Be Willing to Walk Away in a Negotiation

Event: ProVisors Panel on Negotiation
Venue: Calabasas Country Club
Location: Calabasas, Los Angeles, Ca
Speaker: Attorney Douglas Schreiber of Anker, Hymes & Schreiber, LLP

Transcription:

Be willing to walk away. That sometimes is the most powerful tool in any negotiation. The ability and willingness to walk away.

Recently my law firm, settled a case where we had been at a mandatory settlement conference in front of a judge. He pounded on us and pounded on us to settle for an amount which was way above our bottom line.

What did we do? We walked away. Of course, we also had done preparation in advance including research into the opposing side. We knew the other lawyer was not known for taking cases to trial and figured that as trial approached, that demand (which was way above our bottom line) would come down and down and down.

Sure enough, a couple weeks before trial, there number came down below our bottom line and the case settled.

How did we get there? We walked away. It was really that simple: the willingness to walk away.

For more information about our law firm, please contact our Business Attorney in Woodland Hills.

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Art of Negotiation: Starting and Pressure Points

Event: ProVisors Panel on Negotiation
Venue: Calabasas Country Club
Location: Calabasas, Los Angeles, Ca
Speaker: Attorney Douglas Schreiber of Anker, Hymes & Schreiber, LLP

Transcription:

Before you go into a negotiation you need to be prepared:

  • What are your needs?
  • What are your wants?
  • What are the other sides weaknesses or pressure points?

I focus a lot on #3.  Here is a great example: My law firm, Anker, Hymes & Schreiber, LLP did some investigation on a matter that has settled within the last few months. We found out that the company we were suing had a deal that they were going to be selling. A very important deal; a very big deal.  Our claim: a thorn in their side.

But we settled this case for more than our value; more than our bottom line because we knew the pressure point of the opposing side. The pressure point was the company had to get this deal out of the way because we were impediment and they stood to make a lot more money from the sale then dealing with us and paying us a little more money.

So there is a situation where the preparation and investigation beforehand got us some information which gave us the exposure or pressure point on the other side that we were able to apply to our advantage.

For more information about our law firm, please contact our business attorney in Los Angeles.

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Protecting a business, property or personal wealth is an important consideration for many people. At Anker, Reed, Hymes, Schreiber and Cohen, A Law Corporation, we pride ourselves on being a different kind of law firm – one that measures success by its value to clients. Since 1974, our firm has provided business law, real estate, estate planning and litigation services to individuals, families and businesses throughout Southern California.

Alternative Minimum Tax: The Effect on Itemized Deductions

 

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This is also part of third section of  Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question” regarding the alternative minimum tax and its effect on medical and miscellaneous itemized deductions.

An additional issue with regard to the deductibility of both medical and miscellaneous itemized deductions is the imposition of the Alternative Minimum Tax. “Congress enacted the alternative minimum tax (AMT) in 1969 to make wealthy taxpayers pay their fair share instead of using tax shelters and other means to reduce, or even eliminate, their federal tax liability.” (Kern, 1999). “The alternative minimum tax generally can be described as a flat tax rate which is imposed on a broader income base than the taxable income yardstick used for the regular corporate tax.” (Lind, supra note 11 at 15).  “The tax is designed to ensure that all taxpayers pay at least a minimum amount of taxes.” (Blacks Law Dictionary, 1990). “Without the alternative minimum tax, some of these taxpayers might be able to escape income taxation entirely. In essence, the AMT functions as a recapture mechanism, reclaiming some of the tax breaks primarily available to high-income taxpayers, and represents an attempt to maintain tax equity.” (Commerce Clearing House, 1999).

The AMT is paid in addition to any other income tax imposed and calculated as the excess of the tentative minimum tax for the taxable year over the regular tax for the taxable year. The definition for tentative minimum tax, though, depends on the status of the taxpayer, whether noncorporate or corporate. The tentative minimum tax for the noncorporate taxpayer is the sum of 26% of so much of the taxable excess as does not exceed $175,000 plus 28% of so much of the taxable excess as exceeds $175,000. The Internal Revenue Code also provides for tax exemption status, evidencing the congressional intent of taxing the high-income taxpayers. If the taxpayer’s taxable income does not exceed $45,000 for taxpayers filing a joint return, $33,750 for the individual taxpayer, or $22,500 for the married taxpayer filing separately, the taxpayer is exempt from alternative minimum tax treatment. This means that, depending on the individual taxpayer, there could be an exemption from AMT for the lower income brackets. After the $33,750 exemption, the next $175,000 will be taxed at a rate of 26%. Taxable income exceeding this will be taxed at 28%. At the corporate level, the first $40,000 of taxable income is exempt from AMT treatment.

