What if I can't afford a lawsuit?

By Jessica Suotmaa 0

Small business owners may encounter hardships that may warrant a lawsuit. Whether it is a contract issue, a supplier issue, or an employee issue, many entrepreneurs seek legal assistance to solve their problem.  Legal advice is one thing, and lawsuits, which are litigated in a court of law, are another.  Most times, we discourage clients from pursuing a lawsuit due to its high costs.  There’s the cost of filing fees, attorney fees, and even jury fees. It doesn’t take long for the costs of a lawsuit to exceed the amount the business owner wishes to retrieve.  In addition to a lawsuit costing too much, it can also take a long time to litigate.  As such, it is wise for small business owners to consider alternatives to a costly lawsuit.

In this article, we introduce alternative dispute resolution (ADR) methods which our experienced business attorneys can still assist.

Negotation

Usually the first step in the process of resolving an issue, negotiation can be initiated without an attorney.  It is the process of meeting with the other party and attempting to reach an agreement as to how to resolve the issue.  Often, when clients come to us to file a lawsuit, they have already tried and failed to negotiate with the other party. However, we have also successfully negotiated on behalf of our clients when we begin the negotiation in the early stages of the disagreement.  Sometimes all it takes is a seasoned negotiator with no emotional attachment to the outcome to reach a low-cost resolution to your business problems.

If you have a business issue that you need to negotiate with the other party, contact one of our business attorneys and find out how we can be of assistance.

Mediation

Mediation has a separate cost that is usually still cheaper than litigation, since it involves a third-party mediator. The mediator assists the parties in reaching an amicable resolution to their problems.  Parties with close ties, relationships they want to preserve, or who genuinely wish to resolve the problem often seek mediation over filing an expensive lawsuit. Some parties take attorneys with them to mediation, and others do not. It is up to you whether you feel comfortable without an attorney present.

The mediator does not make any decisions, but can propose a solution. In the end, it is still up to the parties to decide what the resolution will be.

If you want to resolve an issue without damaging your relationship with the other party, you may want to consider scheduling mediation. An experienced attorney can guide you through the process, and advocate for you at the mediation.

Settlement Conference

Settlement conferences are similar to mediation in that they involve a third-party person who “mediates” and evaluates each side to come to a settlement.  If a case is already in litigation, a judge can require a settlement conference for the parties wherein the judge evaluates each side and recommends a solution. It is still up to the parties to decide whether they can settle outside of court.  When voluntary, a settlement conference is often mediated by a “settlement officer” who reviews each side’s case and makes a recommendation. The goal of a settlement conference is always to settle the case. If the case is already in litigation and no settlement is reached, then it will go to trial.

Neutral Evaluation

A neutral evaluation might be the appropriate solution for parties who disagree on a technicality.  A neutral evaluation is conducted by a neutral third-party, often an expert in the subject matter, who reviews the cases presented by each side and gives his or her opinion on who has a stronger case. The neutral evaluator’s opinion is then used as the foundation for negotiating a resolution.

Arbitration

Many small business owners may have heard of arbitration in a different context. It is often included in employment contracts, vendor contracts, and other company policies. Since arbitration is less costly than litigation, companies often include a “arbitration clause” in contracts to force the other party to arbitrate the issue instead of filing a lawsuit.

The difference between arbitration and the other alternative dispute resolution methods above is that the third-party arbitrator decides on the issue. The arbitrator can be a single person, or an entire panel of people. The arbitration can be “binding”, meaning its resolution is legally enforceable, or “nonbinding”, meaning it’s an optional solution on which the parties can decide. Either way, arbitration takes the form of a hearing, where parties argue their cases and present evidence. Arbitration does not require an attorney, but if you are required to arbitrate your issue, you may want to consider consulting an attorney first.

 

Hopefully this overview gives an idea of what alternatives a small business owner can rely on instead of litigation. Alternative dispute resolution methods can cost money as well, but its costs are often much less than a full-blown lawsuit. If you have further questions or would like discuss which resolution method may apply to your unique situation the best, feel free to contact one of our experienced attorneys today.

Are attorneys' fees tax deductible?

By Jessica Suotmaa 0

Now that we’re deep into tax season after the 2017 tax reform (The Tax Cuts and Jobs Act of 2017), it’s a good time to review whether your attorneys’ fees are tax deductible.  Deducting legal fees on your tax return can help offset the high cost of hiring professional legal assistance, sometimes justifying the need for an attorney.  At Lum Law Group, we believe that proper legal advice should be readily available to even the smallest of businesses–at the right cost.  Helping our clients deduct their legal fees on their federal tax returns is just one of the ways we help our clients and potential clients save money.

 

Business Tax Deductions

The new tax laws do not prevent businesses from deducting necessary legal expenses.   Individual business owners, such as sole proprietors and single-member limited liability companies (LLC) or independent contractors can still list legal costs directly associated with their trade or business on Schedule C of the Form 1040 Individual Tax Return.  List the “ordinary and necessary” legal fees on Line 17 of your Schedule C.

Examples of “ordinary and necessary” deductible attorneys fees:

  • legal fees for negotiating, drafting, and reviewing contracts (“business expense”);
  • legal fees for researching and registering intellectual property (“business expense”);
  • legal fees for rental property management, conservation, and maintenance (“rental expense”);
  • legal fees for suing a client for outstanding invoices (“business expense”);
  • legal fees for suing a vendor for services not rendered (“business expense”);
  • legal fees for suing a tenant for rental property damage (“rental expense”); and
  • legal fees for evicting a tenant who stopped paying rent (“rental expense”).

