Incorporation-Tax Reasons to Incorporate

Fred Allan Ehlert, P.A. & C. Alden Pearson, P.A. Certified Public Accountant Attorney-at-Law 952-939-8959 763-585-9000 www.TaxMeNotUSA.com www.AldenPearson.com

Maximize your Profits Utilizing Current Tax & Legal Opportunities

Entity Types-Tax & Accounting

DBA/Assumed Name/Sole Proprietorship is not an entity

LLP, Limited Liability Partnership Need existing partnership Defaults to a partnership for tax purposes

LLC, Limited Liability Company, not corporation Defaults to a sole proprietorship or partnership for tax purposes LLC, commonly used for bars/rest & real estate

C Corp Wages subject to payroll taxes Remaining profit taxed 25-45% Dividends taxed again personally

S Corp Generally pays no corporate taxes Wages subject to payroll taxes Remaining profit, no corporate tax Distributions taxed personally

Disadvantages Lack of simplicity Costs Initial Incorporation Tax Preparation

Advantages Tax Savings Retirement Plans Lessened Audit Risk Separate entity from the owners

1 of 6 Updated 4/6/2018 Fred Allan Ehlert, P.A. & C. Alden Pearson, P.A. Certified Public Accountant Attorney-at-Law 952-939-8959 763-585-9000 www.TaxMeNotUSA.com www.AldenPearson.com

Contracts

Why written contract? Establishes common agreement with customer (avoids confusion) Preserve Mechanic’s Lien rights Required by law for licensed residential contractors

Contract provisions (at minimum – remodel contract example) Identify contracting parties Identify Contract documents Work to be performed Price and payment times/amounts Mechanic’s Lien Prelien Notice How change orders/extras are to be handled Warranty rights Disclaimers (examples) Underground utility lines Preexisting conditions Peril damage Mold Statute of Repose (Minn. Stat. §541.051) Collection costs (including attorney’s fees) Dispute forum/Arbitration Venue Force majure Home solicitation language (if appropriate) Formaldehyde Notice Liquidated damages Others

Contracts to consider Remodeler Contracts New Construction Contracts (customer lot) New Construction Contracts (builder lot) Subcontractor Agreements Non-compete Agreements

Mechanic’s Liens

Strictly follow statutory scheme or lose lien

Prelien Contract with owner Required if subcontractors/material suppliers Must be in written contract If no written contract, provide within 10 days of contracting 10 point bold and capitals to be safe If not provided as above, no lien rights Subcontractor Must mail to owner within 45 days of first work General contractor must provide name/address of owner on request within 10 days 10 point bold and capitals to be safe If not provided as above, no lien rights

Lien Statement Must be served and filed within 120 days of last date of work Must contain Notice of intent to claim lien Amount due for labor, skill and material Your name Customer’s name Date of first work Date of last work Description of the work Legal description of property being liened (has to be the property where work performed/supplies used) Name of property owner Your postal address Acknowledgement of service of Lien Statement on owner within 120 days of date of last work Acknowledgement that Prelien notice provided

Lien Foreclosure Action Must be commenced within 1 year of last date of work

Common pitfalls No Prelien notice Lien Statement not served and recorded within 120 days of last work Lien Statement defects (most common) Overstate lien amount Claim for items not lienable Foreclosure action not commenced within 1 year of last work Cannot establish first and last dates of work Cannot establish work performed/materials delivered Only applies in Minnesota

Subcontractor and Material Supplier Actions

Non-payment of Subcontractors – civil and criminal penalties (Minn. Stat. §514.02; Minn. Stat. §337.10, Subd. 3)

Protection through Subcontractor Agreement

Margins, Bidding & Pricing

Gross vs. Net Margins Gross Revenue, Deposits must reconcile with Reported Tax Revenue Direct Costs Direct Labor, work comp, payroll taxes (labor burden & overhead) Materials Subs Permits & Plans Dump Sales Commissions Gross Margin

Overhead Accounting & Legal Insurance Phone Tools Supplies Interest Vehicle Expenses Net Margin 4 of 6 Updated 4/6/2018 Fred Allan Ehlert, P.A. & C. Alden Pearson, P.A. Certified Public Accountant Attorney-at-Law 952-939-8959 763-585-9000 www.TaxMeNotUSA.com www.AldenPearson.com

Subcontractor vs. Employee Subcontractors must have Employer Identification Number Insurance Certificates General Liability Insurance Worker's Compensation Insurance if sub has helpers Paid by project Their own tools Employee costs Wages Payroll Taxes Work Comp Supervisory costs Fringe Benefits

Insurance Audits General Liability Worker’s Compensation

Certificates of Insurance

IRS/MN Dept. of Revenue/DEED Compliance Issues IRS Audits Sole Proprietorships Primarily, not corporations Areas Revenue, including inter-account transfers Direct Construction Costs Vehicle Expenses, mileage logs 179 Expensing Need receipts for all expenses

MN Dept. of Revenue Audits Primarily two types Sales & Use Tax Adjustments from IRS Examinations

MN Unemployment Audits

Warranties

Types Express Written Verbal Limiting

Implied 327A Warranty New Construction Remodel 1/2/10 year warranties Alternative warranty programs Written warranty notice requirement Who does the repair work

Limitations of Actions 327A 6 month written notice 541.051 2 year statute of limitations 10 year statute of repose

6 of 6 Updated 4/6/2018