How much of your loan will be forgiven? Basic Rules: The Paycheck Protection Program (“PPP”) provides that the loan will be forgiven if the loan recipient utilizes the proceeds for qualified expenditures within a given time frame. The Expected Forgiveness Amount is based on two factors: 1) type and amount of expenditures over an 8-week period and 2) not reducing employee headcount by more than 25%. Relevant period for forgiveness is the 8-week period beginning on the date that PPP proceeds are deposited in your account. You cannot select any 8-week period. You should identify the beginning and ending date of your 8-week period. SBA’s Interim Rule (and all subsequent SBA guidance) requires borrowers to spend at least 75% of the loan proceeds on “payroll costs,” as defined below. The max loan forgiveness is the sum of the following expenditures during the 8-week period: Payroll costs, which encompasses payments of: Employee wages, commissions, tips, vacation, sick pay, limited to $100,000 per employee prorated for the covered period (in other words, $15,385 max/per employee for the 8 weeks); Employer-provided group health care benefits during the covered period; Employer-provided retirement payments during the covered period; and Payment of state and local employer payroll taxes paid during the covered period. Payroll costs DO NOT INCLUDE: Compensation of an individual employee in excess of $100,000 annually, as prorated in the covered period; Federal employment taxes imposed or withheld between February 15, 2020, and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and Qualified sick and family leave wages under the Families First Coronavirus Response Act (you are already getting a tax credit for these payments) Plus other qualified expenditures (may not exceed 25% of total loan proceed expenditures) Payments of rent (for real property and leased equipment) for leases in force before Feb. 15, 2020, Utilities including electricity, gas, water, transportation, telephone or internet access for which service began before Feb. 15, 2020, and Interest (but not principal) on any debt under agreements that existed before February 15, 2020. BEST PRACTICES: Keep in separate account. Deposit all PPP proceeds in a separate bank account and ensure that PPP loan proceeds are used only for expenditures that are eligible for forgiveness. Keep all related support to corroborate disbursement of such funds. For payroll funding, only payroll for amounts within the forgiveness parameters should be funded from the PPP segregated account. Ideally, employees making more than the threshold would receive two separate checks. Where circumstances do not permit this or where it is too impractical (e.g., if payroll must be funded into a single account), only funding within the forgiveness parameters should come from the PPP account, with the excess funded from non-PPP sources. It is key to understand that the $100,000 annual salary limit per employee is on gross compensation, so associated applicable withholding taxes should be paid from these funds. Recordkeeping Good recordkeeping will be critical for loan forgiveness. Over the eight-week period, keep track of eligible expenses and their accompanying supporting documentation. Lenders will likely require these documents in digital format, so take the time to scan any paper documents and keep backups of the digital records. The documentation should include: Payroll registers or ledgers Health insurance invoices and payments Payments for retirement amounts Support for rent expense (lease and cancelled checks/Automatic Clearing House (ACH) or wire transfer evidence) Support for interest paid on debt obligations Evidence of utilities paid including invoices State and local payroll tax payments (e.g., for New York State, the MCTMT and State unemployment insurance) supported by tax returns, vouchers, or other documentary evidence. Maintain Employee Data Maintain a headcount of all full and part-time employees on payroll. In many cases your payroll processing company will be able to provide this information. The company will need to account for the average number of full-time equivalent employees per month during: The eight-week period beginning with the receipt of loan proceeds (numerator) The period covering 2.15.19 to 6.30.19 (denominator benchmark 1) The period covering 1.1.20 to 2.29.20 (denominator benchmark 2) Follow You Lender’s Advice: Your lender will decide what portion of your loan is eligible for loan forgiveness. As such, its important to understand what information your lender will want to see in order to make that decision. Talk with your lender to get a better understanding of its view on eligible expenditures. Applying for loan forgiveness: Following the eight-week period in which you spend your PPP funds, you can submit a request to your lender for loan forgiveness. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. If you are a self-employed individual, you will rely on the 2019 Form 1040 Schedule C to determine the amount of net profit allocated to the owner during the eight-week period. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on loan forgiveness within 60 days. Action Plan: Move loan proceeds to separate account Identify funding date and relevant following 8-week period Estimate payroll expenses for 8-week period Calculate budget for non-payroll expenses that will allow you to earn maximum loan forgiveness (8-week payroll figure /.75) Identify qualified non-payroll expenses that you’ll pay with loan proceeds Determine method of paying qualified expenses during 8-week period Track expenses and keep records Keep in mind – loan forgiveness applies to qualified expenses for an 8 week period.  So maximize your expenditures during that 8 week period.