Businesses that file partnership or corporate tax returns can deduct two types of legal expenses: the legal and professional fees associated with your trade or business, and the startup business expense for new businesses and startups.  These can be deducted under “Deductions” on the Form 1065 or Form 1120.

Examples of legal costs for startup deduction:

  • legal fees for registering your business with the state, e.g., incorporation;
  • legal fees for business consultation;
  • legal fees for preparing corporate records and bylaws; and
  • legal fees for preparing partnership and operating agreements.

Where businesses and individuals may end up paying more taxes is in settlement

Individual Tax Deductions

Where previously you could deduct up to two percent of your gross income on your individual tax return (Form 1040) by itemizing deductions, now you cannot. The new tax bill has eliminated most of the miscellaneous itemized deductions for the individual tax return.

 

Real Estate Legal Fees

While you cannot itemize and deduct your real estate related attorneys’ fees on your federal tax return, you can still reduce your overall tax liability.  You can add the legal fees associated with the purchase, maintenance, or sale of the property to the value of the property, thus increasing its value. It is not an immediate tax deduction, but it will reduce any gain on the property if you sell it later.

Exceptions

There’s always an exception or “loophole”, and in legal fee deductions it’s the legal fees in settlements associated with employment discrimination suits, especially whistle-blower cases.  However, note the legal fee deduction cannot exceed your annual gross income.

 

Business & Individual Tax-free Income

In taxes there’s credits, deductions, and then there’s tax free. What’s tax-free and requires a lawyer? Compensation from personal injury suits (no interest and no punitive charges), court awarded attorneys’ fees, and statutory attorneys’ fees.

 

Settlements Taxable

The bad news is that your settlements are now fully taxable since attorneys’ fees are no longer deductible. This means that if you win a lawsuit, or settle the case outside court, for an award of $10,000, and your attorney takes a fifty percent cut, you are liable to pay taxes on the full $10,000.

 

If you pay more than $600 in legal fees in a year, your attorney will be required to provide a Form 1099-MISC for that expense, which you can use to prepare your taxes. If you have any questions regarding a 1099 from us, or fees that can or cannot be deducted, please contact our office!

How to Protect Your Business From Common Lawsuits

By Lisa 0

As an entrepreneur, it’s your responsibility to make sure that the business runs smoothly and is not affected by anything. One thing that can greatly harm your business is a lawsuit for tort liability. To avoid being a victim, here are five ways to protect your business from common lawsuits:

1. Monitor Your Actions and Words

You should be very careful when making public announcements or launching marketing campaigns. Always be honest with your promotions and avoid misleading advertisements. In addition, public statements should be respectful and avoid slander.

2. Institute a Sexual Harassment Policy

In your company’s sexual harassment policy, define what sexual harassment is, state that your business won’t tolerate such practices, talk about how your firm will discipline wrongdoers, include a procedure for filing such complaints, and outline protective measures for those who report such conduct. Gender shouldn’t be a basis for discrimination or irresponsible behavior; therefore, train your employees to treat each other with respect.

3. Have Personal Liability Insurance

Take up personal liability insurance to protect your personal assets from personal injury claims. You never know when an employee may decide to sue you for damages. For example, an employee can get injured at work due to their negligence, but choose to sue you for the accident. If you’re still in the process of building your commercial property, then take steps now to ensure that your construction company follows regulatory requirements for the structure. This will ensure that your property is up to code in terms of health and safety. Some additional precautions that you can take to avoid such a scenario are to section off dangerous areas and to install safety signs in places with heavy machinery. Ultimately, your business carries the duty to prevent personal injury for both the customers and employees on your premise.

4. Keep Your Files Safe

In the cloud computing era, it’s perfectly normal for your business to store information on the cloud since it minimizes costs and guarantees operational efficiency. However, before you select a storage system, ensure it’s safe to prevent the theft or misplacement of your client’s personal data and files. A customer can sue you for data breach and win if he or she discovers that you lost their personal information or it fell into the wrong hands.

5. Maintain Separate Accounts

You should not mix your business and personal accounts. An employee or an interested outside party can easily sue you for misappropriation of business funds if they discover that your accounts are not separated. Even if you don’t misuse company funds, it may be hard to support your claim due to constant withdrawals from your personal account.

Wrapping Up

Try incorporating the above strategies into your business operations to minimize costly lawsuits. Additionally, have a well-defined code of conduct in an employee manual to ensure employees know how to conduct themselves while at work. 

For more information on how you can secure your business against common lawsuits, or if you have any questions on how to handle a lawsuit that’s been brought against you, contact us now. At Lum Law Group we help our clients form and protect the businesses they’ve built from the ground up.

Why yes, You CAN renew your DACA

By Jessica Suotmaa 0

Due to a recent law suit regarding the Deferred Action for Childhood Arrivals (DACA) program, a federal judge has ruled that USCIS must continue the program while the lawsuit is pending a decision.  As such, USCIS released a preliminary injunction on January 13, 2018 announcing it will be accepting renewal applications for existing DACA holders and for anyone who had DACA but could not renew due to the end of the DACA program (we wrote about it before too).

Please note that this is a temporary situation and could change at any time.

What this means for you:

You had DACA but could not renew, so your DACA has expired:

You may file a new application here.

 

You have DACA but it is expiring soon:

We recommend you file for a renewal four (4) to five (5) months before your DACA is expires. Four to five months allows you to receive your new work permit before the previous one expires and is thereby a good rule of thumb.

 

You have never had DACA but think you might qualify:

USCIS is not accepting new applications at this time.

 

If you have any questions regarding qualifications, please visit the official USCIS website for more information or contact our office at (626) 795-8886.