As previously discussed, the PSC will have little or no taxable income as a result of “zeroing-out.” Therefore, no discussion of corporate AMT is necessary.

When analyzing the application of AMT to the noncorporate taxpayer, the focus of the discussion turns to the medical and miscellaneous itemized deductions. For Regular Income Tax (“RIT”) purposes, medical expenses are deductible when they exceed 7.5% of adjusted gross income (“AGI“). For AMT purposes, medical expenses are deductible only when they exceed 10% of AGI. With regard to miscellaneous deductions, the difference between RIT and AMT is even more conspicuous. For RIT purposes, miscellaneous itemized deductions (specifically unreimbursed employee business expenses) are deductible to the extent they exceed 2% of AGI. Under AMT, however, miscellaneous itemized deductions are not allowed. This is significant since an employee working in a noncorporate structure will be considered an employee for whom she provides services.

Therefore, any business expenses she incurs will be considered unreimbursed employee business expenses, shown as miscellaneous itemized deductions subject to the 2% of AGI limitation and rendered non-deductible for AMT purposes. Under the PSC, these business expenses escape both the RIT limitation and the AMT exclusion.

* For specific inquiries regarding a business legal matter that you may have, you are welcome to visit our Tax Attorney in Los Angeles.

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The Medical Reimbursement Plan with Regards to Deduction Limitations

This is part of the third section of Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question” regarding the medical reimbursement plan and deduction limitations of the corporation and individual.

The corporation may establish a medical reimbursement plan as a benefit to its employees, which eliminates the medical expense deduction limitation. In a medical reimbursement plan the corporation will reimburse the entertainer/employee/shareholder for expenses incurred in securing medical treatment. When the corporation reimburses the employee for the medical expenses incurred, the employee avoids the limitation on the deductibility of medical expenses.

Furthermore, the employee avoids taxation on the reimbursed amount under Internal Revenue Code § 105 which provides that “gross income does not include amounts paid, directly or indirectly, to the taxpayer to reimburse the taxpayer for expenses incurred by him for the medical care … of the taxpayer, his spouse, and his dependents.” The effect on the corporation is equally beneficial to the corporate taxpayer in that “payments pursuant to a medical reimbursement plan by the employer corporation are deductible as a business expense.” (Berwind, 1985)

Using the previous example, all $25,000 in medical expenses would be specifically excluded from the gross income of the employee and would be deductible to the corporation; this saves approximately $12,500 in tax to the employee as an individual taxpayer.

Therefore, there is a definite tax benefit to the incorporated employee in the form of increased deductibility of expenses-deductions which may be limited to the individual taxpayer.

* For specific inquiries regarding a business legal matter that you may have, you are welcome to visit our Los Angeles Business Lawyer services page.

The Tax Benefits of Incorporation to the Entertainer (Part 2)

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This is the part 2 of the second section of Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question” regarding the tax benefits of incorporation to the entertainer.

The only difference between a corporation and an individual taxpayer is the application of the rate of tax to the taxable income.” Section 1(c) applies to the individual taxpayer and requires taxation at the highest level of 39.6%. Section 11, which applies to the corporate taxpayer, requires taxation at the highest level of 35%. While it may seem that the 4.6% difference in maximum taxation rates is inconsequential, the §1(c) rate of 39.6% is applied to taxable income over $250,000. The §11 tax rate of 35% is applied to taxable income exceeding $10,000,000.

