1. Legal and Tax Implications When Setting Up a Business in Florida Neil I. RumbakRumbak Law, P.A.nrumbak@rumbaklaw.comJake AdamsSouth Florida Remote Accountingjake@sflra.comSeptember 22, 2011

2. You Are Not an Island. Refrain from doing things alone Delegate and focus on what you’re good at Seek advice from attorneys, accountants, insurance agents, business and marketing consultants, bankers, insurance brokers, etc. A Couple of Tips Regarding Starting Your Business… N

3. A Couple of Tips Regarding Starting Your Business… Attend Seminars, Training Workshops, Read Small Business Administration Florida Small Business Development Center Network Internal Revenue Service Florida Department of Revenue Rumbak Law, P.A.’s Website(www.rumbaklaw.com) N

4. sunbiz.org Lots of information about business formalities Can extensively research other businesses File necessary documents to form business entities File annual reports (information including entity name, principal place of business, mailing address, name and address of registered agent, names and titles of officers, directors, managers) Pay fees Starting Point: Florida Department of State Division of Corporations N

5. Joe Smith is a web designer who is employed full time but is thinking about starting his own business Joe knows nothing about business but is determined to be successful Let’s help Joe decide his path to setting up his first business Why are you forming a business? J

6. The first thing Joe wants to do is look professional and have a good image Joe’s first client asks to write Joe a check, but Joe is embarrassed to ask for the check written out to him individually Joe decides he wants his clients to be able to write checks to Web Design Services Joe Smith, Web Designer J

7. Joe knows about corporations, but is unfamiliar with the other options Web Design Services, Inc? J

8. Joe decides he wants to start easy and inexpensively Joe advertises the name in the newspaper and registers the name with State of Florida for $90.00, valid for 5 years Joe opens a bank account as Joe Smith, DBA Web Design Services Joe can now accept checks and payment as Web Design Services Joe Smith, DBA Web Design Services J

9. Picking a Name for Your Business Search Sunbiz and the US Patent and Trademark Office (tess2.uspto.gov) to see if the name you want/similar names are taken Consider a Fictitious Name Name under which a person/entity transacts business in Florida other than the person or entity’s legal name Why a Fictitious Name? Perhaps the official name of your business is not as attractive as a fictitious name Required in most cases when you/your entity transact business in Florida under than your legal name/your entity’s legal name May have a few different businesses under one entity and want a distinct name for each J

10. Two years into his business, Joe is starting to get some big contracts and he is concerned about his legal protection from his business Joe decides to form Web Design Services, LLC to provide himself with legal protection Web Design Services, LLC J

11. After Joe forms his LLC, he starts to get more work than he can handle on his own and begins to hire employees As Joe is starting payroll, we advise Joe to Incorporate under the Small Business Election (S-Corp) to pay less Social Security and Medicare taxes (as we will discuss later) Changing from LLC to Inc requires changing EIN numbers and bank accounts Web Design Services, Inc. J

12. Joe wants to know…when should he drop the S election? You automatically lose your S election if the IRS disqualifies you under their rules When corporate officers can benefit more from company provided fringe benefits than the tax benefits of the S-Corp election When he wants to take his company “public” or when large amounts of capital are needed to grow the business Web Design Services, Inc. J

13. Florida business structures include: Sole Proprietorship Corporation General Partnership Limited Partnership Limited Liability Partnership Limited Liability Limited Partnership Limited Liability Company Professional Corporation Professional Limited Liability Company Not for Profit Corporation Business Structures N

14. We will focus on these: Sole Proprietorship Limited Liability Company (LLC) Corporation S Corporation C Corporation Which Business Structure Makes Sense for You? N

15. Registering your Business Entity With help from a lawyer or accountant Recommend getting assistance from a trusted source before and during registration Do it yourself The Company Corporation @ incorporate.com (includes startup papers) File directly at Sunbiz.org Afterwards, register for your employer Identification number (EIN) through IRS.gov at no cost to you N

17. Which Business Structure? Florida Legal Issues N

18. Main issues to focus on: Management of business by owners or a board? Federal tax consequences Income Tax Social Security/Medicare taxes Personal protection from/Exposure to Liability from the business Can business interest be taken from you to satisfy your personal liabilities? Which Business Structure Makes Sense for You? N

20. 10.4% (as opposed to 12.4% previously and in 2012) on earnings up to $106,800

21. Medicare Taxes:

22. 2.9% on all earnings (for all years)

23. Thus, in 2011, 13.3% (as opposed to 15.3% previously and in 2012) combined Social Security and Medicare taxes are paid on the first $106,800 of earningsN

24. Main issues to focus on: Management:However you want Federal Tax Consequences Income Tax: Flows to personal Social Security/Medicare Taxes: On all earnings, but adjusted before income taxes You are exposed to liability from the business Sole proprietorship assets can be taken to satisfy your personal liabilities Sole Proprietorship N