Small businesses losing lots of money during the COVID shutdown may expect insurance to cover their losses. Unfortunately, many insurers are denying COVID-19-related claims, leaving small businesses to fend for themselves. Several Pittsburgh restaurants have taken legal action against their insurers in the Allegheny County Court of Common Pleas claiming that financial losses sustained during this pandemic should be covered by their insurance policies. Businesses that should consider filing claims include restaurants, beauty salons, retailers, physician practices, medical centers, physical therapists, chiropractors and farmers. Any business that operates from a place of business that has been closed or experienced a significant downturn in business should consider making a claim. These lawsuits are looking to help cover business income and COVID-19-related losses following the order by Pennsylvania Governor Tom Wolf to shut down nonessential businesses back on March 19th. Fiffik Law Group is part of a statewide group of professionals leading the way to fight for small businesses to get business interruption claims paid. Call us for assistance to pursue your claim at (412) 391-1014.

The Federal government enacted two laws in March 2020 that affect small business owners and their employees. The Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Securities (CARES) Act. Both laws include important tax benefits for employers and self-employed persons. The CARES Act also provides for a Paycheck Protection loan program administered by the U.S. Small Business Administration. Those loans will become available sometime in April. It’s important to understand that employers may need to make a choice between taking the tax benefits or applying for a Paycheck Protection loan. The effective date of the FFRCA is April 1, 2020 so its time to take stock of the tax benefits and start making some important choices for your business. Here is a summary of the three key tax benefits in the FFRCA and CARES Act. Employee Retention Credit Eligible employers are entitled to a refundable payroll tax credit for 50% of wages paid to certain employees during the COVID-19 crisis. Eligible employers – The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. → Before You Claim the Credit: The credit is not available to employers receiving Paycheck Protection Program loans from the Small Business Administration. Applicable Payroll Period – Applicable for all wages paid, including cost of benefits, between March 12, 2020, and before January 1, 2021. Calculating the Credit – The credit is computed on a calendar-quarter basis and equals 50 percent of qualified wages up to $10,000 paid to each employee or $5,000 in actual credit. Eligibility for the credit begins with the first 2020 calendar quarter in which the employer’s gross receipts declined by greater than 50 percent of the corresponding calendar quarter of the prior year, and ends with the calendar quarter following the calendar quarter in which the gross receipts exceed 80 percent of the corresponding calendar quarter of the prior year. Refundable Payroll Tax Credits Small and midsize employers, as well as self-employed persons, can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for 100% of the cost of providing Coronavirus-related leave to their employees. This applies to wages paid for qualified employee leave taken between April 1 and December 31, 2020. → Distinction from Employee Retention Credit. The employee retention credit is applicable to all employees and all wages paid. The refundable payroll tax credits are applied only to wages paid for workers eligible and taking paid sick leave or family care leave required under the Families First legislation. Qualifying Paid Sick Leave for Workers Paid Sick Leave – Employees can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee’s pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis. Child/Family Care Leave – An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing COVID-19 symptoms can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s pay. An employee who is unable to work due to a need to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional ten weeks of expanded paid family and medical leave at 2/3 the employee’s pay. Small Business Protection Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or childcare is unavailable in cases where the viability of the business is threatened. Detailed guidance is forthcoming from the Department of Labor concerning criteria for exemption. Credits Paid Sick Leave Credit – Employers may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days. Child/Family Care Leave – Employers may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period. Additional Child Care Credit – In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child-care facility is closed or whose child care provider is unavailable due to the Coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child-care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period. Complete Coverage Employers receive 100% reimbursement for paid leave pursuant to the act. Health insurance costs are also included in the credit. Self-employed individuals receive an equivalent credit. Fast Funds – How to Claim the Credit Reimbursement will be quick and easy to obtain. When employers pay their employees, they are required to withhold from their employees’ paychecks, and later deposit with the federal government, federal income taxes and the employees’ share of Social Security and Medicare taxes. Employers who pay qualifying sick or child-care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child-care leave that they paid, rather than deposit them with the IRS. Payroll taxes available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes and the employer share of Social Security and Medicare taxes with respect to all employees (not just employees entitled to leave). Examples If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date. If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000. Delay Payment of Employer Payroll Taxes The CARES Act allows taxpayers to defer paying the employer portion of social security taxes through the end of 2020. This applies to all employers, regardless of whether a business has been negatively impacted by the COVID crisis, or has employees taking COVID-related leave for themselves or their family. The deferral applies only to the employer’s share of social security tax, typically 6.2% up to the social security wage base ($137,700 for 2020). It does not apply to the employer’s Medicare taxes nor to the employee’s share of social security or Medicare taxes. Specifically, all employer social security taxes otherwise required to be deposited between the date of enactment and December 31, 2020, are not required to be deposited on the normal deposit schedule. Instead, half of such taxes would be required to be deposited by December 31, 2021. The remaining deferred social security taxes would be required to be deposited by December 31, 2022. If you have any questions about these tax benefits and how they might apply to your business, please contact Michael E. Fiffik, Esq or Lacey Gordon, Esq. They’ll be able to help you understand whether your business qualifies and which choices are best for you.

