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Avoid Lawsuits and Save Thousands in Taxes, Part I
By: Larry Oxenham
Posted: June 29, 2012, from the July 2012 issue of Skin Inc. magazine.
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1. Fewer tax deductions. Although a sole proprietorship allows a person to deduct most business expenses, there are tax deductions and tax reduction strategies that apply to S corporations and C corporations that can’t be used by a sole proprietor.
2. Liability. A sole proprietorship provides zero protection against lawsuits. If your business as a sole proprietorship is sued, all of your business and personal assets can be taken. If you are sued personally as a result of a car accident or injury at your home, all your personal and business assets can be taken. A sole proprietorship puts all of your professional assets—including real estate, equipment and cash—and personal assets—including cash, stocks, home, furniture and cars—at risk of being seized to satisfy a judgment.
Because of the problems associated with sole proprietorships, many choose, instead, to incorporate their skin care facilities. Although becoming a corporation is a good management and tax-reduction strategy, it is a poor lawsuit-protection plan, in most cases. If your corporation is sued, all of the assets owned by your corporation can be taken to satisfy the judgment. The corporation does provide some protection of personal assets with what is known as the “corporate veil.” The corporate veil is supposed to prevent a creditor from going after personal assets to satisfy a business debt. However, the corporate veil can be pierced, enabling your personal assets to be seized to satisfy a judgment against your business.
FLPs and LLCs
If you own assets in your personal name, as a sole proprietor or in a corporation, the assets can be taken to satisfy a judgment. The good news is that there are legal entities you can use to protect 100% of your professional and personal assets from being taken to satisfy a judgment. Those tools are the carefully constructed and properly worded family limited partnership (FLP) or limited liability company (LLC). Specialized attorneys have retooled the FLP and LLC to include lawsuit-protection principles. The FLP has emerged as a powerful tool to hold assets in order to protect them against lawsuits; and the LLC is an ideal tool to protect real estate and other high-risk assets. Once your assets are properly structured, you will have the financial peace of mind that comes from knowing you are protecting the assets you have worked a lifetime to secure.
Larry Oxenham, an American Society for Asset Protection senior legal advisor, works with the nation’s top asset protection experts and has helped thousands of clients in all 50 states achieve financial peace of mind by properly structuring their assets for tax reduction, lawsuit protection and estate planning.