Monthly Archives: February 2016

Commercial Lease Laws and Process

unspecifiedIf you have made the decision to bring your dream of owning your own dental practice to life, you may now be looking for the ideal space to lease for your practice. You’ve leased apartments or rental homes before so this shouldn’t be much different right? Wrong. Commercial lease laws bear little resemblance to their residential counterparts. Likewise, the process of locating commercial property and negotiating a lease agreement is often very different from the residential rental process. Laws relating to the lease of commercial property will vary somewhat from one state to the next, however, there are significant commonalities.

Understanding some of the common mistakes and pitfalls that befall first time commercial tenants may help you avoid them.

Locating A Property: Unlike locating a residential property, which is often done without an agent, you may wish to use one to locate and negotiate a commercial lease. Aside from having access to properties that may not be advertised to the general public, a Real Estate agent should be able to explain any confusing or foreign lease terms, and prevent you from being taken advantage of as a first time lessee. There may be a direct cost involved, however, it could also be indirectly covered by the landlord through his or her agent’s fee.

Lessee Beware: The old saying “Buyer beware” applies to commercial leases. In most states, there are numerous laws that afford a residential tenant certain protections and defenses in a lease agreement, even if they are not specifically enumerated in the agreement itself. This is not the case in commercial leases. Lawmakers assume that commercial tenants are more experienced and, therefore, not in need of additional protection. As a result, the terms of your lease control your agreement. If it is not in the lease itself then it does not exist. Consider having your attorney review the lease before you commit to the agreement.

Lease Terms: There is no industry standard for commercial leases, however, there are some lease terms that are typically different than those found in residential leases. Commercial leases tend to be for longer periods of time — two years and up. Rental price is often based on usable square feet as well as a percentage for shared space, such as a parking lot or lobby, if applicable. As a commercial tenant, you may be responsible for minor repairs. You may even be responsible for major repairs. On the plus side, as a commercial tenant you will likely be able to make improvements to the property, unlike in a residential lease.

Minimize the Possibility of a Wrongful Termination Lawsuit

unspecifiedAs a small business owner, a wrongful termination lawsuit can quickly drain capital reserves, even if you ultimately win the lawsuit. Litigation costs along could bankrupt a fledgling business. As is often the case, the best defense is a strong offense. While there is no sure fire way to prevent the possibility of a wrongful termination lawsuit, there are steps you can take to prevent a previous employee from filing one, or at least be prepared in the event one is filed.

The term “wrongful termination” is a broad term. A statutory claim for wrongful termination can be made on the basis of one of the many federal or state anti-discrimination statutes. An employee who was employed pursuant to an employment contract can allege that the termination was in violation of the terms of the contract. Additionally, a somewhat vague “termination against public policy” argument is sometimes asserted as the basis of a wrongful termination lawsuit. Regardless of the basis of a potential wrongful termination lawsuit, taking steps before a lawsuit is even contemplated is your best defense.

Read, understand and implement an anti-discrimination policy. Federal anti-discrimination statutes are much broader than most employers realize. Consult with your attorney if necessary to make sure that you are in compliance.

Don’t turn your “at-will” employee into a contract employee unwittingly. Most states are “at- will” states, meaning that, in theory, you do not need a reason to terminate an employee’s employment. Contracts, however, can be implied and verbal as well as express and written. Be certain that you do not verbally imply a contract between you and your employees if that is not your intention.

Negotiate a separation agreement when possible instead of an outright termination. If the employee agrees to the “separation” from employment, then it is not a “termination” for purposes of a future wrongful termination lawsuit.

Draft a well-written section in your employee handbook regarding the “at-will” nature of employment as well as a section outlining your compliance with all state and federal anti- discrimination laws. Your disciplinary procedures should also be explained at length in your employee handbook.

Document all disciplinary action taken against all employees. Allow the employee to review the summary of action taken and ask them to sign the summary. Keep these in the employee’s personnel file. Keep all personnel files at least as long as the applicable federal and state statute of limitations for wrongful termination lawsuits.

Give your employee a concrete reason for the termination. Conversely, do not offer any information to third parties regarding the reason the employee was terminated unless absolutely necessary and, even then, only if it can be easily and adequately substantiated.

Do You Need to File Form 1099s?

There are a number of situations where you’ll have to create and/or file Form 1099s. However, how do you know if you are affected?

If you’ve been sending Form 1099s for years, you’re probably already working on them or have completed them. If you receive them regularly, they should be on their way to you soon (if they haven’t already arrived), waiting to be used in the preparation of your income taxes.

But if you’ve never sent one, it’s worth a look at your financials to see if you should. There are countless scenarios that would make that action necessary.

On the Receiving End

There are several types of 1099s. If you are not involved in a business or trade, you don’t have to worry about sending them. For example, you might get one or more if you:

  • Received interest income from a deposit account, like a CD. Financial institutions are required to dispatch 1099-INT forms to taxpayers who made money during the calendar year in this way.
  • Were granted debt forgiveness for a loan. Debt forgiveness represents income, so you should get a Form 1099-C.
  • Made money on a real estate transaction. A Form 1099-S will be sent to you.
  • Are a merchant who receives payments via credit cards or PayPal, or who sells on eBay, for example. The Form 1099-K has only been in use for a few years. If you receive one and don’t understand why, or you think you should have gotten one and didn’t, contact us.

Figure 1: The 1099-MISC will look familiar if your business pays money to independent contractors or other individuals who are not official employees.

The Form 1099-MISC

As a small business, the 1099 that you will be most likely to complete and send out is the 1099- MISC (Miscellaneous Income). This form covers a lot of ground. It must be provided to anyone that you have paid at least $600 to during the tax year. This includes:

  • Payments to independent contractors, freelancers, or individuals who provide services to you but are not employees of your company (like an attorney)
  • Rent (office space, machine rental, etc.)
  • Other income, including prizes and awards

These are some of the most common types of payments that must be reported on Form 1099-MISC, but there are others. And there are many exceptions. If you have never filled out a 1099 or you have any doubts about whether you need to (and how to do so), please contact us.

It’s critical that your Form 1099-MISCs are completed with 100 percent accuracy. Besides the fact that the IRS requires it, the amounts that you report will have impact on the tax returns of the recipients. For example, most taxpayers who receive a 1099-MISC that contains an amount in Box 7 (non-employee compensation) are subject to the self-employment tax, which is why that number needs to be correct.

A Word About Tax Planning

By the time you’re reading this, any tax law changes for the 2015 tax year will have been
finalized. Many were in the works, in areas like the Affordable Care Act, deductions and exemptions and IRAs. In addition, tax credits that were due to expire may have been extended.

If you’re preparing your taxes on your own, you will see these changes reflected in IRS forms and instructions. So, it should not be a problem to take advantage of any that affect you. If you make tax planning a year-round effort, you’ll be able to make business decisions about income and expenses based not only on these potential modifications, but also on your financial situation as a whole – 365 days a year.

This means more than just hurriedly making charitable donations in December. It involves careful attention to your finances starting January 1, and it means knowing what reports to run, what projections to make and how to analyze all of that information.

We’d be happy to help you with this. Tax planning is an area where we have a great deal of expertise. We know not only what data needs to be pulled from your accounting files, but also how to interpret it. Consider working with us on this, and making 2016 the year that you finally feel confident and informed about your company’s tax obligation! Give us a call today to get started.