Incorporation-Tax Reasons to Incorporate
Entity Types-Tax & Accounting
DBA/Assumed Name/Sole Proprietorship is not an entity
LLP, Limited Liability Partnership
Need existing partnership
Defaults to a partnership for tax purposes
LLC, Limited Liability Company, not corporation
Defaults to a sole proprietorship or partnership for tax purposes
LLC, commonly used for bars/rest & real estate
C Corp
Wages subject to payroll taxes
Remaining profit taxed 25-45%
Dividends taxed again personally
S Corp
Generally pays no corporate taxes
Wages subject to payroll taxes
Remaining profit, no corporate tax
Distributions taxed personally
Disadvantages
Lack of simplicity
Costs
Initial Incorporation
Tax Preparation
Advantages
Tax Savings
Retirement Plans
Lessened Audit Risk
Separate entity from the owners
Contracts
Why written contract?
Establishes common agreement with customer (avoids confusion)
Preserve Mechanic’s Lien rights
Required by law for licensed residential contractors
Contract provisions (at minimum – remodel contract example)
Identify contracting parties
Identify Contract documents
Work to be performed
Price and payment times/amounts
Mechanic’s Lien Prelien Notice
How change orders/extras are to be handled
Warranty rights
Disclaimers (examples)
Underground utility lines
Preexisting conditions
Peril damage
Mold
Statute of Repose (Minn. Stat. §541.051)
Collection costs (including attorney’s fees)
Dispute forum/Arbitration
Venue
Force majure
Home solicitation language (if appropriate)
Formaldehyde Notice
Liquidated damages
Others
Contracts to consider
Remodeler Contracts
New Construction Contracts (customer lot)
New Construction Contracts (builder lot)
Subcontractor Agreements
Non-compete Agreements
Mechanic’s Liens
Strictly follow statutory scheme or lose lien
Prelien
Contract with owner
Required if subcontractors/material suppliers
Must be in written contract
If no written contract, provide within 10 days of contracting
10 point bold and capitals to be safe
If not provided as above, no lien rights
Subcontractor
Must mail to owner within 45 days of first work
General contractor must provide name/address of owner on request within 10 days
10 point bold and capitals to be safe
If not provided as above, no lien rights
Lien Statement
Must be served and filed within 120 days of last date of work
Must contain
Notice of intent to claim lien
Amount due for labor, skill and material
Your name
Customer’s name
Date of first work
Date of last work
Description of the work
Legal description of property being liened (has to be the property where work performed/supplies used)
Name of property owner
Your postal address
Acknowledgement of service of Lien Statement on owner within 120 days of date of last work
Acknowledgement that Prelien notice provided
Lien Foreclosure Action
Must be commenced within 1 year of last date of work
Common pitfalls
No Prelien notice
Lien Statement not served and recorded within 120 days of last work
Lien Statement defects (most common)
Overstate lien amount
Claim for items not lienable
Foreclosure action not commenced within 1 year of last work
Cannot establish first and last dates of work
Cannot establish work performed/materials delivered
Only applies in Minnesota
Subcontractor and Material Supplier Actions
Non-payment of Subcontractors – civil and criminal penalties (Minn. Stat. §514.02; Minn. Stat. §337.10, Subd. 3)
Protection through Subcontractor Agreement
Margins, Bidding & Pricing
Gross vs. Net Margins
Gross Revenue, Deposits must reconcile with Reported Tax Revenue
Direct Costs
Direct Labor, work comp, payroll taxes (labor burden & overhead)
Materials
Subs
Permits & Plans
Dump
Sales Commissions
Gross Margin
Overhead
Accounting & Legal
Insurance
Phone
Tools
Supplies
Interest
Vehicle Expenses
Net Margin
Subcontractor vs. Employee
Subcontractors must have
Employer Identification Number
Insurance Certificates
General Liability Insurance
Worker's Compensation Insurance if sub has helpers
Paid by project
Their own tools
Employee costs
Wages
Payroll Taxes
Work Comp
Supervisory costs
Fringe Benefits
Insurance Audits
General Liability
Worker’s Compensation
Certificates of Insurance
IRS/MN Dept. of Revenue/DEED Compliance Issues
IRS Audits
Sole Proprietorships Primarily, not corporations
Areas
Revenue, including inter-account transfers
Direct Construction Costs
Vehicle Expenses, mileage logs
179 Expensing
Need receipts for all expenses
MN Dept. of Revenue Audits
Primarily two types
Sales & Use Tax
Adjustments from IRS Examinations
MN Unemployment Audits
Warranties
Types
Express
Written
Verbal
Limiting
Implied 327A Warranty
New Construction
Remodel
1/2/10 year warranties
Alternative warranty programs
Written warranty notice requirement
Who does the repair work
Limitations of Actions
327A 6 month written notice
541.051
2 year statute of limitations
10 year statute of repose
................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.