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Protecting Yourself Legally as an Independent Contractor

How to protect yourself from tax fines and legal issues while working as an independent contractor

Working for yourself or as an independent contractor has plenty of perks: flexibility, the freedom to choose your projects, vacation time when you want it, working from home and more. One trade-off for independent contractors, though, is the loss of institutional frameworks: things like 401(k) plans, health insurance, legal assistance and taxes either disappear or become more complicated. Here are a few things independent contractors should keep in mind to make sure they’re legally protected, whether working from bed or their favorite coffee shop.

Taxes

There are obvious challenges to navigating taxes as an independent contractor, including filing your own paperwork, assembling a retirement plan without a 401(k), and learning what you can legally deduct. Many independent contractors are part of the “gig economy” and should file a 1040-ES, meaning they’ll pay quarterly estimated taxes. Other independent contractors fill out a W-9 form and then file a 1099-MISC. No matter what category an independent contractor falls under, they are liable for Social Security and Medicare taxes, just like employees of any other company. Independent contractors can deduct home office space, parts of phone bills, some food, travel expenses and other work-related expenses. However, knowing exactly what can be deducted, and how much, can be a fine line. Working with an accountant who specializes in independent contractors is recommended.

Business Structure

There are several different types of business structures independent contractors can create. Sole-proprietorship is the most simple: it’s a business owned and operated by one person. An LLC is another popular choice among independent businesses for the legal protections it offers. An LLC separates your business assets from your personal assets, but is taxed similarly to a sole proprietorship. Anselmo Lindberg & Associates attorneys can help independent contractors choose which type of business is right for them, and get them set up with an LLC or other structure to make sure they’re legally protecting their personal wealth.

Saving Money

Without a retirement plan from their company, independent contractors will have to come up with a savings plan of their own. It’s important to build a savings cushion in case of emergency, to anticipate upcoming bills and business expenses, to structure savings so you are able to pay estimated taxes and to make an estate plan. Most people benefit from a “set it and forget it” savings structure similar to automatic 401k payroll deductions. Whether your retirement savings plan takes the form of an IRA, an index fund or some other savings vehicle, try to set up automatic contributions to ensure you’re saving aggressively for your future.

Legal Protection

Independent contractors often work on contract with different companies or for individuals. Sometimes, they have to contract work out themselves. When working with contracts, it’s important to make sure they’re structured in a way that lays out payment terms clearly and protects you from liability. Having an experienced attorney on hand to review contracts can help protect you and ensure you’re compensated on time for your work.

There are many freedoms that come with working for yourself, but in other ways being an independent contractor carries additional hassles. Simplify the process and guarantee your legal protections by working with an attorney experienced in assisting independent contractors with taxes, estate plans, business structure and contracts. Contact Anselmo Lindberg & Associates to get your business on track today.

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Understanding The Illinois Property Tax Credit

Don’t leave money on the table when it’s time to pay your taxes

The property tax credit is a credit on your individual income tax return. It varies by state, and in some cases by county. In Illinois, the credit is equal to 5% of Illinois Property Tax on your principal residence, and you must own the residence in order to qualify.

5 things to know about the Illinois property tax credit

You qualify for the tax credit if:

  • You own your residence
  • Your property tax billed during the tax year has been paid
  • Your principal residence during the previous year was in Illinois

Taxes paid on vacation homes, rental properties, and other homes that are not your principal residence do not qualify for Illinois Property Tax

What does the property tax credit mean when selling a home?

Sellers are liable for taxes on their home throughout a tax year, so if a house is sold halfway through the year, the seller is still responsible. The property tax credit is meant to offset that. According to the Illinois Department of Revenue: If you sell your house, you may include the prior year’s property tax you paid and the current year’s prorated tax offset against the sales price at the time of closing when figuring your property tax credit.” This means if you sold your house in 2017, you can include the 2016 tax and the 2017 prorated tax you paid at the time of closing when figuring your 2016 property tax credit, to be filed in 2018.

There are some restrictions: if the house you sold was vacant for a few months during the selling process and was not your principal residence during that time, you cannot count those months in your tax credit.

