e- NEWSLETTER
April/May 2008
Jessica M. Kirsch
Editor-in-Chief
Small Business
2008 is the year for big purchases…
By James D. Voigt
Many small businesses are seeking to cash in on the refund checks being
issued this summer under the economic stimulus package recently signed by the
President. The main benefit to small business is thought to be the ability to
target consumers and try to get them to spend their refund check at your
business. This is a good strategy, and many small businesses are ramping up
their marketing efforts to cash in. But the stimulus package also packs two
powerful tools that small businesses can use to their advantage immediately,
without counting on the “trickle down” affect of the refund checks.
The provisions come in two forms: one for companies that will
spend more than $800,000 on capital purchases in 2008, and the other for
businesses who will
spend less than that. Both provisions work through depreciation. Normally, a
business would buy a piece of equipment for $10,000, with a useful life of five
years. Each year for five years, the business could take a $2,000 deduction for
depreciation since one-fifth of the useful life of the equipment has been “used
up” during that year. Deducting the total cost of the equipment would take five
years.
The new provisions in the stimulus package speed up that
depreciation process considerably. For the same $10,000 purchase, as long as the
equipment qualifies, the business could deduct the full $10,000 purchase price
in 2008 instead of waiting for five years to fully realize the depreciation.
This is a power tool since it effectively lowers the cost of the equipment right
now, instead of over time. Companies spending more than $800,000 on equipment in
2008 would deduct 50% of the cost. The programs are detailed below.
Section 179 expensing limit increased. The economic stimulus
package doubles the current small business expensing limit from $128,000 to
$250,000. This provides small business owners with an immediate deduction for
the entire cost of certain investments made in their business, such as
purchasing new equipment. This applies only to small business owners who invest
less than $800,000 in their business this year. Be careful to manage your P&L
closely for the year, though. This provision is only available for businesses
that are not operating at a loss. The provision is aggregate: you don’t need to
purchase one major piece of equipment for $250,000. You can purchase several
pieces of equipment and deduct the full cost up to $250,000. After reaching that
limit, you would depreciate the cost of the equipment under normal IRS rules.
Also, these provisions only apply to certain types of equipment. The typical
categories that would qualify include manufacturing equipment, computers,
vehicles, and office furniture. However, major purchases like air conditioning
for your building, or replacement windows do not qualify.
Bonus depreciation. What about businesses planning to spend
more than $800,000 on capital purchases in 2008? The economic stimulus package
also provides for a 50 percent bonus depreciation for certain investments in
business. This means a business can take an immediate deduction of 50 percent of
the investment, rather than deducting the value over a number of years. Unlike
expensing, the bonus depreciation deduction would apply to investments that
exceed the $800,000 limit.
The bottom line is that small business will be able to make major equipment
purchases that otherwise may not have been possible. If you have been
forecasting the need to make a significant purchase in the next few years, you
should contact your accountant to discuss the possibility of moving that
purchase up to this year and to ensure that you make the proper tax elections to
take advantage of these programs.
Remember that major equipment purchases should always be
documented with proper corporate resolutions or LLC authorizations. Also, these
purchases often involve substantial contracts. We are here for you to prepare
the proper documentation, and to review any contracts that may be required to
make your purchase. We are also piloting a new program for protecting your
high-value/high-liability business assets (like heavy equipment) through the use
of cost-effective series limited liability companies. Feel free to give me a
call to discuss your current assets and planned purchases so that we can put
together a good package that properly documents the transaction, protects your
business, and protects you personally.
If you have any questions regarding this article please feel
free to contact James D. Voigt at
jdvoigt@lavellelaw.com.
Home Health
Expanding Your Home Health Care Business
By Theodore M. McGinn
As anyone operating a home health care agency is aware, the current market in
the Chicagoland area is very competitive. Although there are a greater and
greater number of individuals seeking home health care related services, there
are a large number of providers in the area. However, as the baby boomer
generation continues to age, there is now an opportunity to expand a traditional
home health care base business into other areas. In particular, there is a
market developing for I refer to as a basic non-medical care coordinator.
The traditional scenario is a situation where the children of
an aging individual become concerned over the well-being of their parent.
However, such child may not be in the area or not able to devote the amount of
time that is necessary in order to take care of such aging individual. Such
aging individual will need help with basic tasks of payment of bills maintaining
the order of the house, as basic cleaning, purchasing day-to-day supplies,
and/or groceries, and simply providing daily company. Although these services
would not be paid for through Medicare, families are willing to pay for these
services. These services are a natural expansion of a traditional home health
care base business..
This business can be considered a geriatric care provider,
home management coordinator, or under any other name devoted towards the
day-to-day care of an aging individual. Another type of business is adult day
care. Regardless of the term provided for such service, there is a growing need
and a tremendous opportunity.
Once concern of those looking to hire a caregiver would be to
insure that they have a trust worthy provider. Naturally, any individual who is
hired in this capacity has access to private and/or confidential matter
involving the individual. Accordingly, any family looking to hire a caregiver in
this capacity will want to seek to insure that they are hiring a trust worthy
individual. The National Alliance for Caregiving is a non-for-profit
organization that provides reviews of the health care givers and provides a
rating available to individuals wishing to hire a caregiver. It is critical,
that any agency wishing to enter into this market that they comply with the
requirements of such organization in order to receive a positive review.
