Going into business with your spouse or romantic partner can be an amazing opportunity—but it can just as easily be an absolute nightmare. Regardless of how amazing your love life may be, there’s no guarantee you’ll be equally compatible in a working relationship. And if things don’t work out, it has the potential to wreck both your business and marriage.

That said, though it’s bound to be just as—if not more—challenging than maintaining a romantic relationship, if you are able to stick it out and grow through the experience, establish appropriate boundaries, and respect each other’s differences, building a business with your spouse or significant other can be one of the most rewarding experiences of your life. 

To improve your odds of success, here are four things that have enabled successful couples to make their working relationships work:

1. Formally Document Your Business Relationship

Getting married involves taking vows and signing a marriage license, and you should treat your business relationship with an equal degree of formality. Before opening your doors, clearly outline the terms and conditions of your company’s ownership, operation, and dissolution in formal legal agreements that are signed by you both. Just creating these agreements will often show you how well you’ll be able to work together and handle hard conversations. 

Along the same lines, just like you need a third party to witness and officiate your marriage, you should have all of your business agreements navigated and reviewed by an experienced business lawyer like us, and never rely on generic online agreements. We can not only ensure your agreements are sound and in compliance with state laws, but we can also help you surface the tough conversations and resolve the conflicts that are inevitable in business.

2. Clearly Define Your Responsibilities

Although you may have a casual division of household chores and responsibilities in your marriage, trying to run a business without clearly defined roles and responsibilities is a recipe for disaster. With each of you trying to do things your own way, you are not only bound to run into conflict, but it will also encourage redundancy, wasting both time and energy that could be put to much better use.

Instead, you should clearly define the operation’s responsibilities and decision-making powers based on your individual strengths and preferences. In this way, you can divide and conquer the aspects of the business where each of you naturally excel, and use your differences to complement, rather than restrict, your company’s success.

3. Set Up Your Business Entity

Unless you set up a separate legal entity for your business, your company will automatically be considered either a partnership (if both of you are owners) or a sole proprietorship for tax purposes. And since partnerships come with complex tax-filing requirements and sole proprietorships offer no liability protection for your personal assets, meither are the most ideal entities for a family business.   

For both liability protection and tax advantages, you should consider setting up your business as a limited liability company (LLC) or S-Corporation. Both LLCs and S-Corporations not only shield your personal assets from debts and lawsuits incurred by your business, but they also offer numerous tax-saving benefits, including a potential straight 20% deduction on all of your company’s qualified business income, thanks to the Tax Cut and Jobs Act. 

That said, beyond LLCs and S-Corporations, there are other entities that might be better suited to your business, so consult with your Family Business Lawyer™ to discuss all of your options. We can not only advise you in selecting the entity that’s right for your situation, but also support you in maintaining the administrative formalities required of your chosen entity.

4. Have Your Own Space

While at first it might seem like a dream come true to spend all day, every day working together with the one you love, spending every waking hour with each other can actually be quite unhealthy for both your business and marriage. This is particularly true if you work from home, where the line between your business and home life can disappear completely.

Consider creating separate workspaces, so you have the freedom to develop your own routine and establish a healthy boundary between your personal and business life. If you can’t afford to have an outside office right away, this can be as simple as working in separate rooms, or you might even try a community office space. These communal workspaces can provide the ideal way to get out of the house, network with like-minded people, and maintain your sanity.

And, make a deal to never talk business in the bedroom or the bathroom! This may sound silly, but it could save your relationship. Save your intimate spaces for intimacy, and only talk business in the “office” (even your home office) at predetermined times.

Keep Your Eyes Wide Open

If you are thinking about going into business with your spouse or life partner, you need to get absolutely clear on the potential problems, risks, and benefits that these jointly run ventures entail. You don’t want to get stuck ruining both your romantic relationship and your business relationship at the same time.

Before you jump into business together, meet with us, as your Family Business Lawyer™ to discuss the best ways to ensure your family business will thrive. With our trusted guidance and support, we can help you manage the legal, insurance, financial, and tax issues to ensure your business—and marriage—stay as healthy as possible. Call today for an appointment. 

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you. 

The Netflix movie I Care a Lot provides a dark, violent, and somewhat comedic take on the real life and not-at-all funny dangers of the legal (and sometimes corrupt) guardianship system. While the film’s twisting plot may seem far fetched, it sheds light on a tragic phenomenon—the abuse of seniors at the hands of crooked “professional” guardians.

Last week in part one of this series, we offered a brief synopsis of the movie, which revolves around Marla Grayson, a crooked professional guardian who makes her living by preying on vulnerable seniors, and we then outlined the true events that inspired the fictional account. The film’s writer and director, J. Blakeson, came up with the idea after reading news stories of a similar scam involving a corrupt professional guardianship agency in Las Vegas.

In that case, a real-life Marla Grayson named April Parks, who owned a company called A Private Professional Guardian, was sentenced to up to 40 years in prison in 2018 after being indicted on more than 200 felonies for using her guardianship status to swindle more than 150 seniors out of their life savings. While I Care a Lot is fictional, the Parks case also inspired the 2018 documentary, The Guardians, directed by award-winning filmmaker Billie Mintz, and his film details the terrifying true events that ravaged the Nevada guardianship industry.

In a Facebook post, Mintz praises I Care a Lot as “a perfect introduction to guardianship,” but worries that because of the movie’s heavy focus on violence and Russian mobsters, “people won’t believe it’s real.” However, as Mintz points out, “I assure you that everything you see about guardianship is true.”

Indeed, while the Parks case is the most famous, similar cases of senior abuse by professional guardians are on the rise across the country. A 2010 report by the Government Accountability Office found hundreds of cases where guardians were involved in the abuse, exploitation, and neglect of seniors placed under their supervision. And given the country’s exploding elderly population and our overloaded court system, such abuse will almost certainly become more common.

Additionally, although most of the cases that have made the news have involved the elderly, the fact is, any adult could face court-ordered guardianship if they become incapacitated by illness or injury and haven’t put the proper legal protections in place.

To this end, here in part two, we’re going to explain how you can protect yourself and your loved ones from such abuse using proactive estate planning. 

How It Happens

Should you become incapacitated without any planning in place (due to illness or injury), your family (or a friend) would have to petition the court in order to be granted guardianship. In most cases, the court would appoint a family member as guardian, but this isn’t always the case. If you have no living family members, or those you do have are unwilling or unable to serve or deemed unsuitable by the court, a professional guardian would be appointed. 

Beyond the potential for abuse by professional guardians, if you become incapacitated and your family is forced into court seeking guardianship, they are likely to endure a costly, drawn out, and emotionally taxing process. Not only can the legal fees and court costs drain your estate, but if your loved ones disagree over who is best suited to serve as your guardian, it could cause a bitter conflict that could tear your family apart and make it less likely that you get the kind of care you want.