Individual taxpayers and businesses will have an extra 90 days to pay the Internal Revenue Service (“IRS”) if they owe federal income tax for tax year 2019. Normally, taxpayers must make payment of taxes owed by April 15. However, Treasury Secretary Steven Mnuchin recently announced that individual and small business filers will be able to defer payments of up to $1 million and corporations can defer up to $10 million, without incurring any interest or penalties, until July 15, 2020. This extension to pay does not extend the deadline to file federal tax returns. As such, the normal due date to file federal tax returns remains April 15, for now. For those taxpayers who are not able to make the normal filing due date, relief is available by requesting an automatic six-month extension, making October 15, 2020 the new filing deadline. To obtain this filing extension, individuals must submit Form 4868, and businesses must submit Form 7004, to the IRS by April 15. Keep in mind that this filing extension does not impact the new deadline to make payment of taxes owed by July 15, 2020. This announcement also does not affect the deadline for state income tax payments. However, with a change in the federal tax payment deadline, it is anticipated that most states will likely follow suit. Until there is an official announcement by a state, assume that the state income tax payment deadline remains the same. There is reporting that the administration is also considering delaying the estimated quarterly tax payments that self-employed workers and businesses pay the IRS throughout the year. The first payment is typically due by April 15.

We talk to lots of clients looking to invest in real estate. I commend each and every one of those who call us first before jumping prematurely into a deal. That’s a great indicator of future success — a willingness to learn and recognition of what they don’t know (and need to know). There are a few key issues that I try and share with these entrepreneurs to make them wiser along the way: Don’t Skimp On Due Diligence. It’s seems like an obvious piece of advice but you’d be surprised how many folks underestimate the benefits of investigating their target property. This is usually a big mistake. Take the time to conduct a thorough review of the physical condition of the property and its key systems. Check local zoning and building codes to ensure that your intended use of the property is permissible and possible. Pay someone to conduct a thorough title search and examination for hidden defects in the title. Failing to do any one of these can result in a nightmare investment. Understand the Lender Process. Most investors need a source of financing for a deal. If you plan to seek a loan from a bank, it’s a good idea to interview banks before you apply for a loan. Ask them about various loan products and their approval process. Find out what information and documents you need to have ready for review. When the time comes for you to apply, you will already have the beginnings of a relationship with a lender and you’ll be better prepared to go through the loan process faster and with a greater chance of success. Timing. Real estate deals are often time sensitive. Sellers may have other bidders and want you to close quickly. Your loan commitment has an expiration date. There’s a lot that has to happen for a closing to come together. Talk to one of our attorneys about the closing process and get an estimate of how long you might expect the process to take. If you enter into a deal without understanding timing, you could not only lose a security deposit but also the property. Brad’s Story: Consider Brad’s deal gone wrong. He bought a property and intended to operate his truck repair business from the building already on the property. He did no investigation into either the local zoning codes or the title to their property. After he started repairing trucks, he received a citation from the local municipality informing him that the repair business was not among the types of commercial activities permitted by the local zoning code for his property. He was unable to obtain any kind of variance and no exceptions to the code applied to him. As a result, he was forced to find a new location for his business and is stuck with a property for which he has no use. You don’t have to be uninformed about a real estate transaction. Call one of our attorneys before you sign an agreement. We can help you plan for success.

