Ensuring you have full legal protection is of paramount importance for NJ and NY business owners. Here are four tips that can help with this:
(1) HAVE THE RIGHT PEOPLE IN PLACE TO HELP YOU TAKE ADVANTAGE OF TAX AND ACCOUNTING INCENTIVES
You want to make sure that you have an accountant, insurance agent, and that you speak with both of them constantly.
It’s also important to take advantage of tax and accounting incentives within your jurisdiction. Some examples of these incentives include interest, local travel, home office, medical, and insurance.
If you own the real estate, you can write off all of the maintenance costs and depreciation. Your accountant will be able to tell you how this can be done. Your accountant will be able to tell how to amortize your loan and how much interest you can write off or deduct in each tax year.
If you are renting the real estate, you have your rent expense and certain ancillary maintenance expenses that you may be able to write off. You can talk to you accountant about other expenses that may qualify.
(2) LEASE OR OWN?
It’s also important to decide whether to own or lease real estate. There are pros and cons to both, and the ultimate decision comes down to a number of factors. These factors include:
CASH FLOW – Considering whether you have enough cash flow to support the debt service on owning the actual real estate
LEASE – depending on the tenant, your office or retail space could potentially have a triple net lease
CAM – Common Area Maintenance – this includes insurance, real estate, suburban office, janitorial expenses, and more costs that become factored into real estate ownership
It’s important to think of owning vs. buying not as one being “good” or “bad”, but as two distinct alternatives that offer differing pros and cons based on unique situations. For example, if you own a building but are only using 43% of the building lease and you lease out the remaining 57% to someone else paying you the rent, this offsets the costs. However, if the cost to own is greater than this potential 57% of revenue you could bring in, then owning the property may not be the best option.
(3) SET UP TWO SEPARATE ENTITIES
When you set up your business, you may want to set up two separate entities. One of these entities would be the operating entity that runs your business. The other would be the real estate entity that runs real estate, and the former entity would rent from the latter. There are certain tax and insurance advantages to doing this.
(4) SET UP A TRUST
In addition to this, you may want to consider when you are operating your business taking your ownership interests and placing them in a separate family owned LLC or trust for estate planning purposes. It’s better to do this sooner rather than later.
The reason for this is as time goes on, those shares in your business may continue to appreciate, and you may want to leave those interests to your family members. You may want to talk to advisors about what kind of tax implications will occur.
These are just some of the legal tips that are important for all NY and NJ business owners. Stay tuned for more bi-weekly articles where we will feature some more related legal tips.