In another scenario, should your loved ones disagree about who should be your guardian, the court could decide that naming a relative as your guardian would be too disruptive to your family dynamics and appoint a professional guardian instead. However, if you have the proper planning vehicles in place, it is highly unlikely for a guardian to be appointed against your wishes.

A Comprehensive Plan For Incapacity

Should you become incapacitated, a comprehensive incapacity plan would give the individual, or individuals, of your choice the immediate authority to make your medical, financial, and legal decisions, without the need for court intervention. Moreover, such planning allows you to provide clear guidance about your wishes, so there is no mistake about how these decisions should be made.

There are several planning vehicles that can go into a comprehensive plan for incapacity, but a will is not among them. A will only goes into effect upon your death, and then, it merely governs how your assets should be divided, so it would do nothing to protect you in the event of incapacity.

When it comes to creating your incapacity plan, your best bet is to put in place a number of different planning tools rather than a single document. To this end, your plan should include some or all of the following:

• Durable financial power of attorney: This document grants an individual of your choice the immediate authority to make decisions related to the management of your financial and legal affairs.
• Revocable living trust: A living trust immediately transfers control of all assets held by the trust to a person of your choice to be used for your benefit in the event of your incapacity. The trust can include legally binding instructions for how your care should be managed, and the document can even spell out specific conditions that must be met for you to be deemed incapacitated.
• Medical power of attorney: A medical power of attorney grants an individual of your choice the immediate legal authority to make decisions about your medical treatment in the event of your incapacity.
• Living will: A living will ((sometimes called an advance directive) provides specific guidance about how your medical decisions should be made during your incapacity, particularly at the end of life. In some instances, a medical power of attorney and a living will are combined in a single document.

But here is the thing about all of these documents—they are just documents and not guidance for the people you love. If you really want to keep your family and friends out of court and out of conflict, you cannot just rely on documents to do it. Rather, these documents should be created by a lawyer who will get to know you, your wishes, and be there for you throughout the many stages of life, plus be there for your family and friends if and when you can’t be.

Communication is Key

In addition to the above planning tools, it is equally—if not more—important for your loved ones to be aware of your plan and understand their role in it. As part of our planning process, we hold a family meeting with all of the individuals impacted by your plan where we walk them through your plan and explain the reasoning behind your decisions and what they need to do if something happens to you.

By combining your comprehensive incapacity plan with a team of people who care for you, can watch out for you, and know exactly what to do in the event tragedy strikes, we can make it virtually impossible for you to be abused by a professional guardian.

Don’t Put It Off

Although incapacity from dementia is most common in the elderly, debilitating injury and illness can strike at any point in life. Given this, all adults 18 and older should have an incapacity plan. Furthermore, planning for incapacity must take place well before any cognitive decline appears, since you must be able to clearly express your wishes and consent for the documents to be valid.

In light of this, you should get your own planning handled first, and then discuss the need for planning with your aging parents as soon as possible, and from there, schedule a Family Wealth Planning Session with us to get a plan started. And if you or your senior loved ones already have an incapacity plan, we can review it to make sure it has been properly set up, maintained, and updated. Unfortunately, a plan put in place years ago is unlikely to work now, so updating is critical, and unfortunately often not overlooked.

Indeed, once you have a plan in place, make sure to regularly review and update it to keep pace with life changes, changes in your assets, or changes in your family structure. And if any of the individuals you have named become unable or unwilling to serve for whatever reason, you will need to revise your plan—and we can help with that too.

Retain Control of Your Life and Assets

To avoid the loss of autonomy, family conflict, and potential for abuse that comes with a court-ordered guardianship, we invite you to meet with us as your Personal Family Lawyer®. While there is no way to prevent dementia and other forms of cognitive decline or an unexpected illness or injury, we can put planning tools in place to ensure that you at least have some control over how your life and assets will be managed if it ever does occur. Contact us today to schedule your appointment.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

Starting your own business can be both exciting and scary, and you are bound to make numerous mistakes along the way. But you’ll often discover that some of your biggest mistakes will later become your greatest strengths.

This was exactly the case for my mentor, Ali Katz, who went from losing $1 million to running a company that earns over $5 million a year. Indeed, Ali was able to not only learn from her early missteps as a lawyer and businesswoman, but she capitalized on those lessons by creating New Law Business Model, which trains lawyers like me to help families and business owners not repeat the same expensive mistakes she made.

Here, we share four of the most important lessons Ali learned on her way to success, which have been adapted from a recent Grow By Acorns article Ali was featured in.

1. Be Open About What You Don’t Know

As a new business owner, Ali didn’t want her lack of financial knowledge to show. And because she was afraid to ask for help, she missed out on $50,000 in tax savings and was stuck with a surprise tax bill totaling more than $100,000, which she had to take out a loan to cover.

From that experience, Ali learned to share her income and expense projections for the year with her CPA no later than mid-November. Today, she asks her CPA for yearly projections of what she’ll owe in taxes, along with at least three different tax-saving options, such as accelerating expenses, deferring income, or setting up retirement accounts, so she can implement tax planning strategies before the end of the year.

As part of our ongoing business counsel programs, we meet with our business-owner clients and their CPAs to support them with the implementation of tax-saving strategies on an annual basis. 

2. Always Get Agreements In Writing

Even as a lawyer, in her early days Ali was often afraid to ask for agreements in writing, or she thought they weren’t necessary because she was working with friends. However, this cost her big time after she hired a friend to create a website that helped parents name legal guardians for their kids online.

When Ali went to move the website to a different developer, her friend claimed the source code was his, and he said she’d have to pay him $25,000 on top of the $25,000 she’d already paid him because they didn’t have an agreement containing a “work-for-hire” clause.

Now, whether she’s never worked with someone before or they are close friends, Ali always requires a written agreement—and you should, too. In your business, you actually need two standard agreements at a minimum: one to use when you are the provider of services, and one to use when you are hiring service providers. In addition, if you have one or more partners or collaborators, it’s your agreements that will protect your relationships and make success most likely. 

Clear agreements protect your relationships because they require you to be as clear as possible about your expectations, and define the interests that are at stake for both parties right from the start. While it can be challenging to have the hard conversations that lead to clear agreements, as your trusted counsel, we can make it easier for you by identifying anywhere there is not documented clarity and initiating the conversations on your behalf.

3. Invest In Expert Help

After five years in business, Ali sold her law practice to another lawyer with 25 years of experience. But she did so without consulting with legal or financial advisors who specialize in the purchase and sale of law practices. Within six months, the buyer claimed the client flow had dried up, and he could no longer make his payments.

Looking over the books, Ali realized he had stopped implementing key drivers of the business like marketing campaigns that consistently brought in new clients. While this was an important aspect of the business, Ali hadn’t communicated this as part of the buyer vetting process, and the do-it-yourself purchase agreement she had in place didn’t protect her interests. Not wanting to leave anyone in a lurch, Ali ran the practice out of her own savings for six months, while transitioning her clients to other attorneys and helping her colleagues find new jobs. 