Property tax rules in Cook County

Some counties have their own laws, like Cook County, where property taxes are billed in two installments a year in arrears. Before you sell your home, your property tax bill must be current. In mid-year sales, that means the credit for an upcoming tax bill will be passed on to the buyer to cover the seller’s unpaid share of real estate taxes, which includes any tax liability accrued for the duration of the closing process. The new buyer assumes all payment responsibilities when buying the house, but since the tax installment might not be due until the next year, the seller will owe him or her money. The seller “gives” the buyer a tax credit as a deduction of proceeds to cover this cost.

Transfer taxes

One thing many people forget when selling their home is transfer taxes. According to Illinois Real Estate, when a title changes hands from one owner to another in Chicago, a transfer tax will be imposed locally, by the county and by the state of Illinois. State taxes in Illinois are $1 per $1,000, Cook County taxes are $0.50 per $1,000, and Chicago city taxes are $3 per $1,000.

Home office deductions

A home office can be deducted from your taxes in most states, but the calculation during a sale doesn’t view them separately if your office space is inside the home. The entire profit from selling the home will qualify for a home sale tax exclusion. If the office is located outside of your house, like in a garage or other building, only the home qualifies for the profit, and you will still pay taxes on the office.

The process can be confusing, but it’s important to understand because property tax and tax credits can add or lessen the seller’s costs closing costs. An experienced real estate attorney who specializes in property taxes in Illinois can demystify the process and protect your interests.

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Do You Need an LLC?

Deciding When, How and Why to Legally Establish Your Business

Whether you’ve been slowly building your own company for years or your Etsy business just took off unexpectedly, if you’re making money, it’s time to start thinking about your business structure.

When your passion project crosses the line to become a small business, you have a few options to legally organize your business. An LLC, or limited liability company, is one of the most popular options at this stage, because it’s easy to set up, and offers blanket protections for business owners.

Understanding LLCs

What is an LLC?

An LLC is a hybrid business structure that combines the characteristics of a corporation and a partnership. Business owners receive the limited liability of a corporation while enjoying the pass-through tax benefits of a partnership. Personal liability is limited under an LLC, so any business debt, or lawsuits against the business, won’t affect the owner’s personal assets. Owners of an LLC report profits and losses on personal tax returns, not separately under a corporation. This means you only get taxed once on your income, not twice, which would happen if you were a C-Corporation.

Who needs an LLC?

Anyone who owns a small business should obtain an LLC to protect themselves from liability.

LLC Formation Steps

How do you choose your LLC name?

Your LLC will need a specific, legal name that you aren’t likely to change, or that will serve as an umbrella title for multiple, smaller organizations within your larger company profile. In most cases, the LLC name is the same as the filer’s business name, followed by “LLC,” as long as that name isn’t already taken. If that name is taken, you will need to file a variation on that name. Some words, like “trustee” or “bank,” are prohibited depending on the state. If you expect to nest multiple projects under your LLC, consider an overarching title related to your name or the general theme across your multiple ventures.

What is the process of forming an LLC?

It’s a simple process. Incorporate.com calls it the “least complex business structure” available. The specific steps each business needs to follow vary by state, and if you operate in multiple states you typically have to register in each state. An attorney in the state where your company is primarily based is best suited to help you navigate the diverse laws and determine which approach is best for you. The mechanics of the process include filing Articles of Organization documents with the Secretary of State, which includes drafting a statement declaring the purpose of your LLC, paying a filing fee, and obtaining a free Employee Identification Number (EIN), also called a Federal Tax Identification Number, from the IRS.

Do you need an attorney to form an LLC?

You can file LLC Articles of Organization without an attorney, but that process includes appointing a registered agent who will represent the LLC and receive all legal documents. The owner of the LLC is usually the registered agent as well, but most businesses appoint a third party, typically an attorney, to oversee this process. Partnering with an attorney you trust from the point of filing affords you a cohesive overview of the legal side of your business as it grows. An attorney also plays a key role in creating your operating agreement, which details the rights of the LLC owners. It’s a framework between partners, and so it may not be necessary if you’re the sole business owner, but if your business has multiple owners its terms are essential. They include the amount and frequency of capital contributions, how profits are split, who will manage the LLC, voting rights and how to dissolve if necessary or desired by any party.

