Our recent 2019 legislative session has resulted in a change to commerce tax filing requirements. When the commerce tax was instituted in 2017, every business was required to file an annual return with the Department of Taxation. Senate Bill 497 (SB 497) has removed the requirement for certain business entities from filing an annual commerce tax return with the Department of Taxation—specifically, those with a gross revenue of $4,000,000 or less no longer need to file a return. The law is effective for the 2018-2019 taxable year as well as future tax years. If the Nevada gross revenue for a business from July 1, 2018 through June 30, 2019 was over $4,000,000, that business is still required to file a commerce tax return on or before August 14th, 2019. In the event that an entity’s gross revenue exceeds the $4,000,000 threshold in a future year, it is the business owner’s responsibility to file a return for the year. Failure to file may result in the assessment of penalty and interest.
New California law mandates additional homeowners’ insurance requirement. In response to the massive destruction caused by numerous California wildfires over the past several years, California is taking steps to enact laws that seek to fund wildfire prevention and protect consumers impacted by wildfires. One of the biggest issues that homeowners’ who lost their homes are facing, is the unfortunate discovery that they are underinsured. Outdated or inaccurate replacement cost estimates are often the cause of the problem. For homeowners with replacement cost coverage, a new law, which goes into effect January 1, 2019 will require insurers to provide, every other year before policy renewal time, an estimate of the cost to rebuild or replace the home in a way that complies with existing insurance regulations. The new law is aimed at improving the information available to policyholders so they can make informed decisions about how much coverage to buy. The law goes into effect July 1, 2019, and has several exceptions. See Ins C §10103.4 (added by Stats 2018, ch 205).
No matter where you live, it is always advisable to review your insurance with your insurance broker regularly. Insurance is one of those products that we consider to be a key piece of your asset protection plan. We know that buying insurance is not a particularly sexy or gratifying purchase, but if you ever need it, you will be glad you did.
As discussed in my prior post on asset protection, at Incline Law Group we are always looking for ways to protect our clients’ assets by achieving two goals 1) separating business assets from personal ownership and 2) separating business assets from each other by avoiding common ownership. There are many ways to do this and the best way depends on the type of assets, the risk level associated with your assets, financing issues, personal preference, taxes and many other factors.
For real estate investment, such as ownership of a number of income properties, a Nevada Series Limited Liability Companies can be a really great entity structure to maximize asset protection and minimize administrative costs. Series LLCs are not for everyone, so carefully analyzing the benefits to your business assets with your attorney and CPA is extremely important.
A Series LLC looks similar to a parent company/subsidiary sort of structure. A master company is filed with the Nevada Secretary of State, like any other LLC, but with an election to be a Series LLC. The creation of any number of series companies is authorized in the Series LLC governing documents. When a new series company is needed, it can be formed internally and is not registered with the Secretary of State, thus minimizing filing fees. While each series company may have its own tax ID number, a single tax return may be filed which can maximize tax benefits of profit and loss sharing across the series companies.
This type of entity structure can be a great fit for real estate holdings. For example, if I own 5 rental properties, I can put each property into a series company. I am able to save licensing and filing fees, as well as potentially file a single tax return, but at the same time, each of those series companies is treated as a distinct and separate LLC (so long as I follow all applicable statutory, financial and governance rules). Therefore, I have achieved a great deal of asset protection while minimizing costs.
Again, Series LLCs are not for everyone. They do require extra TLC when it comes to banking, financials and bookkeeping. They also have limited application if your assets are located in another state, such as California. But if, after careful investigation, it looks like a Series LLC may fit your needs, it is a structure that can be a fantastic tool for asset protection.
It is quite common for clients to tell me that they thought their standard family revocable grantor trust would serve to protect assets from creditors. This is a very common misconception. Your standard revocable family trust does not in fact provide any asset protection. There are certain types of trusts that can provide assert protection, such as Nevada irrevocable asset protection trusts. However, it is not always necessary to utilize these very advanced estate planning techniques for the average person to protect assets from creditors.
When seeking to protect assets we seek to achieve two goals:
- separate your business assets from your personal assets.
- separate your business assets from other business assets.