Had Ali invested the money to hire the right advisors to assist her with the sale, it likely would have cost her between $15,000 to $25,000 to document the sale properly. But thinking she could save money by handling the legal and financial matters herself, she ended up paying $250,000 out of her own pocket instead. 

4. Make Money Decisions From a Position of Strength 

Starting out, many of Ali’s money decisions were made from a place of scarcity and fear, as she tried to do everything on her own, even when she wasn’t the best person for the job. But since then, Ali’s discovered that “hiring the right legal and financial advisors is just as valuable as hiring someone to run my Facebook ads, design my website, handle my sales conversations, or even manage my calendar.” 

Today, Ali’s latest startup, which guides people to make “eyes wide open” legal, insurance, financial, and tax (LIFT) decisions, isn’t yet earning enough to pay her a salary. But even so, she’s paying a part-time CFO and a bookkeeper to organize her books and review her financials, so she doesn’t repeat her past mistakes. She’s also paying a lawyer to customize her terms of service, member agreements, and privacy policy. She’s able to do this because she’s learned to read her financial reports, create meaningful financial projections, and she’s working with trusted counsel to guide her, so she doesn’t miss anything in her blindspots.

When starting your business, be clear on the service you offer and the market that needs it, and be sure you know how to reach that market. From there, go all-in on the business side of your operation, and have the proper LIFT systems in place to support you. In the end, Ali offers this final tip, “My best advice is to spend the necessary time, energy, and money to learn about the LIFT aspects of running your business and hire the right people to be on your team. This is one of the most important investments you can make in the growth of your company.”

Get Your LIFT Systems In Place Today

With us, as your Family Business Lawyer™, we can ensure you have the foundational legal, insurance, financial, and tax (LIFT) systems in place, so you can avoid making the same mistakes Ali and so many other entrepreneurs make, and instead focus your time and energy on building a business you truly love. Call us today for an appointment.

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you. 

The Netflix movie I Care a Lot provides a dark, violent, and somewhat comedic take on the real life and not-at-all funny dangers of the legal (and sometimes corrupt) guardianship system. While the film’s twisting plot may seem far fetched, it sheds light on a tragic phenomenon—the abuse of seniors at the hands of crooked “professional” guardians.

In this two-part series, we’ll discuss how the movie depicts such abuse, how this can occur in real life, and what you can do to prevent something similar from happening to you or your loved ones using proactive estate planning and our Family Wealth Planning process. For support in putting airtight, protective planning vehicles in place, meet with us as your Personal Family Lawyer®.

Note: This article contains spoilers for the movie I Care a Lot.

At the beginning of the movie, we meet Marla Grayson, a crooked professional guardian who makes her living by preying on vulnerable seniors. A professional guardian is a person appointed by the court to make legal and financial decisions for senior “wards” of the court, who are deemed unable to make such decisions for themselves.

Working with a corrupt doctor, Marla targets wealthy victims and gets a judge to order these individuals unfit to care for themselves and then appoint her as their guardian. From there, she and her business partner/ girlfriend, Fran, move the seniors into a nursing home, seize their homes, and sell all of their assets for their own financial gain.

Marla’s scheme takes a turn for the worse when her latest senior victim, Jennifer Peterson, turns out to be the mother of a Russian mob boss named Roman Lunyov. After Marla has Jennifer placed in a long-term care facility, Roman tries unsuccessfully to get his mother out of the facility, first by bribing Marla, then through the court, and finally by trying to break her out. 

While this may seem ludicrous, this kind of abuse actually happens outside of the movies to seniors with significant assets, even those with caring adult children like Roman. 

At this point, the movie descends into a violent back-and-forth between Roman and Marla, as they each try and fail to kill one another, until they both decide that rather than murdering each other, they could make more money by going into business together. 

Fast forward to several years later, we learn that Marla and Roman have become millionaires after starting a global chain of senior care services, called Grayson Guardianships, which employs thousands of crooked guardians overseeing hundreds of thousands of “clients” all over the world.

Based On True Events

With its over-the-top violence, kidnappings, and Russian mobsters, some might dismiss I Care a Lot as nothing but Hollywood hype and find it hard to believe that an operation as sinister as Marla’s could ever actually exist. But the fact is, the movie’s writer and director, J. Blakeson, came up with the idea after reading news stories about very similar (less the mob and murder) situations. And knowing such things actually happen makes the movie even more terrifying.

“The idea first came when I heard news stories about these predatory legal guardians who were exploiting this legal loophole and exploiting the vulnerability in the system to take advantage of older people, basically stripping them of their life and assets to fill their own pockets,” Blakeson told Esquire Magazine. “They run through their money as fast as possible, store them in the worst care home, and just forget about them. Just park them and then move on to the next one, and that felt almost like a gangster’s operation.”

And while the real-life scams never reached a level on par with Grayson’s Guardians, one crooked professional guardianship business in Las Vegas did manage to bilk hundreds of unsuspecting seniors out of their life savings. As we detailed in our previous article, Use Estate Planning to Avoid Adult Guardianship—and Elder Abuse, a real-life Marla Grayson named April Parks, who owned a Las Vegas-based company called A Private Professional Guardian, was sentenced to up to 40 years in prison in 2018 after being indicted on more than 200 felonies for using her guardianship status to swindle more than 150 seniors. 

In her case, prosecutors described how Parks, in a similar fashion as Marla, used a shady network of social workers and medical professionals who helped her track down her elderly victims. On the lookout for wealthy seniors with a history of health issues and few living relatives, Parks was often able to obtain court-sanctioned guardianship during court hearings that lasted less than two minutes.

From there, the guardians would force the elderly out of their homes and into assisted-living facilities and nursing homes. They would then sell off their homes and other assets, keeping the proceeds for themselves. Even worse, the guardians were often able to prevent the seniors from seeing or speaking with their family members, leaving them isolated and even more vulnerable to exploitation.

The Most Punitive Civil Penalty

What makes these cases particularly tragic is the fact that for the most part everything these unscrupulous guardians did is perfectly legal. As Blakeson put it, “They had the law on their side, and there was nothing you could do.” Although guardianships are designed to protect the elderly from their own poor decisions, guardianship can turn out to be more of a punishment than a benefit. 

In a 2018 New York Times article detailing the state of the guardianship system in New York, Florida congressman Claude Pepper described guardianship as “the most punitive civil penalty that can be levied against an American citizen, with the exception, of course, of the death penalty.” 

Indeed, once you’ve been placed under court-ordered guardianship, you essentially lose all of your civil rights. Whether it’s a family member or a professional, the person named as your  guardian has complete legal authority to control every facet of your life. While guardianship is governed by state law and varies from state to state, some of the most common powers guardians are granted include the following:

• Determining where you live, including moving you into a nursing home
• Complete control over your finances, real estate, and other assets
• Making all of your healthcare decisions and providing consent for medical treatments
• Placing restrictions on your communications and interactions with others, including family members
• Making decisions about your daily life such as recreational activities, clothing, and food choices
• Making end-of-life and other palliative-care decisions 

Additionally, though it’s possible for a guardianship to be terminated by the court if it can be proven that the need for guardianship no longer exists, a study by the American Bar Association (ABA) found that such attempts typically fail.  And those family members who do try to fight against court-appointed guardians frequently end up paying hefty sums of money in attorney’s fees and court costs, with some even going bankrupt in the process.