 

Setting up an LLC is an easy and important early step that will protect you and your business for years to come. As with any legal documents, it’s smart to have an attorney look over your Articles of Organization before filing for your LLC. We regularly work with small business owners and are always happy to lend our expertise to this exciting new step in your professional journey. Contact us to speak with an attorney who specializes in business services today.

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Everything You Need To Know About Home Inspections

Home Inspections Protect Buyers and Sellers from Costly Surprises

Whether you’re buying your first home or your fifth, a thorough home inspection is essential every time. Before closing on a house, every buyer should arrange their own thorough home inspection, even if the home is new or has no visible flaws.

“No home is perfect, not even new construction,” Brenda Avilla-Kintz, a Realtor with Legacy Real Estate & Associates told US News & World Report. Problems may often be hidden in the attic or walls of even the most perfect-looking house. A home inspection will not only help uncover to this issues, it also gives buyers leverage in negotiating a final price. Without an inspection, these problems will surface later, leaving the new owners stuck paying for repairs on top of their home-buying costs. Home inspections can help protect sellers, too, from being blindsided by unexpected expenses that could threaten the closing of a sale.

Here’s what you need to know about arranging an inspection of a home before you buy.

Commonly-Asked Questions About Home Inspections

What do home inspections cost?

Inspections range between $300 to $800, according to HGTV, and typically take two to four hours. Those few hundred dollars could save you thousands in repair costs.

How do I find a home inspector?

Use an inspector who is regulated by the state, or has an equivalent certification. The American Society of Home Inspectors allows you to search for certified inspectors by state. Cross-reference that list with reviews like you would any other service job, or ask your broker for recommendations.

What will home inspectors look for?

A home inspector will take a thorough look at the entire home from top to bottom. They’ll go up on the roof, into the attic, check outlets, light switches, faucets, appliances, vents, doors, garage doors, windows, plumbing, the carpet—everything. A good home inspector will take photos and let you join the inspection if you wish, so you can ask questions. At the end, they’ll give you a detailed report of any issues they found.

What do you do after the inspection?

Once the inspection is complete, your next steps depend on the inspector’s findings. Ideally, the home is in great shape and you can continue with your contract. If there were minor issues uncovered, you can negotiate with the seller to either make the repairs before the sale, or to close at a lower price to accommodate them. If there are major issues with the roofing, foundation or toxins, you might want to reconsider the purchase. Remember that a ‘fixer-upper’ may sound fun, but only if you’re truly prepared for the repair costs.

Whatever you decide after the inspection, getting it done in the first place is a vital part of the real estate contract process. An experienced attorney can help you review the initial contract and negotiate after the inspection. The attorneys at Anselmo, Lindberg and Associates are experts when it comes to real estate law and will be there with you every step of the way to make sure your inspection process runs smoothly.

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Finding the Right Real Estate Attorney

What to know before hiring a real estate attorney

A qualified real estate attorney is an essential element of a successful real estate transaction, especially if you’re buying your first home. When choosing an attorney and moving forward with the home buying process, there are some things you should keep in mind. These seven questions will cover the pre-home buying basics, both when choosing an attorney and once the attorney is on your team.

How much experience do you have, and does it relate to how you will handle my case? This opens up the door for the attorney to tell you about their background, how long they’ve been in practice, and any similar cases they’ve handled. If they’ve handled similar cases with a positive result, that’s a good sign for you.

Do you see any conflicts of interest? This gives the attorney the opportunity to disclose any other clients who could conflict with your case, such as the builder or a close business associate of your agent. Of course your real estate agent would be the biggest conflict of interest, which is why you should look for attorney recommendations from outside sources.

How do you charge? Know upfront whether you’ll be billed a flat fee or an hourly payment, so there are no surprises.

