Collecting child support and maintenance payments:

When your ex-spouse has failed to pay child support/maintenance payments, your best bet is to file an income execution. Income executions are one of many administrative enforcement actions that you can take without going to court. Unlike the 25% federal limit on typical money judgments the income execution for support affords access up to 65% of your ex-spouses disposable income. The income execution along with the other administrative processes may be prepared by your attorney (as an officer of the court) or  the child support collections unit. To initiate the process with the child support enforcement division you can file an application with your county child support office .The Child Support Enforcement Division may charge you a small fee (typically $25 or so) to handle the collection from start to finish. Although less expensive than a private attorney, using child support services has left some of my client’s feeling like just another number, and the service you get will typically be much slower than what you would receive from a private attorney. However the support services are better suited than most private attorney’s when you cannot locate your ex-spouse or his place of employment. When administrative enforcement processes do not succeed, filing a violation petition with the court,, asking the court to enforce the order is your next step. The court can order mandatory money judgments for past-due payments; order the noncustodial parent into a work program; order that a hearing take place to suspend state issued professional, business or occupational licenses; or issue probation or jail sentences. This process may also be accomplished with or without the use of a private attorney or you can ask the child support enforcement division to assist in preparing and filing a violation petition with the court asking the court to enforce the order.

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Although it seems relatively inexpensive to form an LLC and as you look online you initial assumption would be correct. However, the online companies fail to tell you the requirements or downplay the costs of publication of your LLC. So here is the real facts:

in New York, a Limited Liability Company must publish, within 120 days of its formation, a notice in two general-circulation newspapers (one daily, one weekly) in the county where the LLC was formed. The notice has to run once a week for six weeks and include a number of facts concerning the company and its formation. If an LLC doesn’t fulfill the publication requirements, the company’s authority to do business in New York can be suspended.

The costs of publication vary widely from county to county, ranging from around $300 in some counties to over $1,600 in New York County (Manhattan). Generally, publication costs are higher “downstate” (the five boroughs of New York City, Westchester County and Nassau and Suffolk Counties on Long Island). Publication costs depend entirely on the advertising rates charged by the newspapers that are designated by each county clerk for publication.

Because of the costs imposed by the publication requirement, business owners should think twice before forming an LLC in New York, particularly in the downstate counties.

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S-Corp vs. LLC

Both entities are “Pass-Through” entities for tax purposes; the income of these companies are passed through to their owners and reported on the owners’ personal income tax returns, thereby eliminating the double taxation incurred by owners of a standard corporation. Also both entities provide liability protection; this means that the owner of a company cannot be held personally responsible for the company’s debts. The personal assets of an owner are shielded from company liabilities.  So what are the differences?

Practical differences

Start- Up and formation costs ( Favors S-Corp) – Prices do not including legal fees to perform formation

  1. LLC:  New York  filing and formation Costs
    1. Reservation of name: $20
    2. Articles of Organization: $200
    3. Publication ( required in NY): $400-$1,600
    4. Certificate of publication: $50
    5. TOTAL = $670-$1870
  2. S-Corp:New York  filing and formation Costs
    1. Reservation of name: $20
    2. Articles of incorporation: $125
    3. S-Corp Election: $75
    4. Total = $220

Business Ownership & Operation (favors LLC)

  1. An S corporation can have no more than 75 shareholders, none of the shareholders can be nonresident aliens, and shareholders cannot be other corporations or LLCs. There are no restrictions on the ownership of an LLC
  2. An S corp. must follow the same formalities and record keeping procedures as a traditional Corporation. If the S-Corp has more than one shareholder, it must hold annual meetings, prepare meeting minutes, and document corporate actions. S-Corp’s must file and pay payroll tax throughout the year on wages paid to owner/shareholders. No such requirements apply to LLC’s.
  3. The S corp has no flexibility in how profits are split up among its owners. The profits must be distributed according to the ratio of stock ownership, even if the owners may otherwise feel it is more equitable to distribute the profits differently. The owners of an LLC can distribute profits in the manner they see fit.
    1. For example: you and a partner own an LLC. Your partner contributed $80,000 for capital and you contributed $20,000, but you perform 90% of the work. The two of you decide that, in the interest of fairness, you will each share the profits 50/50. As an LLC you could do that; with an S corporation, however, you could only take 20% of the profits while your partner would take the other 80%.