Protection Through Planning

Given the potential for neglect, abuse, and exploitation that guardianship affords, it’s crucial that seniors and their families take the proper steps to prevent any and all possibility of falling prey to such scams. Moreover, because any adult could face court-ordered guardianship if they become incapacitated by illness or injury, it’s vital that every person over age 18—not just seniors—take proactive measures to prepare for potential incapacity.

Fortunately, there are multiple estate planning tools that can prevent such abuse from occurring. With us, as your Personal Family Lawyer®, we can put planning vehicles in place and offer ongoing advisory and support that would make it practically impossible for a legal guardian to ever be appointed—or need to be appointed—against your wishes.

Next week, we’ll continue with part two in this series on the dark side of adult guardianship and offer tips for how you can avoid the potential for abuse using estate planning.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

Included within the 2021 National Defense Authorization Act passed on January 1, 2021, the Corporate Transparency Act (CTA) requires certain small businesses based in the U.S. to report the identities of their owners and organizers to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The CTA is an update to the federal government’s anti-money laundering laws and is designed to crack down on shell companies created for illicit financial activities, such as money laundering and funding terrorist organizations.

While the CTA is aimed at providing greater transparency into who owns and controls small businesses in the U.S., it stands to impact many legitimate small companies by requiring them to provide reports on the identities of their owners. At the same time, the new law may also affect future business transactions, such as mergers and acquisitions, by making the process more logistically complex, with less privacy for certain organizational structures like limited liability companies (LLCs), which have historically been used to avoid disclosing detailed ownership information.

That said, if your business doesn’t have many owners or investors, the CTA will likely not be a major hassle. And for those companies that do have multiple owners or investors, the law will primarily increase your administrative and logistical duties, as you seek to stay in compliance with its new reporting requirements and deadlines. 

The CTA’s new requirements don’t go into effect until January 1, 2022, and at the moment, there are still several ambiguous aspects of the law, including exactly how ownership and control of business entities is determined. To this end, you should work with legal counsel like us ahead of the law’s implementation to ensure you are fully aware of whether your business is subject to the CTA, and if it is, you fully understand what the reporting requirements will be.   

Meanwhile, here we’ll outline the major aspects of the CTA and discuss how you can prepare your company to comply with the law should you find that you are subject to its reporting requirements. For further clarification and support with reporting your company’s ownership information, meet with us as your Family Business Lawyer™.

Who Does the CTA Affect?
To better understand the CTA, it helps to clarify exactly which businesses it will affect. According to the U.S. Department of the Treasury, the purpose of the CTA is to “better enable critical national security, intelligence, and law enforcement efforts to counter money laundering, the financing of terrorism, and other illicit activity” by creating a national registry of beneficial ownership information for “reporting companies.”

Within this stated purpose, the two terms that are most essential to understanding the law are “beneficial owners” and “reporting companies.” Let’s look at both of these terms here:

Reporting Companies
Under the CTA, subject to certain exclusions, the definition of a “reporting company” is extremely broad and includes any corporation, limited liability company, or similar entity that is (1) created by filing a formation document with a secretary of state or similar office; or (2) formed under the law of a foreign country and registered to do business in the United States.

While the definition of a “reporting company” would include most privately held businesses in the U.S, the CTA expressly excludes some business entities from its requirements.

These exclusions include the following: 

• Companies operating in highly-regulated industries such as banks, credit unions, brokers, dealers, etc.
• Publicly traded companies
• Tax-exempt entities, such as nonprofits
• Companies that: 1) employ more than 20 employees on a full-time basis in the U.S.; 2) have annual aggregate gross receipt or sales greater than $5 million; and 3) have an operating presence at a physical office within the U.S.

Beneficial Owners

While the CTA provides a lengthy list of exceptions to its requirements, if you do find that you are subject to the law, you will be required to provide a report of the identity of your “beneficial owners.” Under the CTA, a “beneficial owner” is an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise: 

• Exercises substantial control over the entity
• Owns or controls at least 25% of the ownership interests in the entity

Note that the CTA doesn’t define the terms “substantial control” or “ownership interests,” so we expect future updates on the law will provide clarification on these terms. 

As with the definition of reporting companies, there are several exceptions to the definition of a “beneficial owner.” These include the following:

• A minor child, if the child’s parent’s or guardian’s information is reported properly
• An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual
• An individual acting as an employee whose control is derived solely because of employment status
• An individual whose only interest in the entity is through a right of inheritance
• A creditor of the entity, unless the creditor meets the requirements of a beneficial owner.

Based on these exceptions, if privacy of your ownership interests is extremely important to you for any reason, please contact us, so we can discuss the possibilities available to you using trusts or nonprofit entities to hold your business interests.

Applicants

In addition to the requirement that you submit a report identifying the “beneficial owners,” of your business entity, the CTA also requires that you submit similar information identifying individuals who organized your company, called “applicants.” To this end, an “applicant” is defined as any individual who does the following:

• Files an application to form a corporation, limited liability company, or similar entity under the laws of a state or Indian tribe
• Registers or files an application to register a corporation, limited liability company, or other similar entity formed under the laws of a foreign country to do business in the U.S.  

Reporting Requirements

If you are subject to the CTA as a reporting company, you are required to submit a report to FinCEN that includes the identity of each beneficial owner and applicant that are applicable to your business. The information to be included in each of these reports is as follows: 

• full legal name
• date of birth
• residential or business street address
• a unique identifying number from an acceptable identification document, including a U.S. passport; state driver’s license; another state-issued identification document; or a current non-U.S. passport for individuals who do not hold any U.S.-issued identification documents.

When Does the CTA Go Into Effect?

Although the CTA is technically already in effect, you still have time to learn more about its requirements and begin compiling your ownership data. The official start date for the CTA’s reporting requirements are tied to when the Treasury promulgates the CTA’s regulations, which must take place no later than January 1, 2022, but may become effective sooner. Compliance with the CTA depends on whether a reporting company was formed prior to or after the effective date of the regulations being promulgated.

If your business entity is formed before the effective date, you will have two years to deliver your ownership reports to FinCEN. If your entity is formed after the effective date, you must comply with the CTA reporting requirements upon formation or registration of your entity. In either case, changes in your entity’s previously reported information must be reported within one year.

Penalties for Noncompliance

The CTA imposes various penalties for reporting companies that fail to comply with its requirements or provide inaccurate or misleading information to FinCEN. As such, any person that commits reporting violations may be held liable for fines up to $500 per day, not to exceed $10,000, and may face up to two years in prison for violating the CTA.

How is the CTA Ownership Information Stored, and Who Has Access?