The foregoing analysis, though, is altered when applied to a personal service corporation (“PSC”) (also known as a loan-out corporation). Section 11(b)(2) states that the qualified PSC will be taxed at a rate of 35%.  “The [Internal Revenue] Code provides for the taxation of the taxable income of certain personal service corporations at the highest corporate [tax] rate, thereby depriving these corporations of the benefit of lesser, graduated tax rates on taxable income not in excess of $75,000″ (Ness and Vogel, 1991).  The corporation with very little taxable income will be taxed at the same rate as large corporation with a large amount of taxable income. Section 11(b)(2) only applies to those PSCs that are qualified as defined by Internal Revenue Code § 448(d)(2).

Therefore, a corporation which is substantially involved in the performing arts (among other specified industries, including accounting, law, and engineering), and where substantially all of the stock in the corporation is held either directly or indirectly by an employee performing the services in which the corporation is substantially involved, then the corporation is a qualified PSC.

* For specific inquiries regarding a tax planning legal matter that you may have, you are welcome to visit our Woodland Hills Tax Lawyer services page.

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The Tax Benefits of Incorporation to the Entertainer (Part 1)

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This is the second section of Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question” regarding the tax benefits of incorporation to the entertainer.

“In general, the tax benefits available to loan-out corporations compare favorably with those available to individuals under their two unincorporated alternatives:

  1. providing services as a direct employee of the unrelated party consuming the services
  2. providing services as a sole proprietor

“(La France, 1995)

The concepts employed to determine a corporation’s tax liability are the same broad principles of gross income, deductions, assignment of income, timing, and characterization of the income employed by the individual taxpayer. Taxable income is gross income less certain authorized deductions. Gross income is all income from whatever source derived. Internal Revenue Code § 61 provides a non-exclusive list of sources of income which qualify as gross income under that section, including compensation for services, gains derived from dealings in property interest, and dividends.

From gross income, deductions are made if specifically allowed by the Internal Revenue Code as properly deductible. Such deductions include those ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, deductions on interest paid during the taxable year and ordinary and necessary expenses paid or incurred during the taxable year for the production of income.

* For specific inquiries regarding a tax planning legal matter that you may have, you are welcome to visit our Los Angeles Tax Planning Attorney services page.

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To Incorporate or Not to Incorporate? THAT is the Question (Part 4)

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This is part 4 of Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question”.

“The desire to avoid employee classification, and to obtain the benefits of the corporate form and independent contractor status, often motivates workers to create an employee loan-out corporation.” (La France, 1995)

Primarily, though, an entertainer will be considering the formation of a business entity for the purpose of creating a more beneficial tax structure. By filtering income through a business entity and with proper Tax Planning advice, different tax advantages arise. Yet, the structures of a limited liability company (“LLC“) and a partnership will not provide the desired tax benefit to an entertainer.

A partnership includes a syndicate, group, pool, joint venture, or other unincorporated organization through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a corporation or a trust or estate.

* For specific inquiries regarding a business legal matter that you may have, you are welcome to visit our Business Organization and Business Formation legal services page.

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To Incorporate or not to Incorporate? THAT is the Question (Part 3)

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This is part 3 of Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question”.

Which Business Entity Should the Entertainer Choose?

The analysis of which business entity will be most advantageous for an entertainer is no different from the analysis done with regard to which business entity will be optimal in any other industry. An analysis of the benefits and detriments with regard to liability, tax consequences, and control issues all factor in the decision of which business entity to employ. Over time, though, this analysis has been refined in that attorneys and accountants have recognized that certain business entities are more favorable in certain industries while other business entities more appropriately pertain to other industries.

The general analysis of the benefits and detriments of the various business entities have led attorneys and accountants to conclude that incorporating is more advantageous to an entertainer than forming a limited liability company, partnership, or other business entity. This is because the purposes for the formation of a business entity by an entertainer will not be served by any of the alternative business entities. The other attributes of incorporation, namely liability protection and control issues, become irrelevant.  Usually a corporation’s directors and shareholders will be shielded from liability in that a corporation and its owners are separate entities. This is untrue, though, when the shareholders have personally guaranteed the liability. This was a major teaching of the Basinger case, in that had Ms. Basinger signed the contract on her own behalf, this effectively would have been a personal guarantee of the contract. Additionally, the control issues are not important to analyze in that an entertainer is usually the sole shareholder of the loanout corporation.

* For specific inquiries regarding a business legal matter that you may have, you are welcome to visit our Business Organization Formation legal services page.

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