25. Sole Proprietorship Payment into Social Security & Medicare 15.3% (13.3% in 2011) tax on 92.35% of business income Deduct ½ of SE Tax as an adjustment Let’s see how this would work: That’s $.2449 in tax on every dollar at $40,000 that you earn J

26. LLC Federal Tax Consequences LLC But can elect to be taxed as an S or C Corporation no matter how many members N

27. Main issues to focus on: Management: You manage the business how you want to manage it Default Federal Tax Consequences: Income Tax: Flows to member Social Security/Medicare Taxes: On all earnings, but adjusted before income taxes Personal protection from business liability Membership interest can be taken from you to satisfy your personal liabilities only if if the creditor proves that distributions will not satisfy the liabilities within a reasonable time Single Member LLC N

28. Main issues to focus on: Management: You and the other owners (members) manage the business how you want to manage it Default Federal Tax Consequences Income Tax: Flows to members Social Security/Medicare Taxes: On all earnings, but adjusted before income taxes Personal protection from business liabilities Membership interest cannot be taken from you to satisfy your personal liabilities Multi-Member LLC N

30. Can only be an S corporation if (among other things): No more than 100 shareholders No shareholder can be a nonresident alien Usually, all shareholders must be individuals No more than one class of stock S Corporation N

31. Main issues to focus on: Management generally controlled by a board of directors, but you can be the board Federal Tax Consequences Income Tax: Flows to shareholder Social Security/Medicare Taxes: On wages, but not dividends Personal protection from business liabilities Membership interest can be taken from you to satisfy your personal liabilities S Corporation

33. Training and experience

34. Duties and responsibilities

35. Time and effort devoted to the business

36. What comparable businesses pay for similar servicesN

37. S Corporation J

38. Tax Consequences: Income to corporation subject to federal and Florida income tax Dividends to shareholders subject to federal income tax Social Security/Medicare taxes: Shareholder pays on wages, but not dividends If the vast majority of the activities of a C Corporation involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, it may be taxed at a flat 35% corporate income tax C Corporation N

39. Benefits of a C Corporation Retained Earnings: Money held in the corporation instead of being distributed Owners can save on taxes by keeping profits in the company and deciding on distribution dates Fringe Benefits: The corporation can expense some or all costs of fringe benefits provided to employees, the board of directors, and owners. This can save thousands on corporate taxes. J

40. Enter into agreements that will govern the internal workings (ex., management, voting rights, meetings, record keeping, tax issues) of the entity No specific document for a sole proprietorship Bylaws and Shareholder Agreements for Corporations Operating Agreements for LLCs Why Necessary? Required for corporations To avoid disputes among owners Efficient management of business Agreements Governing Internal Workings of Entity N

41. Professional Licenses: List of professions is more extensive than you may think. Go to the Florida Department of Business & Professional Regulation website (www.myfloridalicense.com/dbpr/) for more information… Realtors, CPAs, doctors, and lawyers need licenses, but so do, among many other professionals, agents for athletes, boxers, boxing promoters, and talent agencies Alcoholic Beverage and Tobacco Licenses Hotels and Restaurants Keep an Eye Out for Necessary Licenses N

42. The sale of tangible personal property sold at retail, stored for use or consumption, or leased or rented in Florida is subject to a 6% tax by the state (dor.myflorida.com/dor/taxes/sales_tax.html) Rental of certain real estate Admissions to events Note that a discretionary sales surtax may also be required in certain counties Broward and Palm Beach do not have a discretionary sales surtax Sales Tax N

43. Cities and Counties may require business to pay fee and acquire a business tax receipt to engage in business within that area Requirements and fees for each city Broward County If you do business in Broward County, you need a Broward County Business Tax Receipt For each location where you’re operating For each category of business Includes home-based companies and one-person businesses Business Tax Receipts N

45. Social Security #

46. What do you do?

47. Does your business have a name?

48. Where is it located?

49. Do you offer credit terms?

50. It’s your business, yes?

51. Is it new?

52. How much did you make?

53. Did anyone return anything ?

54. Cost of goods sold…tricky…The truth is: if you already do your own taxes now, you can do your own taxes! J

56. You started the year with all your goods you ended the year with, yes?

57. How much in goods did you have on January 1st?

58. How much of goods did you buy to resell?

59. Did you pay anyone to handle your products?

60. What did you spend making goods yourself?

61. How much worth of goods did you have on December 31st?Use if you made (manufactured) or purchased goods to sell J

62. Sole Proprietor Expenses You can expense anything ordinary and necessary in your course of business Most expenses are listed in other J

63. Taxing a Sole Proprietorship or LLC Now we have income and expenses… As a “pass through entity” the business is not taxed on profits, the owner is Sch. C line 31 net profit and loss, is carried to your 1040 line 12, business income or loss J

64. Reporting income from a S-Corp or LLC Part II of your 1040 schedule E J

65. Thank you for attending this seminar! www.rumbaklaw.com www.sflra.com