Information provided to FinCEN on beneficial owners and applicants will be kept in a secure, confidential national registry maintained by the Treasury. Such information will be maintained for at least five years after the termination of a reporting company.   

To ensure confidentiality, a reporting company’s ownership information may only be released, upon following appropriate protocols to the following entities: federal agencies engaged in national security, intelligence, or law enforcement activity; state, local, or tribal law enforcement agencies upon court order; federal agencies on behalf of a foreign agency, prosecutor, or judge under an international treaty or agreement; financial institutions subject to customer due diligence requirements, upon the consent of the reporting company; and federal functional regulators.

Stay Tuned For Updates and Clarification

Given the ambiguous nature of certain parts of the CTA, we expect there will be future clarification regarding the scope of the law and its reporting requirements. We will closely monitor any changes to the CTA and as well as cover the implementing regulations once they are promulgated and update you on these developments in future blog posts.

Until then, if you have any questions about the CTA or would like support in implementing your ownership reporting, reach out to us, as your Family Business Lawyer™, today to book your appointment.

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you. 

Signed into law on March 11th, President Biden’s $1.9 trillion American Rescue Plan Act of 2021 (ARP) is the largest direct-to-taxpayer stimulus legislation ever passed, and it came just in time to save millions of Americans whose unemployment benefits were about to expire. In addition to extending unemployment relief, the ARP provides individual taxpayers and small business owners with a number of other vital financial benefits aimed at helping the country rebound from last year’s economic downturn.

Of these benefits, you’ve likely already seen one of the ARP’s leading elements—the $1,400 direct stimulus payments, which went to taxpayers, children, and dependents with incomes of less than $75,000 for individuals and $150,000 for joint filers. But beyond the stimulus, the ARP comes with numerous other provisions that can seriously boost your family’s finances for 2021.

To highlight the ways the ARP can impact your family’s bank account, last week in part one of this series, we outlined three of the legislation’s most important elements. Here in part two, we’ll break down three additional parts of the law that stand to boost your family’s finances. To learn about all the full array of benefits provided by the ARP, meet with us as your Personal Family Lawyer®. 

4. Unemployment Benefits

While Congress extended unemployment benefits in December 2020, those benefits were set to expire in mid-March 2021, but the ARP extends unemployment benefits through September 6, 2021, offering an extra $300 a week on top of regular benefits.

The legislation extends two other federal unemployment programs as well. First, the Pandemic Emergency Unemployment Compensation Program, which provides federal benefits for those taxpayers who’ve exhausted their state benefits, is now available for an additional 29 weeks, and you have until September 6, 2021, to apply.

Next up, the Pandemic Unemployment Assistance Program provides benefits to those who wouldn’t normally qualify for unemployment assistance, such as the self-employed, part-time workers, and gig workers. This program is now available for 79 weeks, and as with the other benefits, you have until September 6th to get signed up. For more information on the Pandemic Emergency Unemployment Compensation Program and the Pandemic Unemployment Assistance Program, contact your state’s unemployment insurance office.

Finally, the ARP makes the first $10,200 in unemployment benefits paid in 2020 tax-free for families making $150,000 or less. Note that the ARP doesn’t provide a different threshold for single and joint filers, so both spouses are entitled to the $10,200 tax break, for a potential total of $20,400, if both spouses received unemployment benefits in 2020.

However, if your unemployment benefits exceed $10,200 in 2020, you’ll need to report the excess as taxable income and pay taxes on the amount over the limit. And if your household income is over $150,000, you’ll need to pay taxes on all of your unemployment benefits.

If you already filed your 2020 return and paid taxes on your unemployment benefits before the passage of the ARP made those benefits tax-free, the IRS plans to automatically process your refund. This means you won’t have to tax any extra steps, such as filing an amended return, to secure the refund. 

5. Student Loan Relief

Under the CARES Act, federal student loan payments were paused until January 31, 2021, but the ARP extends the pause on those payments and collections through the end of September 2021. While Biden has repeatedly stated his support for  $10,000 in federal student loan forgiveness, there was no student loan forgiveness included in the final version of the ARP.

That said, the ARP does offer some relief for those federal student loan borrowers who have their debt forgiven under already existing programs. Currently, federal student loan borrowers can enroll in programs that allow forgiveness after 20 or 25 years of on-time payments, but those borrowers have to pay income taxes on the amount that gets forgiven.

Under the ARP, student loan debt forgiven between Jan. 1, 2021 and Jan. 1, 2026 will be income-tax free. This means that if the government forgives a portion of your student loans during this period, that amount will no longer be considered taxable income.

This provision applies to those taxpayers who are enrolled in the Income Contingent Repayment (ICR) plan, which was started in 1993 and requires 25 years of repayment to qualify for forgiveness. However, this benefit does not apply to other federal student loan repayment plans, which require 20 or 25 years of repayment, but started in later years.   

Additionally, thanks to the ARP, if you are a small-business owner who has defaulted on your federal student loan or are delinquent in your payments, you can now qualify for a loan from the Paycheck Protection Program (PPP), which received $7.25 billion in additional funding under the ARP. Moreover, Congress recently extended the deadline to apply for a PPP loan from March 31, 2021 to May 31, 2021. For more details or to apply for a loan, visit the Small Business Administration’s PPP website.

6. COBRA Continuation Coverage Subsidy

The ARP provides a 100% COBRA subsidy for up to six months for those workers who lost their health insurance coverage due to involuntary termination or reduction of hours during the pandemic. The ARP also allows for an extended election period for those who would be eligible to receive the subsidy but did not initially elect COBRA as well as those who let their COBRA coverage lapse. 

Employees who are eligible for the subsidy, known as Assistance Eligible Individuals (AEIs), include those eligible for COBRA between November 1, 2019, and September 30, 2021, who are 1) already enrolled in COBRA, 2) those who did not previously elect COBRA, and 3) those who elected COBRA but let their coverage lapse. The subsidy does not apply to those who voluntarily terminate their employment or who are terminated for gross misconduct. 

The ARP COBRA subsidy lasts from April 1, 2021 through September 30, 2021, and it applies to both insured and self-insured plans subject to COBRA, as well as self-funded and insured plans that are not subject to COBRA but are subject to continuation coverage under state law.

Note that the ARP subsidy is only available to those whose initial COBRA period ends (or would have ended if COBRA had been elected/did not lapse) either during or after this six-month period. The subsidy does not lengthen the COBRA period, which typically expires 18 months after coverage was lost. This means that if an AEI’s 18-month COBRA period begins after April 1, 2021, or ends before September 30, 2021, the subsidy will be shorter than six months.

The AEIs will not receive the subsidy directly from the government. Instead, the AEIs’ COBRA premiums will be considered paid in full during this period, and the employer must pay 100% of the AEIs’ COBRA premiums. From there, the employer will receive a refundable tax credit on their quarterly payroll tax filing. If an employer’s COBRA premium costs for AEIs exceed their Medicare payroll tax liability, they can file to get direct payment of the remaining credit amount.