Many mistakenly think this is a type of corporation.  This is a shorthand term describing any corporation that elects to be taxed in a certain way. It is called electing “S” status. A corporation’s default tax status results in one tax on the corporate income and then another tax on the individual owner when profits are paid as dividends. The S status election eliminates this “double tax” problem.   All corporate profits are taxed at the individual’s rate only. This election makes sense for most small businesses. It’s best to consult with an accountant for specifics for your company. Are there S LLCs? Limited liability companies may also elect S status. The default tax rules for LLCs are different than for corporations.  Single member LLCs are taxed like sole proprietorships.  Multi-member LLCs are treated as partnerships.  There are important differences in the tax rules applicable to LLCs and corporations so choose wisely. We regularly advise businesses on the tax status elections available to then. Please ask for Michael E. Fiffik, Esquire for any business matter.

A Maryland couple purchased a property to flip in the Pittsburgh area.  The sales agreement said “as-is, where is” subject to all liens, diseases, warts and infections.  The price was right.  No title search, no due diligence.  After the deal closed, the flippers learned that the house had previously been placed on a list for demolition by the local municipality.  They tried in vain to fix the place up, plowing an additional $10,000 into the property but it wasn’t enough to satisfy the city.  The house was torn down. This couple could have avoided all of these problems by hiring an attorney to do a title search and examination.  The municipal violations would have been uncovered and they could have avoided the deal or negotiated in advance with the municipality.  All at a negligible cost. How did this turn out for our flippers?  Well they’re understandably upset and their options aren’t great.  Sue the seller for fraud?  Good luck finding the Nevada LLC seller or collecting if successful.  Sue the city for its decision to demolish?  Expensive and even less likely to succeed.  They are stuck with a vacant lot and a demolition bill.  This deal was a total loss but it didn’t have to be that way. Our real estate attorneys, Michael E. Fiffik being one, represent buyers, sellers, investors, landlords and tenants in a variety of residential and commercial real estate matters. Find our real estate page here.

You call the seller and he’s nowhere to be found. A few days later, your deed is returned to you by the deed recording office having been rejected as defective. You find out that the so-called new owner bought the property about a week after yours for a fraction of the cost that you paid. That’s when you start to realize that you were scammed. Can’t believe it? I talked to a potential client this week with this problem. Many of us visit the internet for help doing a project on our own. There are tutorials on almost every topic. How to make sausage, to fix your dishwasher and even real estate investing. These work, right? In many cases, yes. The sausage turns out great, the dishwasher works like new and we close on that investment property all on our own saving big bucks. What happens, though, if something goes wrong? Even professionals make mistakes once and a while, so it’s reasonable to think that a DIY real estate investor might as well. The difference between lousy sausage and a problematic real estate deal is the repercussions. Mistakes in real estate deals may result in complicated problems that take a great deal of time and money to resolve, if they are resolvable at all. My recent caller’s problem was that his deed lacked a proper acknowledgement (seller signature). That can be an honest DIY mistake although in his case, I think he was the victim of a scam. Thousands of people buy blank deed forms every day. It’s the user’s responsibility to complete them correctly. The forms often include brief notes to help complete the task but even the most comprehensive instructions can’t address every potential situation. Each state and county sets out specific, and sometimes unique, requirements for a deed’s content and form. These requirements can vary widely. Here are the deed requirements in Pittsburgh as an example. Non-compliance can lead to additional fees or outright rejection by the recording office. Some deed transfers are simple. DIY investors can execute deeds with no problems but why take the risk? A deed can be defective in so many ways of which the vast majority of people would never be aware. Fixing the problem deed – sometimes years later – can be very expensive and can even prevent you from selling the property when you need to sell it. Why risk it to save a few dollars? Involving an attorney to review the deed and the deal reduces the likelihood of unforeseen consequences. Even though this will add a few dollars the acquisition cost, it’s worth the peace of mind from knowing that you’re getting what you paid for. As for that investor I talked to this week? The price of the fix could be half or more than he invested in the property. The new owner filed suit against his tenant for unpaid rent and the investor is paying his tenant’s legal fees in order to keep him in the property. In short, it’s a mess but one that could have been easily avoided. Fiffik Law Group’s real estate attorneys have years of experience representing purchasers and sellers, equity investors and developers, landlords and tenants involving residential and commercial properties.  Please contact Michael E. Fiffik, Esquire for help with your situation.