For example, if you own a primary residence and two office buildings, your first consideration might be putting the office buildings into an entity (LLC, Series LLC, Corporation or the like) and removing them from being titled under your individual name. The second consideration would be to separate the assets from each other by putting each office building into separate entities.
Why is this type of structure recommended? Because if everything is in your individual name and one of the tenants sues for a slip and fall, and obtains a judgment against you, it will be a personal judgment and your personal assets may be subject to that judgment, including your home. If all of your assets are in your name, you have created one big bucket of aggregated value for a judgment creditor to dip into.
However, if the business assets are held in an entity structure, you are starting to create multiple buckets which hold fewer assets and less value. The tenant, in this case will be limited to seeking a judgment against the business at which s/he fell and recover only against its assets, which will no longer include your personal home. Further, if we have taken the extra step of separating the business assets from each other, then we are again creating more buckets and minimizing the value that is available for satisfaction of the judgment in each bucket.
Every client’s needs, level of risk and level of risk tolerance are different. Additionally there may be tax and other considerations when looking at entity structures. Corporate formalities and relevant laws must be adhered to in any entity structure to maintain the protections they can afford. It is important to discuss all of these issues with your legal counsel and CPA before forming new entities and transferring assets.
You spent a great deal of time and effort to earn and grow your assets. A well thought out asset protection plan is important to safekeeping them.
It is true that Nevada does not impose corporate income taxes. This and the fact that Nevada also does not impose personal income tax makes it a very business-friendly state. However, this does not mean that you can escape taxation simply by forming a corporation or limited liability company in Nevada. First, regardless of where you incorporate, the Fed’s are always entitled to a piece of the action, whether that is recovered through corporate taxes or personal taxes. Second, if you are doing business in another state, you may be required to register to do business in that state, which may mean paying annual registration fees as well as state corporate income taxes or other taxes imposed by that state. Third, if you are not a resident of Nevada, you may be obligated to pay state personal income tax in whichever state you do reside.
So what constitutes “doing business” in another state? Here is a lawyer answer for you – it depends. Every state has a different statutory definition of what constitutes doing business in that state. It is fairly safe to say that if you repeatedly conduct activities in a state, like shipping goods from a warehouse or having salespeople visiting customers on a regular basis, that is likely to be considered “doing business” in that state. This may mean that you need to register your business to do business in that state.
While Nevada is one of the most business-friendly states around, which is one of the many reasons we love our beautiful Silver State, forming an LLC or corporation here, if you are not actually conducting business in our fair state, is not necessarily going to help you avoid taxes in another state. The solution, of course, is for you to bring your business to Nevada. We would welcome you with open arms. But short of that, you should consult with an attorney and/or CPA before electing the state in which you incorporate your business
The State of Nevada legalized the use and cultivation of medical marijuana in 2014 and began allowing cannabis businesses to operate in 2015. While California voters approved the use of medical marijuana some two decades ago, California law makers only put into place a regulatory scheme in 2015 thereby allowing dispensaries to operate legally.
Cannabis law is currently a very fluid and rapidly changing area of law. The legalization of medical marijuana at the state level presents significant conflicts with federal law in numerous areas including drug policy, banking laws, criminal law and so much more. Under federal law, the use, cultivation and sale of marijuana – medical or not – is illegal. As a result of the past war on drugs, federal law provides some very severe penalties for violations of federal drug law, including forfeiture.
The federal government does have the right to seize property used in the cultivation, manufacturing or selling of cannabis. This can include real property where the owner of the real property is merely a landlord who does not participate in the cannabis business. While the federal forfeiture laws do have an “innocent owner defense” many state cannabis laws require the lease to specifically state that the lease is for purposes of cultivation, manufacturing or selling.
As noted above, this is a rapidly changing area of law. Just two days ago (October, 2015) the Federal District Court for the Northern District of California issued a ruling (a somewhat scathing decision, in fact), based on the 2015 Appropriations Act, halting the Department of Justice from expending funds to enforce federal laws that interfere with state laws that authorize the use, distribution, possession or cultivation of medical marijuana.
