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
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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
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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
2 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
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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
3 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
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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
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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
5 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
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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