COBRA beneficiaries who have elected COBRA and are covered under COBRA on April 1, 2021, do not need to enroll to be covered by the subsidy. For AEIs who did not initially elect COBRA or who let COBRA lapse, there will be a special enrollment period during which employers must inform AEIs of this benefit and allow them to elect coverage. This special enrollment period begins on April 1, 2021 and ends 60 days after the delivery of the COBRA notification to the employee.

A New Year Offers New Hope

With 2020 firmly in our rear-view mirror, the economy appears to be on the rebound, and things are slowly getting back to some semblance of normalcy. That said, many families continue to struggle financially, and if this includes you, you may be able to find some relief from the American Rescue Plan.

While the six elements of the legislation we covered here are among the most popular, there may be other provisions we haven’t touched on that could benefit your personal situation. Watch for upcoming webinars (and even in-person events!) we’ll be hosting to support you in making wise legal and financial choices for your family. Until then, contact us, as your Personal Family Lawyer®, for guidance on your family’s estate planning strategies by scheduling a Wealth Planning Session today.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

Starting a nonprofit organization can be a great way to give back to your community, while working for a cause you are passionate about. That said, if you are starting a nonprofit simply to avoid some of the more unsavory aspects of running a business, you should seriously reconsider.

As the founder of a nonprofit, you will still be “in business,” and you’ll have to deal with many of the same things for-profit business owners face when running their companies. The main difference is, when running a nonprofit, you’ll be working in service to your mission, rather than in service to yourself or to the other owners of your business—and that’s because there are no “owners” of nonprofits!

Ownership is just one of many unique aspects involved with starting a nonprofit, and there are several other important factors you should consider before launching your own organization. Last week, in part one of this series, we outlined a few of the most critical things you should know about nonprofit startups, and here we’ll finish our discussion.

501(c)(3) Tax-Exempt Organizations

Of all nonprofit organizations, 501(c)(3)s are by far the most common. In fact, whether you know it or not, you’ve likely done business with one or more of these organizations, which include the American Red Cross, the United Way, the Humane Society, and the Salvation Army. 

To be tax-exempt under section 501(c)(3), an organization must be organized and operated exclusively for certain exempt purposes. These purposes include charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.

Fulfilling Your Mission
Once you’ve clarified your mission, you’ll then need to determine the type of activities and services you would want your nonprofit to provide. Are you intending to be a fundraising organization that raises money to distribute funds to other operating nonprofits? Or are you going to operate and provide services? If you are going to operate and provide services, what and who will those services benefit?

If you are going to be raising money, will the money you raise be primarily from one or a few donors, or are you going to raise money from the public? If you are going to raise money from just one or a few donors, then you will likely be a private foundation rather than a public charity, which offers different tax benefits to your donors. If you are not sure about these tax implications and whether they matter to you, discuss that with an experienced business lawyer like us.

If you are going to provide services, you’ll need to decide what purpose your services will be designed for. For example, will your activities be for religious, scientific, charitable, educational, literary, public safety, or cruelty-prevention purposes? 

When operating a nonprofit organization, you will need to create a business entity for your nonprofit, which could take the form of a corporation, trust, or even an unincorporated association. That said, the unincorporated association form is not ideal if you want any liability protection at all. The corporate form provides the most liability protection for the directors of a nonprofit. Using a trust structure is also possible, but it could provide less liability protection for the trustees than a corporation would provide for the directors of the corporation. 

Trustees of a trust have a fiduciary duty to the trust beneficiaries, which is a higher standard of care than the board of directors has to the corporation. In addition, corporations can have perpetual life, whereas trusts, in most states, cannot survive indefinitely, due to a rule called the Rule Against Perpetuities. However, 20 states have now repealed this rule, so if you are going to use a trust structure for your nonprofit, make sure the state you are governed by allows for perpetual trusts.

Meet with us, as your Family Business Lawyer™, for support in choosing the entity that’s best suited for your nonprofit’s particular mission and services.

Filing Form 1023
Once you have formed your entity, you will file Form 1023 electronically with the IRS to establish your tax-exempt status as a 501(c)(3). One exception to this requirement is a church. A bona-fide church (including synagogues, temples, and mosques) that meets 501(c)(3) requirements is automatically considered tax-exempt without having to file Form 1023 for tax exemption. 

Depending on your situation, you may be eligible to file a streamlined version of this form, Form 1023-EZ. Instructions for both forms can be found on the About Form 1023 page on the IRS website.

You can file Form 1023 on your own, without the help of a lawyer, but it will be much easier for you if you work with a lawyer, particularly one who has experience with nonprofits. Call us to find out if we can help before you get started. 

The Business of the Nonprofit Business 

Again, you don’t want to launch a nonprofit just to avoid the “business” aspects of running a business. You should form a nonprofit because you are passionate about its mission and want to benefit your community through your organization.

That said, if your nonprofit is going to succeed, you’ll still need a head for business, and access to the proper legal, insurance, financial, and tax (LIFT) systems, which form the foundation of any successful company. As your Family Business Lawyer™, we can not only help you get your nonprofit off the ground, but we can also ensure you have the proper LIFT systems in place, so your nonprofit can do the most good for the most people, and you can have a business you truly love. 

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you. 

Signed into law on March 11th, President Biden’s $1.9 trillion American Rescue Plan Act of 2021 (ARP) is the largest direct-to-taxpayer stimulus legislation ever passed, and it came just in time to save millions of Americans whose unemployment benefits were about to expire. In addition to extending unemployment relief, the ARP provides individual taxpayers and small business owners with a number of other vital financial benefits aimed at helping the country rebound from last year’s economic downturn.

Of these benefits, you’ve likely already seen one of the ARP’s leading elements—the $1,400 direct stimulus payments, which went to taxpayers, children, and nonchild dependents with incomes of less than $75,000 for individuals and $150,000 for joint filers. But beyond the stimulus, the ARP comes with numerous other provisions that can seriously boost your family’s finances for 2021.

To highlight the ways the ARP can impact your family’s wallet, here we’ll break down six of the legislation’s key elements. To learn about all the full array of benefits provided by the ARP, meet with us, as your Personal Family Lawyer®. 

1. Child Tax Credit

If you have minor children, the ARP enhances the Child Tax Credit (CTC) in some major ways. Not only does it significantly increase the amount of the credit, but it also changes the way you can receive the money.

Under the current CTC, parents can receive a maximum tax credit of $2,000 for each qualifying child under age 17, with $1,400 of that credit being refundable. The ARP increases that credit to $3,000 a year for each child aged 6 to 17 and $3,600 for each child under 6—and both amounts are fully refundable.

Parents who qualify for the full amount of $3,000 or $3,600 per child include single filers earning less than $75,000, and joint filers earning less than $150,000 annually. After this, the credit begins to phase out. However, parents who file singly and earn less than $200,000 ($400,000 for joint filers) could still claim the original $2,000 credit.