Until the conflict between the state and federal laws governing the use and sale of marijuana are entirely resolved, providers of services, goods and property, including landlords (both commercial and in some cases residential) are advised to seek legal counsel and to address new contract and lease provisions such as “escape clauses” and stated compliance with state cannabis law.
(this post was originally published in 2015)
Winter is a great time to buy in the Truckee/Tahoe area. Whether you are looking to purchase a new primary residence or just a vacation home, there are a number of legal issues that you will want to consider.
- TRPA/Building Restrictions. The Tahoe Basin is under the jurisdiction of a bi-state federal agency known as the Tahoe Regional Planning Agency (TRPA). TRPA’s mission is, primarily, to preserve the environmental health and sustainability of the Lake Tahoe Region. TRPA has the authority to establish and enforce land use planning, building and development restrictions. The TRPA code may limit a homeowner’s ability to build, remodel, landscape and otherwise improve their property.
If you are purchasing within the jurisdiction of TRPA, it is important that you understand what you can and cannot do with your property with regard to improvements and the timelines for permitting and/or building within the Tahoe Basin. Certain activities like grading and digging are generally prohibited October 15 through April 30. If your property is within a scenic corridor or within a sensitive zone (like a stream zone) you may be subject to additional TRPA oversight. TRPA does not make redevelopment, remodeling or improvement impossible, but it is important that you be aware that TRPA restrictions may impact your intended use of your new property. There is a great deal of information available on the TRPA website.
- Homeowners’ Associations. If you are looking at purchasing a condominium or town home that is within a homeowners’ association you should carefully review any applicable Covenants, Conditions and Restrictions (CCRs). The CCRs will dictate any use restrictions on your property. For many second home buyers in Tahoe, rental restrictions are very important. Some Associations may limit the length of rentals or prohibit them entirely. If you are intending to rent out your new house as a vacation rental or on a longer term basis, you should carefully review the CCRs for provisions relating to rentals. It is also important that you understand if you will be required to pay monthly assessments, whether there are any planned or pending special assessments and the general financial health of the Association which should be evident in the operating and reserve budgets and financial reports.
- Title Report/Title Insurance. An often overlooked document in the mountain of paperwork that you wade through when purchasing a home is the preliminary title report issued by the title company in preparation for the issuance of title insurance at the close of escrow. The title report provides a list of recorded documents that will be excluded from title insurance coverage. It is very important to review this list of exceptions and exclusions. Often you will see easements affecting the property, any recorded use restrictions (like CCRs) and sometimes you may see issues relating to TRPA building covenants or restrictions. The title insurance policy that you obtain will not insure against loss resulting from a claim that is related to a title condition that was listed on the exceptions list. More importantly, certain title conditions can impact your intended use of the property (for example, if there is a public easement for beach access that goes right by your new master bedroom window….you may want to know about that). It may be possible to remove some title exceptions and/or to insure around others. You may want to seek legal counsel to understand the impact and possible removal of certain types of exceptions. Your realtor should be able to guide you on when it is advisable to seek legal counsel to assist with title issues.
- CA vs. NV? While the Tahoe Basin is one big beautiful region, there is one major tax difference that should be pointed out in case you are not already aware: The State of California has individual and corporate state income tax, the State of Nevada does not. When buying a second home that is intended for your personal vacation use, this may not be an important issue. However, if you are intending your new Tahoe home to be your new primary residence, it is worthy of consideration. Additionally, if you intend to rent out your property, thereby generating income, the rental income is likely to be subject to income tax – not such a big deal if you are already a California state taxpayer, but if you are a Nevada resident, you may be subjecting yourself to California income tax on that rental income. Food for thought, and depending on circumstances, a reason to get in touch with your tax professional for guidance.
- Real Estate Agents. As with any community, the Truckee/Tahoe area has many excellent realtors and a few that may not be quite so excellent…Chose an agent/broker by asking questions of both the realtor and people that you may know in the community. Realtors that live and work full time in the community, and have for some time, are going to understand the many unique aspects of homeownership in Tahoe such as why you want to think twice about a long steep north facing driveway or when you should investigate your grand remodel plans with TRPA. Many of the communities around the Lake and in the Truckee Area have a local Board of Realtors. They can often be found online and may be a useful place to do a little research.