As the population tends to age, there are a number of other
opportunities beyond traditional home health care. Home health care agencies in
this highly competitive market of Chicago must continue to adapt their business
model and consider other types of business opportunities. Those agencies that do
adapt will prove to be more successful in the long run.
If you have any questions regarding this article please feel
free to contact Theodore M. McGinn at
tmcginn@lavellelaw.com.
Tax
Your 2008 Economic Stimulus Payment
By Timothy M. Hughes
Beginning this month the IRS will send letters to more than
130 million American households reminding them to file a 2007 tax return in
order to receive a 2008 economic stimulus payment. The mailings will continue
throughout the month of March.
The informational notice, titled “Economic Stimulus Payment
Notice,” alerts people that they may be eligible for a one-time stimulus payment
of up to $600 ($1,200 married filing jointly) with an additional $300 per
qualifying child starting in May. The IRS notice is informational and does not
seek any financial information from taxpayers. The main mailings, which will
take place in three weekly batches, will go to taxpayers who filed a tax return
last year. In late March, IRS will send a special mailing to certain recipients
of Social Security and Veterans Affairs benefits. Generally, those benefits are
nontaxable and recipients do not file tax returns. In order to receive a
stimulus payment, people in this group need to file a tax return if they have at
least $3,000 from a combination of certain Social Security benefits, Veterans
benefits and earned income. The minimum stimulus payment for these people is
$300 ($600 for married filing jointly).
Further, the IRS has issued Revenue Procedure 2008-21 in
which it indicates that it will not challenge the accuracy of income tax returns
filed in compliance with Notice 2008-28 (which explains how individuals who do
not otherwise have to file for 2007 should file for a rebate under the Economic
Stimulus Act) by eligible individuals who enter $1.00 in adjusted gross income
solely for purposes of effectuating the electronic filing of the return.
Thus, such an individual who wishes to electronically file an
income tax return may enter $1.00 of income in the Income section of the return
and at least $1.00 of AGI even though the return prepared as instructed in
Notice 2008-28 would otherwise show no AGI. However, the IRS says it may
challenge and assert any applicable penalties if the return contains
inaccuracies (such as failure to report income) not related to Rev Proc 2008-21.
Please keep in mind that this is only a summary of recent IRS
actions with respect to the Economic Stimulus Act. If you would like more
details about this, please do not hesitate to call our office. Our office has
been successful in helping taxpayers for over fifteen years. If you have IRS
collection problems please call our office and ask for Jessie at (847) 705-7555
to talk to one of our tax attorneys and find out how we can help your client in
front of IRS collections.
Aviation
INDEMNITY
AGREEMENTS,
WILL YOURS SURVIVE THE CRASH?
By Robert A. McKenzie
Agreements to indemnify and hold harmless are pervasive in
aviation; you sign one before your first lesson, when you join a club, when you
rent your first tie down, and, hopefully, when you become a joint owner.
Let’s consider what indemnity agreements cannot do. Indemnity
agreements cannot protect you, your estate, or your aircraft from suits brought
by a person who hasn’t signed the agreement. For example, you experience engine
trouble and make an emergency landing in a farm field. During and after the
landing your aircraft leaks fuel onto the ground which destroys a substantial
portion of the crop. No previously existing agreement will apply because the
farmer never signed it. Your insurance will, hopefully, cover all of the damage.
Now let’s consider what a well drafted indemnity agreement
can do. Well drafted indemnity agreements can protect owners, pilots, flight
clubs, passengers, and other parties from each others’ claims for injuries and
damages. The standard form of these agreements includes language that allegedly
relinquishes all claims relating to a crash. Most common sense pilots read these
words literally: they believe that the injured parties cannot bring a suit for
any reason. Illinois law is exactly the opposite.
Here’s a recently decided Illinois case to consider: In early
October 2003 a woman was killed in a traffic accident involving a minibus and a
large truck hauling a trailer. The trailer was leased in much the same manner as
most charter, club, and school aircraft. The woman’s husband filed suit against
the owner and lessee. He claimed that both were negligent.
Prior to the accident, the owner and lessee signed an
indemnity agreement that purported to hold the owner harmless for all claims.
However, the agreement did not specifically refer to the owner’s own negligence.
The result was that the owner was found negligent because it allowed the trailer
to be operated in an allegedly unsafe condition. The Court decided this despite
the fact that the owner did not have control over the use or maintenance of the
trailer. According to the Court, the liability would have fallen to the lessee
if the indemnity agreement been drafted to include indemnification for the
owner’s negligence.
The aviation parallels to the above case are numerous. Many
pilots lease their aircraft to charter companies, flying clubs, and flight
schools. In most leasing arrangements, the pilot allows the lessee to manage the
maintenance and use of the aircraft. (But retains the responsibility to pay the
bills.) All such arrangements should include signed indemnity agreements with
the pilots, students, instructors, and passengers that release claims for the
owners’ negligence. If not, aircraft owners may become targets for a suit based
on claims that they negligently allowed the aircraft to be operated in an unsafe
condition. Furthermore, owners should note that claims of negligence are more
likely to bypass corporate protections and flow directly to the alleged
negligent officer, director, shareholder, or member.