Once you’ve determined the attorney is a good fit, there are questions you’ll want to ask throughout the buying process. Some of the most important include:

Can you help me understand my mortgage and other payments? You’ll need to know what your monthly mortgage payments will be, the due dates, and whether or not there’s a grace period. You should also ask if your payment is likely to change. This normally only happens if your taxes or insurance changes, but if you’re getting an adjustable-rate mortgage it could change more often. Is the seller responsible for closing fees? Depending on the deal you strike, the seller can sometimes be responsible for closing costs. Make sure you understand who is responsible for what, so you’re not caught off guard with a bill during closing.

When should I get an inspection? The inspection is an important part of the home-buying process, but when to get it done varies. Getting the inspection before signing the contract can be nice, because if there are issues you’re under no obligation to buy. However, you could lose the house to another buyer in the meantime. Your contract should be worded in a way that allows you to get out if the inspector finds specific problems, or can include price limits for things that need to be repaired. Ask your attorney about which option will be most useful for you, and have them talk you through the wording so you understand what you’re signing up for.

Should I sign a contract even if I don’t have a mortgage contingency? A mortgage contingency buys you time to secure funding for your home. With a contingency, you’re allowed to call off the sale if you can’t get a mortgage. Sometimes though, in busy markets or if you find your ideal home and don’t want to lose it, you can forgo the mortgage contingency if you have alternate funding or excellent credit. This can be risky, so it’s smart to talk to your attorney about your options before signing the sales contract.

If I sign the contract and pay a deposit, how easy will it be to get my money back if something goes wrong? Say you don’t get a mortgage, or the house doesn’t pass inspection. Do you lose your deposit? In most cases, the seller’s broker or attorney holds the deposit and cannot release it without the seller’s permission. If you claim your right to getting the deposit back, wording in the contract will become very important. Your attorney can help make sure you understand this part of the contract before signing, and help you claim your deposit if needed.

Buying a home can be a long, complex process, and is rife with legal documents. You want someone on your side in negotiations and when it comes to understanding detailed documents. If you’re looking for a trusted advisor, our attorneys at Anselmo Lindberg & Associates are equipped to handle all types of real estate transactions, ranging from buying, selling, for sale by owner, commercial transactions, investment deals and more. Contact us to learn more about what we offer our clients for each and every transaction.

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Choosing an Executor for Your Estate

How to find the right person to manage your estate

Trusting an individual to handle your personal and financial dealings after your death is not a decision to take lightly. Known as an executor, this person will be in charge of your estate’s administrative affairs until it is legally closed. This is a large responsibility, often encompassing legal duties, handling family dynamics and deciphering legal documents. Needless to say, you’ll want someone trustworthy and competent. But how exactly do you go about choosing? Here’s a checklist, so you can rest assured you’ve found the best executor to handle your estate.

Organization

  • Does this person file their income tax returns on time? A lawyer in Virginia tells the New York Times this is one easy way to gauge your potential executor’s organization skills.
  • Are they good with paperwork? Think about their career, and how organization and paperwork skills might play a role there.

Character

  • Are they honest? This is one of the most important qualifications to consider.
  • Do you trust them? This seems obvious, but really think about if you can trust the person you’re about to name as executor. This person will be responsible for all of your assets, both business-related and personal. They’ll prepare your tax and legal documentation, go through your things, represent you in court, and take inventory of everything you own. It should be someone you know you can trust with your finances, possessions, and wishes.
  • Is this person diplomatic? This skill is especially useful if children or other family members might have issues with your will.

Relationship

  • Is this person a member of your family? Children or other family members are often executors, as they understand your intentions and have easier access to your assets than others.
  • Does this person have a significant interest in your will? This is usually the case with children. If someone is going to inherit money or property, they will have a vested interest in handling your will in a timely and responsible manner.
  • If you’re going to name your offspring, stick with only one child. Naming more than one can become complicated, according to lawyer Carol Cantrell. Name one child and list the others as alternates, then speak to them ahead of time and explain your reasoning.
  • How old is this person? If you’re not naming one of your children as executor, think about the person’s age and whether they will be around long enough to execute your will. If they are your age or older, you might want to reconsider.
  • Are they family by marriage? Say you name your brother-in-law as executor, then he and your sister get divorced. Consider family dynamics and how likely they are to stay the same.
  • If you don’t trust your a family member or friend to execute your will without conflict, consider hiring an impartial paid executor, something the American Bar Association suggests.