The Truckee/Tahoe Area is an amazing region rich with unparalleled beauty, outdoor adventure and close knit communities. If Incline Law Group, LLP, can ever be of service to you in the purchase of your Tahoe home, or with other legal needs, please feel free to contact us. Until then, we will see you out there!
Ready Your Small Business for Success in 2018
Whether you are ready or not, year-end is here! Incline Law Group LLP has compiled a list of small business resolutions that we feel can help position your business for a successful year ahead in 2018.
- Tax Planning: Year-end is a good time to meet with your account and/or CPA to assess the year behind and plan for the year ahead. This is a good time to review profit & loss statements and cash flow in order to best budget and plan for your business in the coming year. Don’t forget to review year-end retirement account contributions.
- Charitable Giving: Charitable giving is both tax deductible and a way to spread the spirit of the season and support organizations that you believe in. Did you know that most non-profits receive up to 30% of their annual fundraising income during the month of December?
- Business Registrations: All types of business entities, whether a corporation, LLC, LLP or other type have annual or bi-annual renewal filing requirements. Likewise, state and local business licenses may also need to be renewed. Do you know when your registration and license renewals are due? If not, you should take the time to find our and calendar them. If Incline Law Group serves as your Registered Agency, we will track and handle these renewals for you.
- Trademark Renewals: Trademark registrations have expiration dates. Is yours coming up? Is it calendared for on time renewal?
- Health Insurance: The Affordable Care Act (“Obamacare”) open enrollment period has been shortened for 2018 coverage and ends on December 15, 2017. Your current employee health care plan is also likely to have year-end renewal dates regardless of when you used to renew. Make sure you know your enrollment periods and have coverage in place before your current coverage expires.
- Employment Policies: When was the last time your business updated your employee handbook? If you are in a state with Medical Marijuana, have you created a policy? Social media becomes more prevalent each year – do you have a policy in place? Year-end is a good time to review, revise and/or add new policies that can be effective as of January 1.
- Leases: New leases or commercial lease renewals can take more time than anticipated. If yours lease expires in 2018, you should begin negotiations and planning now.
Bonus tip #8 (because, you know… it’s 2018)
Review your client list, and make sure all contact information is up-to-date: This is not just to achieve a clean holiday card list but can also help grow and engage your client base if you use digital communication channels such as an enewsletter. You might consider segmenting your contacts during this review based on the type of relationship, product or service they have or purchase with you to better segment your marketing and growth opportunities.
How Should I/We Hold Title to My/Our Property?
When you get to the closing on your new home, the escrow company will often ask, “How do you want to hold title?”
The answer to this question may depend on a number of factors, such as whether you are married, whether you are purchasing the property with someone else or whether you have a trust for your estate. There may be other factors such as whether this is a property intended for investment or whether you are purchasing in the name of a corporation or LLC.
But for most individuals, the most common options are fairly straight forward. It should be noted that the discussion below is not exhaustive and that there may be other forms of vesting that could be of benefit in your specific circumstances. Similarly, not all states are community property states and for those that are, the existence and terms of pre or post-nuptial agreements are critical to vesting decisions. Vesting is the way we describe how the title to the property is held – with different forms of vesting comes different rights and obligations of joints owners that are not discussed here. It is important that you consult with an attorney to determine the best form of vesting for your circumstances.
This post is broken up into 4 parts which are intended to cover the most common forms of vesting in the four most common circumstances: Part I) if you have a trust; Part II) if you are purchasing property in your name only; Part III) if you are unmarried and purchasing with another person; and Part IV) if you are married. As a bonus, since we are talking about title(s), if you can name the artists for each of these songs titles, please post your answers!
Part I: A Matter of Trust
Generally if you have a trust, and the property is intended as your primary residence, you will likely title it in the name of the trustee of your trust. This is true whether you are single or married and often if you are purchasing with someone else to whom you are not married. You should always consult with your estate planning attorney when transferring property into or out of your trust.
Part II: All the Single Ladies
If you are purchasing property as an unmarried person and in your name only, the vesting is pretty much just that, as an individual (you may see this written as a an unmarried woman/man or single woman/man which is a coded reference to whether you are divorced or never married – if you object to this, as I do, you can simply request that title be vested in your name as an individual).