An operating agreement is the blueprint for how your business operates. In a business with two or more members, it’s easy to understand why an operating agreement is necessary.  Common issues include what happens when disputes arise between members, how membership interests can be transferred and who runs the business.  None of these are issues for the single member LLC so an operating agreement makes no sense, right?  Here are three reasons why that’s wrong. Without an Operating Agreement, your Limited Liability Status is Jeopardized Most of my clients who want to form an LLC want the protection it provides their personal assets from the debts and obligations of the business. This limited liability is not “automatic”. An LLC must earn this limited liability. This means that an LLC must be treated as a separate entity from the business owner.  Creditors who try to avoid this liability protection — known as “piercing the veil” – argue that the LLC and owner are not two separate entities, but one and the same in which the owner is treating the LLC assets as his own, similar to a sole proprietorship. The owner can fight back by producing a valid operating agreement for the LLC as proof that the LLC is truly a separate legal entity. An Operating Agreement is Necessary to Do Business with Others An active LLC will need to deal with potential lenders, creditors, taxing authorities and other persons in order to successfully carry on its business. All of these persons are likely from time to time to ask individuals who are members of single-member LLCs for legally valid documentation concerning, for example, the identities of persons with authority to bind their LLCs and concerning the tax and financial structures of these LLCs.  Written operating agreements provide this documentation Without an Operating Agreement, your LLC is Bound by the Default Rules of your State We all know how business tends to go when the government is the one calling the shots. It’s not pretty. LLC acts are written primarily for multi-member LLCs, and many of their mandatory and default provisions are inappropriate for single-member LLCs whose members are individuals.  Luckily, most state laws governing LLCs allow the default rules to be overwritten in the company’s operating agreement.  Going without an operating agreement is like having no last will and testament.  Do you want the government deciding how your estate will be administered and distributed upon your death?  No.  Don’t let the government set the rules for your LLC. If you used an internet service to form your LLC, you probably did not prepare an operating agreement.  Even if you did, its probably a “one-size-fits-all” type.  That’s not much better than relying on the LLC Act. To find out if you have everything in order for your LLC, call one of our experienced business attorneys at Fiffik Law Group.

Pennsylvania ranks 48th for start-up activity and tied with Wisconsin for last place for the rate of creating new entrepreneurs.  Out of 40 major metropolitan areas around the country Pittsburgh came in last; Philadelphia fared better at No. 31 of 40.  New York City, only two hours away from Philadelphia ranked No. 7.  The Index has some great information about start-ups and entrepreneurs, breaking them down by gender, age, educational background and other data points.  So why did Pennsylvania fare so poorly?  My view from the front-line of assisting clients everyday is that entrepreneurs are not sufficiently connected to needed resources. The one thing that entrepreneurs have in ample supply is ideas.  I continue to marvel as the variety of ideas people have and how much time and energy they devote to thinking and imagining new business ideas.  The difficulties lie between idea and success.  Entrepreneurs lack financing, knowledge about getting their business off the ground and management skills to sustain it for the longer term. Financing is always an issue for new and young business owners.  They do not have an adequate idea of the sources of financing, how lender/investors make decisions about loans and investments or what it takes to even apply. Getting a business off the ground can be a daunting task.  I’m not talking about filing papers to form an LLC (not a task easily done correctly).  Rather I’m talking about everything that comes after that.  Finding and leasing a place of business, negotiating contracts with vendors and customers, hiring and managing employees.  There are so many traps for the unwary in any of these tasks.  One mistake for a new business that is running on zero margin can kill the business before it ever gets going. Entrepreneurs who are fortunate enough to get through the first one-three years need to grow.  With growth comes even bigger challenges.  Managing the books, strategic planning, more employees and human relations issues and many other growth related topics.  Entrepreneurs are very frequently focused more on getting new customers and contracts (rightly so) and fail to take the time to put structure and process in place.  Those things serve as the framework that will allow the business to experience sustainable and manageable growth over the long haul. Regional organizations like the Small Business Administration, Small Business Development Centers and community business development funds are great resources but either there are not enough of them or they are not well-publicized.  Pennsylvania needs to adopt more of a “meet them where they are” mentality and aggressively seek out entrepreneurs with offers of assistance and resources.  Attorneys, accountants and other professionals can do their part too by becoming more aware of their clients’ needs and then connect them with regional resources. Those are what I see from the perspective of my practice with my clients.  I always hope to be able to bring my advice to them in a proactive way in order to avoid some bumps (and major potholes) along the way.  But I do my fair share of crisis management alongside them as well.

