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Business Trusts

Terminology / By David J Hoare MSA / 12/21/2016 02/27/2022

The common law definition of a business is an investment of capital or property by individuals which creates the means to carry on towards the goal of generating a profit. Every state recognizes different legal formats to conduct business. The simplest and most common is the sole proprietorship. Other forms include partnerships, limited liability company and of course corporation status (S-Corporation is a federal tax option of a corporation). However, two states actually recognize another legal format – business trusts.

Estimated Tax Payments – Why and How

Income Taxes / By David J Hoare MSA / 01/25/2015 03/01/2022

In the normal taxpayer relationship with the Internal Revenue Service, the taxpayer is an employee and via withholding, taxes are paid the U.S. Government by the employer. Basically the employer pays the tax after each payroll run on behalf of all the employees and the corresponding mandated matching taxes (Social Security and Medicare). But in the small business world, this is not the normal relationship.

Real Estate Syndication

REITs Pool / By David J Hoare MSA / 01/22/2015 02/05/2022

Real estate syndication is how apartment or office complexes are financed? A typical complex will have 80 to 100 units and the cost of construction will approximate $7,000,000. Where does this money come from? Your average person will think it is financed by a mortgage of some sort. Well, this is partially true, but mortgage companies will not finance 100% of the cost of construction. More like 75% maximum financing is used in constructing complexes. The balance has to come from private money.

This is where the value of real estate syndication comes into play. The arrangement is usually a two tier relationship whereby an operating partnership is created that actually owns and operates the asset (the complex). The second tier is a silent partner in the operating partnership. The following sections explain these two tiers in more detail.

Limited Liability Company – Step By Step Setup

Legal / By David J Hoare MSA / 01/17/2015 02/27/2022

There is multi-step process to establish a Limited Liability Company (LLC). You must first be recognized by the state of origin and then apply to the Internal Revenue Service to identify the particular tax entity arrangement. Both recognition processes have several steps involved. This article guides the entrepreneur through each of the steps to create a Limited Liability Company.

Partnership Agreements – Managing, General and Limited Partners

Legal / By David J Hoare MSA / 01/03/2015 02/27/2022

Every partnership consists of at least two or more partners. In many partnerships, there are dozens of partners. Each partner is classed into a particular group. There are Limited Partners, General (sometimes referred to as Operating) Partners and of course somebody who is in charge – the Managing Partner. Each of these classes of partners has some form of financial, fiduciary and appointed powers.

People, Process & Product – The Profit

Business Principles Start-Up / By David J Hoare MSA / 11/20/2014 02/26/2022

Marcus Lemonis is the star of a TV series show called ‘The Profit’. He helps failing business turn around and become successful operations by fixing the three core elements of every business. He refers to these elements as the 3 P’s: People, Process and Product. It is an interesting show as it falls into the same arena as this website.

At-Risk Rules – An Elementary Understanding

Income Taxes / By David J Hoare MSA / 10/28/2014 03/01/2022

Code Section 465 of the Internal Revenue Code defines ‘At-Risk’ as the financial value the taxpayer has in jeopardy related to the business activity the taxpayer is invested in as some form of an owner. Effectively, the taxpayer may only take losses on his tax return contingent on the loss being directly tied to invested dollars with some form of tax basis.

Phantom Income

Income Taxes, Terminology / By David J Hoare MSA / 10/27/2014 02/27/2022

Those small businesses using partnership or S-Corporation formats issue Form K-1 to the respective owners. When income is assigned to the owner and there is no corresponding cash related to that income, then this income is referred to as ‘Phantom Income’. In effect, it is assigned income for tax purposes without the corresponding cash to pay the tax liability.

Syndication

Phase II - Financial Analysis / By David J Hoare MSA / 08/12/2014 01/23/2022

Syndication refers to a group of individuals or business entities working together to achieve a set goal(s). In business, the goals vary. The most common goal is to acquire capital and use the combined power of the group in exercising that capital for a better than average rate of return.

Dividends and Distributions – Use in the Proper Context

Report Analysis - How to Read the Statements / By David J Hoare MSA / 04/29/2014 02/25/2022

Dividends and distributions refer to the payment of cash to investors. Why are there two separate terms? Well, the term is tied back to the type of entity that makes the payment. Simply stated, regular corporations, i.e. C-Corporations as identified in the Internal Revenue Code use the term ‘Dividends’ and S-Corporations (Small Business Corporations) use the term ‘Distributions’. In addition to S-Corporations, other closely held business use the term ‘Distributions’ to identify amounts disbursed to the respective owners or beneficiaries. These forms of entities include Partnerships, Limited Liability Corporations, Trusts and Estates.

Although it appears relatively simple at first, it is slightly more involved than this and this article addresses the proper definition and context use when using these two similar terms. In addition, there are more differences between the two terms than just the source of the payment. For a full and detailed understanding of the terms, continue reading.