 In addition to increasing the credit, the ARP also changes the way parents can access the money. Instead of applying the full amount of the credit to your income taxes at the end of the year and possibly getting a refund, you can now opt to receive the credit up front in monthly payments of $250 per qualifying child or $300 for children under age 6.  

This means you can get half of the credit in the form of monthly cash payments and claim the other half when you file your 2021 taxes in April 2022. If you opt for the monthly payments, the IRS expects to send those out starting in July 2021 and lasting through December 2021. The ARP directs the Treasury Department to create an online portal that allows parents to opt out of advance payments and report any changes in income, marital status, or number of eligible children. 

Note that these increases are only in effect for 2021 and will revert back to the original amounts in 2022. However, there’s currently support in both Congress and the White House for making them permanent. Check our weekly blog and IRS.gov for updates to the legislation.

2. Child and Dependent Care Tax Credit

In order to provide financial assistance to those families who pay for child care or care of an adult dependent, such as an elderly parent, the ARP increases the Child and Dependent Care Tax Credit for 2021—and for the first time, it makes the credit refundable.

For 2021, the ARP provides a tax credit for the expenses associated with the care of qualifying dependents (kids 12 or younger or a disabled adult) for a total of up to $4,000 for one dependent and $8,000 for two or more dependents. This is an increase from the max credit amounts for 2020, which are $3,000 for a single dependent and $6,000 for multiple dependents. 

The IRS allows you to claim a fairly wide range of qualified expenses for such care, including the following:

• Daycare
• Babysitters, as well as housekeepers, cooks, and maids who take care of the child
• Day camps and summer camps (overnight camps are not eligible)
• Before and after-school programs
• Nursery school or preschool
• Nurses and aides who provide care for a disabled dependent 

The ARP also makes more people eligible for the credit by raising the income limit for the full credit from $15,000 to $125,000 per year. Those making between $125,000 and $400,000 are eligible for a partial credit.

As an added bonus, the credit is fully refundable for 2021, so you could get a refund for the credit even if your tax bill is zero. However, as with the changes to the Child Tax Credit, these updates are only available in 2021, unless additional legislation is passed.

There are special rules for divorced couples looking to claim the Child and Dependent Care Tax Credit, so if that’s you, meet with us or a financial advisor for support.

3. Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a refundable tax credit for low- and middle-income workers that’s frequently overlooked—and the ARP makes the credit more valuable for many taxpayers in 2021 than ever before. The amount you can claim for the EITC depends on your annual income and the number of kids you have, but people without kids can qualify, too.

For 2021, the ARP revises a number of EITC rules, and makes an increased credit available to more childless taxpayers. While in past years, childless filers could only qualify for a relatively small credit, for 2021 the ARP boosts the maximum EITC for those without children from around $540 to just over $1,500.

The legislation also reduces the minimum age for a childless taxpayer to qualify, from 25 to 19, and it also eliminates the maximum age of 65 for the credit, so seniors of any age can qualify, as long as they meet the income requirements. The above changes from the ARP are only for 2021, but the law makes some permanent changes to the EITC as well.

In prior years, you couldn’t qualify for the EITC if you had more than $3,650 in investment income for the year. But thanks to the ARP, starting in 2021, you can have up to $10,000 of such “disqualified” income without losing the EITC, and for 2022 and beyond, this limit will remain and be adjusted for inflation. 

Below are the maximum EITC amounts for 2021, along with the maximum income you can earn before losing the credit altogether.

2021 Earned Income Tax Credit

Number of kids	Maximum earned income tax credit	Max earnings, single or head of household filers	Max earnings, joint filers
0	$1,502	$15,980	$21,920
1	$3,618	$42,158	$48,108
2	$5,980	$47,915	$53,865
3 or more	$6,728	$51,464	$57,414

Additionally, just for 2021, you can calculate your EITC using either your 2019 earned income or your 2021 earned income and use whichever number gets you the bigger credit. And don’t worry—if you go with the 2019 number, it has no effect on any of your other 2021 tax calculations. For example, if some or all of your income is from self-employment, using your 2019 income to calculate your 2021 EITC won’t increase your 2021 self-employment tax.

Finally, no matter the year, the EITC is fully refundable. This means you can collect the money even if you don’t owe any federal income tax. That said, calculating the credit can be quite complicated, so if you need a referral to a CPA to support you, please feel free to contact us for our favorite referrals.

Next week, in part two of this series, we’ll cover the remaining three ways the American Rescue Plan can boost your family’s finances in 2021.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

Starting a nonprofit organization can be a great way to give back to your community, while working for a cause you are passionate about. That said, if you are starting a nonprofit simply to avoid some of the more unsavory aspects of running a business, you should seriously reconsider.

As the founder of a nonprofit, you will still be “in business,” and you’ll have to deal with many of the same things for-profit business owners face when running their companies. The main difference is, when running a nonprofit, you’ll be working in service to your mission, rather than in service to yourself or to the other owners of your business—and that’s because there are no “owners” of nonprofits!

Ownership is just one of many unique aspects involved with starting a nonprofit, and there are several other important factors you should consider before launching your own organization. Here we’ve outlined some of the most critical things you should know about nonprofit startups.

What is a nonprofit?

The term “nonprofit” typically refers to an organization that works to serve a public purpose, as opposed to serving for the financial benefit of a particular person, entity, or corporation. As such, traditional nonprofits are organized around a shared mission, social cause, or community need, and they work to provide some sort of public good.

Note that a nonprofit organization is distinct from a “not-for-profit organization” or NFPO. In contrast, a NFPO does not need to provide for the public good and can be organized solely to benefit its members or a community. Here we’re going to solely focus on nonprofit organizations, but look for a future post on NFPOs.

You can think of your nonprofit as a business that has no owners or shareholders. And a nonprofit does not pay taxes like a regular business would, either. However, a nonprofit is still a business in the sense that it needs to bring in money, it has expenses, and the money that it brings in has to be sufficient to cover the expenses.

This is where the term “nonprofit” can be confusing. Despite the term, nonprofits can and do earn a profit—they wouldn’t be able to survive otherwise. However, unlike for-profit businesses, nonprofits don’t distribute their profits to their members as personal income. Instead, a nonprofit’s excess revenue goes toward furthering the organization’s mission, whether that’s growing the organization, paying employees, supporting fundraising, or supporting other nonprofits with a similar mission.

What’s more, as long as you don’t violate any rules against self-dealing by overpaying yourself or by commingling your personal assets with those of the nonprofit, one of your organization’s expenses can include paying yourself a salary to run the nonprofit. So even though your nonprofit’s purpose is to further your chosen mission, rather than benefiting yourself personally, that doesn’t mean you can’t pay yourself a reasonable salary.

Clarifying Your Mission
The starting point for all nonprofit organizations is to clarify your mission. Clarifying your mission is about defining and quantifying the cause, problem, or issue your organization wants  to address. Similar to a for-profit business, this involves researching whether there is a sufficient demand for the services your nonprofit would provide. And if there is sufficient demand, you must determine what kind of market already exists for those services. As with any business, there is serious competition in many nonprofit sectors for a limited amount of funding.

