This means that you, the Shareholder, must keep Minutes and Resolutions which are essentially giving the company the voice and thought process not only to defend itself, but also to defend its owners. Minutes and Resolutions are required by law. Now, I know a lot of people will tell you that an LLC does not have to have Minutes or Resolutions. This is absolutely incorrect! Minutes and Resolutions are what proves that you and the company are completely separate. If anyone tells you this about an LLC, they are misinforming you. Should the company ever be challenged in a Lawsuit, Audit, Contract Dispute, etc., the very first set of documents any Judge, Revenue Agent or Arbitrator would look at are the Minutes and Resolutions. They do this to determine whether you have been treating the company completely separate or simply just as an alter ego of you, the principles. If there are no Minutes or Resolutions which gives the company substance, the company will be set aside, essentially the piercing of the Corporate Veil, and all liability will fall through to the Shareholders/Members, where personal assets can now be affected by liability against the business. I cannot stress enough about the importance of Corporate Formalities. Do not freak out! There is a Solution! My firm, Controllers, Ltd., can help you reconstruct the Minutes and Resolutions to bring your company back into Compliance, with our Compliance & Strategy coaching program. Give us a call today at 866-786-3462 or send us an email to: contact@controllersltd.com. We look forward to speaking with you!

My name is Scott L. Arden, CEO of Controllers, Ltd., in Reno, NV. I have     been in the Asset Protection and Estate Planning industry for over 24 years and have helped thousands of business owners and Entrepreneurs throughout the country clean up the messes their families and professionals have gotten them into based upon misinformation or by simply forming a Corporation or LLC themselves and not knowing what to do next.