Communication

  • Does this person have strong communication skills? This is important for communicating with everyone from lawyers and those in the financial realm, to mourning or agitated family members. Someone who can communicate with a range of people on a range of issues is ideal.

Intelligence

  • Does this person have the ability to understand legal processes and procedures? They don’t need to know these things already, but should be able to learn when the time comes.
  • Common sense can be just as important as legal knowledge. If your executor has the ability to do research, knows when to ask for expert help, and has strong judgment, they’re probably a good pick.

Location

  • Being executor of a will requires court appearances, property inventory and maintenance, checking mail, and other duties that necessitate proximity. Choose an executor who lives near to where the majority of your assets are located.

Are they willing?

  • Of course, before you name someone as your executor, you should ask them if they are willing to take on the role. Some people will not want the responsibility. Lawyer Robin Gorenberg also recommends telling any family members you did not choose, so they don’t feel hurt.

Contingency plan

There is always a chance that something will happen to your executor, or that they won’t be available when needed. You can name a successor, allow your executor to name a successor, or designate a corporate executor or trustee. If you don’t have a backup and one is needed, or if your designated executor declines when the time comes, the court will name an executor for you. That’s why having a backup is important.  

Choosing someone to handle your assets after your death is a big decision, but in thinking through these points, you can rest assured you’ve chosen someone qualified. For assistance in choosing your executor or setting up your estate plan, in general, get in touch with us at Anselmo Lindberg & Associates. We’re always eager to assist you.

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5 Reasons to Make Estate Planning a Priority in 2016

A light-hearted way to approach Estate Planning in the New Year

Planning for death is neither fun or stress-free, but getting ahead on estate planning is one controlled way to make sure you are prepared for the unexpected. Working with an estate planning attorney can ease the process and relieve some of the stress when it comes time to protect your assets and dependents from estate taxes. Here are a few light-hearted reasons you should make estate planning a priority in 2016.

1. Make sure your house finds a home. An individual’s home is generally one of their largest assets. Keep your beloved dwelling in the family through estate planning through a separate trust. By doing so, you will be able to remove the value of this large asset from your estate, and thus, separate the tax from the estate tax while you gift the home to an heir.

2. Secure that collection of GI-Joes. Where will your valuable collections go? Your collectibles, jewelry and other small assets can add up in value, and you will want to make sure that they get into the right hands, preferably your heirs or dependents. Through your estate planning, you’ll be able to secure that collection of GI-Joes or your great-grandmother’s diamond ring will end up exactly where it’s supposed to.

3. Make sure your favorite niece gets that college money. Setting up trusts to pass down your savings and investments to those you intended it for is absolutely necessary within your estate plan. It’s important to take a comprehensive look at every account you have out there. In order to eliminate your estate tax, as well as have control over who gets what, an estate plan is necessary and should be considered as soon as your accounts are at an appropriate level to make a significant impact, which may be sooner than you think.

4. Give the right brother durable power of attorney over your health. A trusted power of attorney is someone you name that will be legally authorized to make important decisions for you if you become incapacitated to make the decisions on your own. A power of attorney over your health care will aid in making medical decisions for you if you are unable to do so. It’s appropriate to make sure you appoint your durable power of attorney over your health so it doesn’t fall into the hands of the brother you’ve had a beef with for the past 21 years.

5. Ensure that your Facebook account is properly managed. These days, online accounts are the new normal. Along with ensuring that your Facebook account is properly managed, you will also want to pass down the pins and passwords to online accounts such as bank accounts and other online storage spaces for your electronic records. Making sure that loved ones and heirs have access to the records by securely storing and providing these passwords through your estate will make certain that your last wishes are granted.

Planning for one’s estate can equate to a long process and Anselmo Lindberg & Associates wants to make it as simple and stress free as possible. With competitive rates and a free, initial consultation, ALA will carefully consult with their clients to provide a professional, courteous, and cost-effective Estate Planning experience. Contact us for more information on all of our services.