If you are married, but you are purchasing the property as your separate property, the title will generally read just that: Jane Smith, a married woman as her sole and separate property. In community property states, in order for your spouse to disclaim any community property interest in the property s/he may be required to sign a Quit Claim or Interposal Deed.
Part III: Our House
If you are purchasing property with another person that is not your spouse, you really have two choices: “joint tenants” or “tenants in common”. With joint tenancy, each owner has an undivided equal interest in the property. More importantly, joint tenancy comes with an automatic right of survivorship. This means that when one joint tenant/owner dies, his/her interest automatically transfers to the remaining owner(s). If one of the joint tenants transfers her/his ownership interest during their lifetime, this can destroy the joint tenancy and convert the ownership to tenancy in common.
More than one owner can also own property as tenants in common. In this case, each owner will own a percentage of an undivided interest in the property i.e. the ownership interest does not have to be equal. With joint tenancy there is no right of survivorship and when one joint tenant dies the interest is freely transferable to the decedent’s heirs. In Nevada, if the type of vesting is not specified, our statutes provide that the default vesting is tenancy in common.
Part IV: Love and Marriage
Married couples can also hold property as joint tenants or tenants in common. However, both California and Nevada have the option for married couples to hold property as “community property” or “community property with right of survivorship”. The community property with right of survivorship vesting carries two very important benefits, namely the automatic right of survivorship when one spouse dies and a tax benefit known as a “step up in basis”.
What this means is, when one spouse dies, the surviving spouse gets the benefit of a readjustment of the tax basis in the property up to the current value. This is important if, say, a married couple purchased the house in 1970 for $100,000. At the time of the death of the first spouse in 2016, the house is valued at $700,000. The surviving spouse elects to sell and downsize, without the step up in basis the surviving spouse could be subject to capital gains tax on the difference between the original basis of $100,000 and the new value of $700,000. If the property was vested as community property with right of survivorship, the surviving spouse would get the tax benefit of the step up in basis.
If a married couple holds title simply as community property (without the right of survivorship), they can take advantage of the step up in basis, but the transfer of title to the surviving spouse will not be automatic and may require probate.
As noted above, there are many ways for individuals to hold title to real property. This post only discuses a few of the most common. Because there are tax and legal consequences to how title is held, it is important that you consult with an attorney to help you sort out the best approach for your needs. And do keep in mind that you can always change the vesting after close of escrow!
By Cassell von Bayer, Attorney, Incline Law Group
One of often cited selling points for homeowners to undertake a short sale rather than a foreclosure sale is the ability to purchase a new home with financing in a shorter period of time. While all lenders have different eligibility requirements, most lenders current guidelines fall within a 2 to 5 year waiting period after a short sale or deed in lieu of foreclosure. While FHA guidelines may allow a borrower to obtain a new mortgage within one year of a short sale, those guidelines provide for several restrictions and FHA loans require significant and very costly mortgage insurance premiums.
Fannie Mae continues to be one of the largest mortgage holders and has up until now provided borrowers with mortgage eligibility two years after a short sale. Aside from FHA and VA loans, Fannie Mae has maintained the shortest wait periods after a derogatory credit event such as short sale or foreclosure. As of August 16, 2014 that will change. For all loan applications taken on or after August 16, 2014, Fannie Mae will impose a four year waiting period after a short sale and seven year waiting period after a foreclosure sale. Equally as important, for loan applications taken before August 16, 2014, the lender must document that the short sale or deed in lieu was completed two or more years from the disbursement date of the new loan. Similarly, where your credit report shows a “charge off”, meaning a lender, such as a second mortgage holder after a short sale, has reported the account charged off for accounting purposes, borrower’s may be subject to a four year waiting period. The new rules were issued on June 17, 2014, and as noted go into effect August 16, 2014. For the specifics please see: https://www.fanniemae.com/content/release_notes/du-do-release-notes-08162014.pdf
It is difficult to imagine that these new restrictions will aid the housing recovery or the reconstitution of the American Dream.