Employment Tax: Savings vs. Paperwork (Favors S-Corp)

  1. A major factor that differentiates an S corporation from an LLC is the employment tax that is paid on earnings. The owner of an LLC is considered to be self-employed and, as such, must pay a “self-employment tax” of 15.3% which goes toward social security and Medicare. The entire net income of the business is subject to self-employment tax. In an S corporation, only the salary paid to the employee-owner is subject to employment tax. The remaining “profit” that is paid as a distribution is not subject to employment tax under IRS rules. Therefore, there is the potential to realize substantial employment tax savings
    1. For Example: Let’s say you own a carpentry company, which earns ( after expenses) $75,000 . If you were an LLC the entire profit would be subject to self employment tax ( $75,000 x 15.3% = $11,475). However, if you were an S-corp, or an LLC electing to be treated as an S-Corp, you pay yourself a reasonable salary (according to industry guidelines) for a carpenter, which may be $40,000, and you take the remaining portion as a profit. Your total earnings for the year still are $75,000, but you have $40,000 paid in salary and the remaining $35,000 paid as a distribution from the S corp. Your total employment tax is $6,120 (15.3% of $40,000). Your total savings is $5,355.
    2. Caution: One might assume that these savings could be further manipulated by reducing the salary to an extremely low amount and attributing the rest of one’s earnings to distributions—but this would be an incorrect assumption. In practice, the IRS is careful to notice whether a salary is reasonable by industry standards. If it determines a salary to be unreasonable, the IRS will not hesitate to reclassify distributions as salary.
  2. While the potential employment tax savings may make the S corporation an attractive structure for your business, bear in mind that you would then have to deal with all the paperwork associated with payroll tax. The payroll tax is a pay-as-you-go tax that must be paid to the IRS regularly throughout the year–on time, or you will incur interest and penalties. In addition, an S-Corp requires a separate tax return so you will have to include the cost of preparing two returns ( one person and one corporate) a single member LLC can be filed on your schedule C of your individual tax return.
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What is a living will?

A living will is a document that specifies what type of medical treatments you would or would not want if you were unable to communicate. These treatments may include resuscitation, artificial nutrition and hydration and mechanical ventilation.  Living wills are usually too narrow to apply to many common medical situations. They often use language such as “incurable or irreversible condition with no reasonable expectation of recovery.” It’s very rare that a person faces this specific situation. More often a person is faced with a small chance of recovery, but not zero; or the person may be able to “recover” but not to the same level of health. Be aware that there are differences in the legal status of living wills in each state. For example, in New York State a living will is actually not a legal document and medical decisions may not be based on it alone.

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What is a Health Care Proxy?

A health care proxy (also referred to as a durable power of attorney for health care) is a document that appoints someone to make medical decisions for you, if you are in a situation where you can’t make them yourself. It is extremely important to include specific instructions and guidance to your health care agent in this document. Failure to include your particular wishes may lead to consequences that you did want. Moreover, you must choose your proxy thoughtfully since he/she will be acting on your behalf.  After appointing your proxy it is important to discuss your wishes with them about your medical care, including resuscitation, artificial nutrition and hydration and personal goals for quality of life. Knowledge of your wishes and specific instruction in the document itself will help guide the decisions your proxy will have to make with your medical team. Knowing that any decisions made are based on your personal values and wishes will be a comfort to family and friends during a stressful time.

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The Last Will and Testament:

What Is A Will? A Will is a legal document that sets forth your wishes regarding the distribution of your property and the care of any minor children. Depending on the types of assets that are left behind and the wishes of the Testator, a Will can be fairly straight forward, or quite complicated. Either way, it is extremely important to have this document in place prior to the time of death which can save your family time, money and grief as well as give you peace of mind. Equally important is to ensure that the Will is found to be valid. There are technical rules that need to be attended to in the Will’s creation, such as how it is executed (signed), and whether or not the document needs to signed in the presence of others (witnessed). Unfortunately, the death of a loved one can cause emotions to run extremely high and it is not uncommon to see families end up at odds over a Will. Some family members may take exception to what they were left in a Will, or that someone else received something they did not. The validity of a Will can be questioned, which is known as a Will Contest. These matters can become extremely emotional and hard to handle. If for some reason the Will is not found to be valid, the inheritance process will be dictated by the laws of intestacy, (also known as Intestate Succession). This may cause the wishes of the decedent to be ignored and distributed according to State Law.

Wills come in several varieties, including the following:

  1. Self-Proving/Testamentary Will: A self-proving will, also known as testamentary will, is the traditional type of will with which most people are familiar. It is a formally prepared document that is signed in the presence of witnesses.
  2. Holographic Will: Holographic wills are written without the presence of witnesses. They rarely hold up in court.
  3. Oral Will: Oral wills are spoken testaments given before witnesses. They are not widely recognized from a legal perspective.
  4. Living Will: A living will nothing to do with the distribution of assets, but rather sets forth your wishes for Medical Care in terms of life support should you be incapacitated. ( please see my post about health care proxy/living wills for more information)

Do I Need a Will? A will gives you sole discretion over the distribution of your assets. It lets you decide how your belongings, such as cars or family heirlooms, should be distributed. If you have a business or investments, your will can direct the smooth transition of those assets. If you have minor children, a will lets you provide for their care. Creating a will also minimizes tensions between survivors. Relatives battling over your possessions can weaken what may have otherwise been a strong family.