Many small businesses fail and when asked what contributed to the business failure, business owners cite lack of management experience or expertise as a prominent reason for the failure of their business.  Even the greatest business idea can get choked by an entrepreneur’s inexperience in business management fundamentals.  There are countless traps for the unwary and one of them involves vendor credit applications. Here’s a real-life scenario.  Construction company needs to order materials and supplies for customer jobs from a new vendor.  The vendor is more than happy to sell the materials and accept payment after the materials ship.  However, the contractor needs to sign the vendor’s credit application first.  When the credit app comes in over the fax or email, the business owner does not see it — he or she is out doing business, managing jobs and dealing with customers.  Frequently the “paperwork”, and credit applications fall into that category, are left to someone in the office such as a secretary, bookkeeper or someone else without any ability to understand the significance of the terms in the credit application. They usually do not read the fine print and give it to the business owner or to read or sign. The contractor is busy with other things and needs the materials quickly in order to keep the jobs moving along smoothly without interruption so the application gets signed and returned to the vendor without any meaningful review or understanding of what was just signed.  Does any of this sound familiar? Be assured that the vendor knows exactly what is in the credit application.  That application probably has one or more of the following terms that are not in the business owner’s favor: The business owner personally guarantees any amounts owed to the vendor; Unpaid balances bear interest at a rate of 18% or higher; In the event the vendor needs to collect on the debt, the business owner agrees to pay the vendor’s attorney fees and collection costs; In the event of a lawsuit about the materials or the unpaid bill, the business owner agrees that the suit will be filed in the vendor’s state and county — usually a long way away from the business owner’s place of business; A limitation on the time period within which the contractor can file a dispute against the vendor. If the vendor’s bill is paid in a timely fashion there’s no problem.  But sometimes the bill is not paid for a variety of reasons, including a problem with the materials, the owner’s customer does not pay timely or the contractor simply is short on cash flow.  If the vendor files suit, the contractor will immediately start to lose money by having to take time to respond to the suit (assuming it does not get lost in the usual “office shuffle”), incur costs to retain an attorney (often in a different state), suffer damage to its credit rating and other issues. These problems should be avoided.  It takes a little time to read and negotiate credit applications but in the long run it will save your business money.  It only takes one lawsuit filed by a creditor to cost you thousands of dollars in dealing with the problem.  The vendor might be so anxious to get your business, they don’t give you any problems with your suggested changes.  Often you can accomplish those by crossing out the offending provisions of the application (initial where you make those changes), sign it, make a copy for your files (and keep the copy!) and send it back.  The vendor may not even notice the changes until too late. Our business team at Fiffik Law Group includes Michael E. Fiffik, Esquire, and Matthew Bole, Esquire.  We can review your contract management process and give you tips that you can apply repeatedly to your contracts that will help your business be profitable.  Please call us at (412) 391-1014.

The normal federal statute of limitations gives the IRS only three years to audit you and your business, starting from the later of the due date (March 17, 2014 for Sub-S entities, April 15, 2014 for sole proprietorships, Schedule C) or the date you actually file a business tax return (note that if you never file a return for a given tax year, all bets are off — you can be audited FOREVER!). So three years is the absolute minimum period for business tax record retention. However for serious tax misdeeds, the IRS can go back six years — and for outright fraud, it can go back forever. State tax agencies can inspect your business tax records as well. Some state statutes of limitations for auditing are longer than the IRS’s (PA is three years generally). Conventional wisdom is to keep your regular tax-related documents — receipts, invoices, bank statements — for six years after filing your tax return. Asset records on equipment such as vehicles, office equipment, tools and real estate,  should be kept for six years AFTER the asset has been disposed of. For example, if you purchase a building in 1999 and sell it in 2010, you should keep the documents relating to the building from 1999 on until six years after the date of the sale — 2016. This is the “audit safety” period. #business #tax