During the business formation process, a business’s owner, partners, investors, or shareholders will need to determine how the business will be structured. The selection of a business entity may determine how a company will be organized and managed, and it will also affect the taxes that the business will need to pay. By understanding how taxes apply to different types of business structures, owners or partners can determine which type of business entity will provide them with the most benefits.

Taxation for Different Types of Business Entities

The structure of a business will determine whether income taxes will apply to the business itself or to its owners, partners, and shareholders. If a business is a pass-through entity, profits and losses will be passed through to those who have an ownership share in the business, and individual income taxes will apply to these amounts. 

Some commonly used business entities are taxed as follows:

Whether you are a landlord or a tenant, you will want to make sure you fully understand the terms of your lease agreement. Commercial and residential leases address a wide variety of issues that affect landlords and tenants, and if the language in a lease is not carefully drafted, this can lead to disputes that could result in financial losses or other legal issues. Before signing a lease, it is important to have an attorney review the agreement and identify any language that may need to be revised or other issues that could lead to problems in the future.

Terms to Address in a Residential or Commercial Lease

Some of the terms that should be reviewed before signing a lease include:

• Severability - This clause states that if one or more terms in a lease are found to be invalid, this will not affect any other provisions in the lease. If this clause is not included or is not worded properly, an entire lease agreement could be found to be invalid based on a single error.
• Use and exclusive use - A lease should detail the ways the tenant is allowed to use the property, and it may grant exclusive use to a commercial tenant, which would prevent other similar businesses from occupying the same building or another part of the property. When these terms are drafted correctly, the landlord and tenant can make sure they understand any restrictions or limitations that apply to them.
• Improvements and alterations - A lease should specify whether a tenant can make any changes to the property while also detailing who will be responsible for paying for improvements. Wording these terms correctly will ensure that both parties fully understand their rights and requirements.
• Renewal - The parties should understand the steps that must be taken to renew the lease at the end of its term. If the process for renewal is not clearly defined, a tenant may not be able to renew its lease, or a landlord may not be able to receive favorable terms in an agreement with a tenant.
• Rent escalation - A lease should describe when and how the amount of rent may be increased. Unclear terms may lead to financial issues for the tenant if rent is raised unexpectedly, or the landlord may not be able to increase rent in response to higher taxes or insurance costs.
• Force majeure - This clause will detail what will happen if either party is unable to meet their obligations due to issues that are out of their control, such as natural disasters or government orders. If these terms are not drafted properly, a landlord may not be able to collect rent from a tenant, or a tenant may face unreasonable financial obligations.

Contact Our San Jose Lease Agreement Lawyer

At John D. Teter Law Offices, we provide representation for small businesses, helping them address their legal issues. If you are a landlord who leases property to residential or commercial tenants, or if you will be leasing space where you will operate your business, we can review your lease agreements and help you draft language that will provide you with the legal protection you need. Contact our San Jose, CA business law attorney today at 408-866-1810.

The United States economy has changed significantly over the past decade. More and more workers are participating in what is known as the “gig economy” or “sharing economy,” allowing them to set their own schedules while completing tasks such as transporting passengers or making deliveries. While these types of arrangements have benefited many workers and those who use their services, questions have been raised about worker classification and whether certain types of gig workers should be considered independent contractors or employees. While several states, including California, have implemented laws to address this issue, the federal government has also weighed in on the topic. A recent rule change from the Department of Labor created a test that should be used to determine whether a worker is self-employed or is dependent on an employer.

The Department of Labor’s “Economic Reality” Test

Employees have a number of protections under the Fair Labor Standards Act (FLSA), including the right to receive a minimum hourly wage and overtime pay when working more than 40 hours a week, as well as benefits such as unemployment insurance, healthcare, retirement plans, sick leave, and family medical leave. Independent contractors are not protected by the FLSA, and rather than having payroll taxes withheld from their pay, they are usually required to pay self-employment taxes. 

To ensure that workers are classified correctly, the Department of Labor has created a new rule that specifies that an “economic reality” test should be used to determine whether a worker is dependent on an employer. Under this rule, there are two core factors that are considered:

The COVID-19 pandemic has led to struggles for many people and businesses. While the rollout of vaccines in 2021 will eventually allow for a return to normal activities, many businesses will continue to experience a loss of revenue due to requirements to close, scale back operations, or lay off employees. Fortunately, the federal government has implemented programs meant to provide relief to businesses and taxpayers who have been affected by the pandemic. The Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (CRRSAA), which was signed into law on December 27, 2020, made a number of changes that may benefit both small businesses and individual taxpayers. These include:

• Additional PPP loans - The Paycheck Protection Program, which was implemented as part of the CARES Act of 2020, provided loans for businesses, and these loans were forgivable so long as a business could show that a certain percentage of the loan was used for payroll purposes. Under the CRRSAA, businesses that had previously received a PPP loan will be able to receive an additional loan, although to qualify, a business must not be publicly owned, it must employ fewer than 300 people, and it must be able to show that its gross receipts in any quarter of 2020 were 25% less than in the same quarter in 2019. First-time loans will also be available to businesses that had not previously taken a PPP loan, and eligible businesses include self-employed individuals, independent contractors, and sole proprietors.
• PPP loan forgiveness - Loans of $150,000 or less may be forgiven if a business used at least 60% of the loan for payroll expenses, including wages and benefits. The remaining 40% can be used for operational costs. In addition to rent, utilities, and mortgage interests, operational costs have been expanded to include software, personal protective equipment for employees, and modifications necessary to meet health guidelines.
• Tax deductions for business expenses - PPP loans are treated as tax-free if they are forgiven. In addition, businesses may claim tax deductions for payroll and operating expenses, even if a PPP loan was used to pay these expenses.
• EIDL Grants - Businesses in low-income communities may be able to receive up to $10,000 in Economic Injury Disaster Loan grants. Businesses that receive both grants and PPP loans will no longer be required to deduct an EIDL advance from the amount received in a PPP loan.
• Employer tax credits - If a business were required to close due to government orders or experienced a decrease in gross receipts of 50% in 2020 compared to the same period in 2019, it will be eligible for a 50% payroll tax credit, which will apply to wages of up to $10,000 per employee. This employee retention credit is not available for those who have received a PPP loan.

Contact Our San Jose, CA Small Business Tax Attorney

If you have questions about what forms of COVID-19 relief you may qualify for or how this will affect your taxes, John D. Teter Law Offices can provide the legal help you need. We will work with you to make sure you can make use of the tax benefits available to you, and we will help you determine the best strategies to minimize your tax burden and address any taxes that you owe. To learn more about how we can help, contact our San Jose tax lawyer at 408-866-1810.

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Employers and employees throughout the United States have been affected by the COVID-19 pandemic. Many businesses have been forced to close, reduce hours in operation, or lay off employees. While some programs have been implemented to provide relief to both businesses and individual taxpayers, many people and businesses continue to struggle financially. In response to these concerns, a recent presidential order has been issued that will allow employers to defer certain payroll taxes.

Payroll Tax Deferral Available from September through December of 2020

On August 8, 2020, President Trump issued a Presidential Memorandum, “Relief with Respect to Employment Tax Deadlines Applicable to Employers Affected by the Ongoing Coronavirus (COVID-19) Disease 2019 Pandemic.” This order allows employers to defer the withholding of employees’ share of Social Security (FICA) taxes on wages paid between September 1, 2020, and December 31, 2020. Deferrals are available for any employee who earns less than $4,000 on a biweekly basis before taxes are withheld.