What Doesn’t a Will Cover? While wills generally address the distribution of your assets, there are a variety of items that are not covered by the instructions in a will. These items include community property, proceeds from a life insurance policy , retirement assets, assets owned as joint tenants with rights of survivorship and investment accounts that are designated as “transfer on death.”

What Happens If I Don’t Have a will when I pass?

If you do not have a will, you die intestate. In such a case, the state will oversee the distribution of your assets., the state distributes them according to a set formula. The formula often results in half of your estate going to your spouse and the other half going to your children. Such a scenario can result in the sale of the family home or other assets, negatively impacting the surviving spouse. This can create financial and emotional difficulties, particularly if your spouse was counting the assets to maintain his or her standard of living. Further complications can arise if your children are minors, as the court will appoint a representative to look after their interests.

Tax considerations are another important issue to consider, as a properly prepared will can minimize tax liability. This is particularly important to people with large estates. In the U.S., assets in excess of $2 million (as of 2008) are taxed when they are transferred from one person to another. That amount is set to increase to $3.5 million in 2009. In 2010, the estate tax will disappear before returning in 2011 at the $1 million level unless Congress takes action.

What information do I need to have to Get a Will?

When you are ready to prepare a will, compile a list of your assets and debts and be sure to include the contents of safe deposit boxes, items of sentimental value, family heirlooms and other assets that you wish to transfer to a particular person or entity.

How Can I Change My Will?

Changing your will is easy. Simply write a new will to replace the old one, or make an addition using an amendment known as a codicil. Ideally, you want to make any changes when you are of sound mind and in good health. This limits the likelihood that your wishes can be successfully challenged and avoids decisions made in haste or under intense emotional pressure.

What Do I Do With It Once It’s Done?

Creating your will is the first step in a two-step process. The second step is putting your will in the hands of your executor or professional advisor. Remember, your wishes can only be carried out if they are known. Putting your will in capable hands ensures that it will be available when it is needed.

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Can I Go to Jail for not filing my tax returns?

A long-standing practice of the IRS has been not to recommend criminal prosecution of individuals for failure to file tax returns, provided they voluntarily file, or make arrangements to file, before being notified they are under criminal investigation. The taxpayer must make an honest effort to file a correct return and have income from legal sources. A letter from the IRS concerning taxes is not a notice that a taxpayer is under criminal investigation.

The IRS helps to get people back into the system as part of its long-term plan to improve voluntary tax compliance. The IRS wants to get people back into the system, not prosecute ordinary people who made a mistake. However, flagrant cases involving criminal violations of tax laws will continue to be investigated

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I have not filed my tax return(s), what do I do?

The quick answer to this question is that you must file your tax returns whether or not you can afford to pay the tax liability. Even if you have escaped detection for one or more years, your time may be running out and when it does the effects can be staggering. Relatively small tax liabilities can become excessive when penalties and interest are added to the assessed liability. Taxpayers who don’t file a past due return or contact the IRS are subject to the following:

  • Penalties and Interest will be assessed and will increase the amount of tax due.
  • The IRS will file a substitute return for you. But this return is based only on information the IRS has from other sources. Thus, if the IRS prepares this substitute return, it will not include any additional exemptions or expenses you may be entitled to and may overstate your real tax liability. (Even if the IRS has already filed a substitute return, it still makes sense for you to file your own return to make sure you take advantage of all the exemptions, credits, and deductions you are allowed. The IRS will generally adjust your account to reflect the correct figures.)
  • Once the tax is assessed the IRS will start the collection process, which can include placing a levy on wages or bank accounts or filing a federal tax lien against your property.
  • Generally, if a taxpayer is due a refund for withholding or estimated taxes paid, it must be claimed within 3 years of the return due date or risk losing the right to it. The same rule applies to a right to claim a tax credit such as the Earned Income Credit (EIC).
  • Self-employed persons who do not file a return will not receive credits toward Social Security retirement or disability benefits. Failure to file results in not reporting any self-employment income to the Social Security Administration

Fortunately, filing a past due return may not be as difficult as you think. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan or may be eligible to make an “offer in compromise”.

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I cannot afford to pay my income tax. What can I do?

Even if a taxpayer doesn’t have enough money to pay, returns should be filed to avoid further penalties for failure to file. The IRS will assist in finding a solution to the problem. The IRS may accept an installment agreement to pay the debt over time, or you might be eligible for an offer in compromise, which can allow you to pay a reduced amount in settlement of the tax liability.

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What happens with my deceased loved one’s assets?

Jointly held assets in New York will pass automatically to the surviving joint owner. Other assets may pass to designated beneficiaries. In addition, if a person died with a valid will, his or her individually-owned property will be distributed according to the will.

A person who died without a valid will is said to have died “intestate.” In this case, his or her property will be distributed according to the intestacy laws of the state where the deceased resided at the time of his or her death. Generally, a spouse, children, or parents will receive the assets.

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