If your nonprofit is going to succeed, you’ll need to ensure that your organization is properly positioned and well equipped to fulfill this demand. As you are doing your research, survey the field to find out whether anyone or any organization is already doing what you want to do. If you find an already established organization that shares your mission, then your time, energy, attention, and money might be put to better use by joining or collaborating with them, rather than duplicating their efforts.

Setting up a nonprofit

In the U.S., the IRS recognizes 29 different types of nonprofit organizations, the most common type being a 501(c)(3), which we’ll cover in detail below. Outside of 501(c)(3)s, there are 501(c)(5)s, which include labor unions, and 501(c)(4)s, which include social welfare organizations, and 501(c)(7)s, which include social and recreational clubs. In all cases, the organization begins with a business entity, which can be set up in a few different ways (more on that below) depending on state law.

As mentioned earlier, the “ownership” of a nonprofit can be somewhat confusing. No person or group of persons can own a nonprofit. Instead, once incorporated, the newly created nonprofit organization is a separate legal entity from its incorporators, directors, officers, and employees. A nonprofit corporation owns all assets of the business. And because there are no owners, nonprofits are typically managed by a board of directors or by its members.

The tax status of your nonprofit is determined by a filing to the IRS, which happens with IRS  Form 1023, which we’ll discuss in-depth in next week’s article. As with all business entities, the entity is formed under state law, while the tax status is determined at the federal level.

Similar to other businesses, incorporating a nonprofit follows a few general steps:

1. Choose the name of your nonprofit.
2. Incorporate your entity through your state.
3. Apply for your IRS tax exemption.
4. Apply for your state tax exemption, if applicable.
5. Prepare bylaws.
6. Appoint directors.
7. Hold a meeting of the board.
8. Obtain necessary licenses and permits.

Next week, in part two of this series, we’ll complete our discussion of what you should consider when starting a nonprofit organization. 

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you. 

2020 was a nightmarish year for many families. But thanks to recent legislation, you could see a silver lining in the form of major tax breaks when filing your income taxes this spring. First up, although it’s technically not a tax break, the IRS recently announced that the deadline for filing your 2020 federal income taxes has been pushed back from April 15 to May 17, 2021, which gives you an extra month to get your tax return handled. 

The postponement applies to individual taxpayers, including those who pay self-employment taxes. But the extension does not apply to first-quarter 2021 estimated tax payments that many small business owners file. So if you file quarterly taxes, contact your tax advisor now, if you haven’t already done so.

Additionally, the CARES Act passed in March 2020 provides individual taxpayers with several hefty tax-saving opportunities, many of which are only available this year. What’s more, President Biden’s new relief package, known as the American Rescue Plan (ARP), which went into effect in March 2021, not only offers additional stimulus payments to most Americans, but it also includes significant tax relief for those taxpayers who lost their job and had to rely on unemployment benefits in 2020.

While there are dozens of potential tax breaks available for 2020, last week in part one of this series, we highlighted the first three of seven ways you can save big money on your 2020 tax return. Here in part two, we’ll discuss the remaining four ways you can save.

4. New Rules for Early Withdrawals From Retirement Accounts

If your finances were seriously impacted by last year’s economic turmoil, you may have needed to withdraw funds from your retirement accounts to cover your expenses. And thanks to new rules under the CARES Act, you have more flexibility to make an emergency withdrawal from tax-deferred retirement accounts in 2020, without incurring the normal penalties.

Typically, permanent withdrawals from traditional IRAs or 401(k) accounts are taxed at ordinary income rates in the year the funds were taken out. And pulling out money before age 59 1/2 would also typically cost you a 10% penalty.

But thanks to the CARES Act, you can avoid the 10% penalty (if under 59 1/2) on up to $100,000 in pandemic-related distributions from your retirement account in 2020. You are also allowed to spread such distributions over three years to reduce the tax impact. Or better yet, you can opt to put this money back into your retirement account—also within three years—and avoid paying taxes on the money all together.

However, because early withdrawals can negatively impact your retirement savings down the road, if you are looking to take advantage of this provision, you should consult with us, as your Personal Family Lawyer®, and your financial advisor first. Also, note that employers are not required to participate in this provision of the CARES Act, so you’ll also need to check with your plan administrator to see if it’s available at your workplace.

5. Medical Deductions 

If you had hefty medical bills in 2020, you might be able to get some tax relief using increased deductions. Under the CARES Act, you can deduct any medical expenses above 7.5% of your adjusted gross income (AGI). Your AGI is your total income minus any other deductions you’ve already taken.

For example, if your AGI was $100,000, you can deduct qualified unreimbursed medical expenses that exceeded $7,500 in 2020. However, you have to itemize your deductions in order to write off these expenses, so meet with us to determine if this would make sense for your situation.

6. Earned Income Tax Credit

The Earned Income Tax Credit (EIC) is a refundable tax credit for low- and middle-income taxpayers that’s often overlooked. The amount of credit you can claim depends on your annual income and the number of kids you have—but people without kids can qualify, too. 

Below are the maximum EIC amounts for 2020, along with the maximum income you can earn before losing the credit altogether. Note: You can’t claim the EIC if you are a married individual filing separately.

Number of children	Maximum earned income tax credit	Max earnings,single or head of household filers	Max earnings,joint filers
0	$538	$15,820	$21,710
1	$3,584	$41,756	$47,646
2	$5,920	$47,440	$53,330
3 or more	$6,660	$50,954	$56,844

Additionally, for the 2020 tax year, there are special rules for the EIC due to the pandemic: You can use either your 2019 income or your 2020 income to calculate your EIC and use whichever number gets you the bigger credit. This doesn’t happen automatically, though, so be sure to ask your tax professional to run the numbers both ways and choose the option that offers the most savings.

7. Child Tax Credit

If you have minor children aged 16 or younger, the Child Tax Credit is one of the most effective ways to reduce your federal income tax bill—and there are special rules for 2020 that can save you even more.

For your 2020 taxes, you can claim up to $2,000 per qualified child as a tax credit, and under rules due to the pandemic, you can use either your 2019 income or your 2020 income to calculate your credit—whichever year offers the most savings. The credit begins to phase out when your AGI reaches $75,000 for single filers, $150,000 for joint filers, and $112,500 for head of household filers.

What’s more, with the passage of Biden’s new ARP this March, the child tax credit is set to get even bigger in 2021. When you file your taxes next year, the per child credit will go up to $3,000 or $3,600, depending on your child’s age. Look for a future blog post detailing all of the new tax saving opportunities available under the ARP for 2021 and beyond.

Maximize Your Tax Savings for 2020

These are just a few of the numerous tax breaks available for 2020. Indeed, there are plenty of other deductions and credits that might be up for grabs depending on your situation. Meet with us, as your Personal Family Lawyer®, to make sure you don’t miss out on a single one. Contact us today to schedule your visit.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.