If you own an aircraft and there is an applicable indemnity
agreement, it probably does not include terms that protect you to the fullest
extent possible. Owners and Pilots who wish to know more about updating their
indemnity agreements should feel free to call Robert McKenzie at (847) 705-7555
or email him at rmckenzie@lavellelaw.com for a free analyst of their standard agreements.
Tax
IRS Audits Up in 2007…will the Trend to Continue?
By Cameron R. Monti
The IRS enforcement efforts increased again in fiscal year 2007. During 2007,
the IRS audited 84 percent more returns of individuals with incomes of $1
million or more than during 2006. Overall, enforcement revenue reached $59.2
billion, up from $48.7 billion in 2006 and nearly $34.1 billion in 2002.
For individual taxpayers, audit rates increased in 2007, both
for overall individual rates and for higher-income taxpayers. One out of 11
individuals with incomes of $1 million or more faced an audit in 2007. Overall,
the total individual returns audited increased by 7 percent to 1,384,563 in 2007
from 2006 - the highest number since 1998. Audits of individuals with incomes
over $200,000 reached 13,105 returns, up 29.2 percent from the prior year total.
The IRS also increased audits of individual returns with income of $100,000 or
more, auditing 293,188 of these returns in 2007, up 13.7 percent from last
year’s total of 257,851. The IRS filed 3.8 million levies and almost 700,000
liens during 2007, an increase from the previous year and a substantial increase
from five years earlier.
In the business arena, the IRS continued efforts to review
more returns of flow-through entities – partnerships and S Corporations. The IRS
has placed more emphasis in the growing area of these flow-through returns.
While large corporate audits are down slightly, the IRS increased its focus on
mid-market corporations – those with assets between $10 million and $50 million
dollars. Audits of S Corporations increased by 26 percent. Audits of
partnerships increased to 12,195 during 2007, up almost 25 percent from the
prior year’s total. Audits of mid-market corporations increased to 4,473, up 6
percent from last year’s total of 4,218. Audits of businesses in general rose
almost 14 percent from the prior year’s total. Although the audits of large
corporations dipped slightly in 2007 to 9,644 audits, the number of audits is up
14 percent from the fiscal year 2002 level.
What does this mean to you? You need to be mindful of the
income and expense information you report to the IRS is correct and accurate,
and ensure that you are able to substantiate any deductions, expenses, credits,
etc. that you claim if questioned by the IRS. Also, if you fail to report income
earned on your individual or business tax return, you may be playing a game of
“Audit Russian Roulette” with the IRS where, based on recent enforcement trends,
the odds of being audited has increased. If you are being audited and need
assistance, please contact
cmonti@lavellelaw.com.
Family Law
What is a legal separation?
By Amil Alkass
Many people have asked the follow
question: “What is a Legal Separation?” The concept of a "legal separation" is
commonly misunderstood. A legal separation is not a term used when a couple no
longer lives together as a precursor to a divorce or while waiting for a divorce
case to be finalized; in those situations that is simply a separation. Rather, a
legal separation is a term to describe a legal course of action whereby a court
is petitioned by a separated couple and enters a judgment recognizing the
separation as a legal result. Unlike a divorce, a legal separation does not put
an end to a couple’s marriage; but rather, designates the rights and obligations
of each spouse while they are living apart.
A legal separation is generally utilized when a couple wants
to stay married for either religious reasons, wants a “cooling off” period to
analyze their marriage, wants to maintain various insurance coverage’s, or wants
to maintain or exercise certain tax, military or social security benefits.
However, a legal separation does not necessarily protect a spouse from abuse. If
a person is seeking a legal separation because of concerns about physical,
mental, or other abuse by a spouse, an order of protection should be obtained.
Some issues that can be addressed and ruled upon by the court in a legal
separation are a division of marital property, assets and debts, child custody
and visitation, and child and spousal support. To obtain a legal separation in
Illinois, the petitioner (1) must have resided in Illinois for more than ninety
(90) days; (2) lived separate or apart from the other spouse; (3) and the
petitioning spouse cannot be the cause of the parties’ physical separation. Once
all of the aforementioned requirements have been satisfactorily met, a judge
will enter a judgment for legal separation.
For more information about legal separations, or any other
family law matter, please contact attorney Amil Alkass of LAVELLE LAW, LTD. via
e-mail at aalkass@lavellelaw.com or
via telephone (847) 705-1020.
For past e-newsletter articles of interest, please visit the Lavelle Law, Ltd. website at: http://www.lavellelaw.com/newsletters/newsletter.htm.
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This newsletter is
a publication of Lavelle Law, Ltd. We attempt to highlight and
discuss areas of general legal interest that may lead to planning
opportunities. Nothing contained in this Newsletter should be construed as
legal advice or a legal opinion. Consultation with a professional is
recommended before implementing any of the ideas discussed herein.
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