All Forum Posts by: Alfred Bell

Hi Steven. Thanks for your input. But... I don't have a will and don't want one. A will opens one up to probate. That is why I'm looking for a simple solution like a notarized document stating a successor.

Have an SCorp that I use for real estate projects. Single owner corp, no employees. If something happens to me my wife won't have access to the corp or its assets or bank account. I have a POA that allows her to conduct the business of the corp if I become sick or incapacitated. But for death... would it be acceptable for me to execute a notarized document between us like a "Designation of Successor Shareholder" wherein I declare that in the event of my death that she is deemed the Successor Shareholder of 100% of my SCorp's stock and entitled to all rights and privileges that such a position entails? Will this allow her to access bank account, sell off any assets, dissolve corp, etc?

J,
So you are an investor doing rehabs. Do you have a contractor's license with all the insurance for your workers, or do you hire a licensed contractor to do your rehabs? You appear to be out there doing it and have a lot of experience so you must have a pretty good system set up.

Are you 100% certain of this? You may be right but I'm not sure if hiring a GC with all the insurance and a crew would actually be less expensive than me hiring guys who are experienced but would work for a lot less and paying for a WC policy to cover them. My understanding is that a GC has all those business expenses and then marksup in order to get a decent profit. In other words a GC might charge me 8k to do a roof, when I could hire an experienced roofer who will do it for $4,500 and all I have to do is pay the WC on the salary I pay him.

Good article Scott, thanks. I have an IC info letter, an IC agreement, and an agreement that they have to that they will handle their own taxes (so I can 1099 them). I will take out a "owner/builder" workers comp insurance policy. I spoke with a WC rep at State Fund this morning. As long as I keep perfect payroll records and notify the insurer weekly of what each worker was paid and what their classification was (painter, carpenter, dry waller, etc.) and how many hours they worked in each classification, that takes care of everything. I can bring in as many workers as I want (all I need to do is put in a weekly report for them). At the end of the project the insurer does an audit to make sure everything is correct and then bills me (I either add to my original deposit or they refund me a portion of my deposit back if my insurance bill is less). Of course this is still an added expense and will raise my costs and lower my margin... but protection from liability is the senior consideration. What is tricky for me is that now I am still working on finding some way of calculating this out so I see what the additional expense will be. (Example: if I pay a painter let's say $24/hour... I'll have to pay WC $20 for every $100 I pay the painter; if I pay a tile guy $24/hour I have to pay $11.93 for every $100 I pay him).

So it looks like I can avoid all the hassles of having employees, yet still cover my *** (and theirs) with WC insurance in case any of them get injured and are determined to be my employees. I'm hoping I can roll with this as the solution to get this project done. After this project I will work out a better system (maybe partner with a licensed/bonded/insured GC and give him a profit share or something).

Does my solution for this project make sense to you?

Thanks for your interest and advice.

I'm thinking about getting an owner/builder worker's comp insurance policy so that I can engage a few guys to do a condo remodel for me. I want them covered with workers comp to avoid any liability lawsuit if anyone gets injured.

I don't want to do the payroll thing (FICA, FUCA, SS, Medicare, unemployment, etc. etc.). I will just notify them in writing that they are responsible for their own taxes, and pay them weekly, and then at the end of the job (which will only take 3-4 weeks) I will 1099 them.

Is this acceptable or would I be violating some labor, payroll or employment law?

Thanks in advance for any assistance,
Alfred

Someone just told me that I can 1099 anyone I hire as an employee and don't have to deal with payroll taxes and that still qualifies me to get workers comp. All workers comp cares about is what I'm paying my workers. Now I'm confused again. If this is true, I'm a happy guy. I need to talk to some professionals about this and get the facts... the laws... in writing.

Scott,
Let me clarify a few things. I had what I thought was a fully licensed/insured contractor to do this at a really good price but long story short he flaked out on me. I've got deadlines and need to get going on this project. I think I'm only going to do this for this project and then will have the time to find a licensed contractor to be part of my dream team. I don't have much business experience in this area... my confusion or what I am missing is... what is such a big expense for me if I just get some worker's comp insur and hire 2-3 guys for this job which will only take 3-4 weeks and then dissolve or terminate the employment relationship? The only expense that I'm aware of is 10-14% above what I pay them goes to workers comp and the cost of a payroll company to issue paychecks for a month. What other costs am I missing?

Thanks Mark. Let me make sure that I understand...

...if it is a licensed contractor I just 1099 them (yet, my understanding is that if they are incorporated I'm not required to 1099 them).

...if they aren't licensed and don't have their own workers comp insurance, and then I hire them as an employee for the project, I can't 1099 them. I have to pay them via a payroll company so that all the appropriate taxes are taken out.

Do I have this right?

I got the investor to set up an SCorp for protection and to avoid the 3.33% Calif withholding tax. I drafted and we signed a Joint Venture agreement for this project. He is the passive money guy and I'm the facilitator/administrator/project manager and we do a 50/50 split on the profits. The property is fully in his entity's name. He'll pay me my percent of the profit after he gets his check from escrow (I can do this with him cuz he is trustworthy and a friend). Otherwise it would be in the escrow instructions for me to be paid out a specific amount. We haven't started the project yet. Sellers needed a long escrow so they could stay until there new home was ready for move in. Project begins next week. Now I'm sorting out the legalities... only utilizing licensed, bonded and insured workers. The main thing I'm working out now is that if someone isn't worker comp insured I may just hire them into my company (an S corp) and put them on payroll (using a payroll company, or I might just be able to 1099 them) just for the duration of the project and get workers comp insurance myself to cover them (apparently a 10-14% cost on top of the payroll). Adds an expense to the project but keeps us legal and protected from injury lawsuits. Not sure if I have this right and if it is a totally workable solution but I think it is. Would appreciate any feedback if you know about this area.

Vikram,
I have great relationship with this investor and this really is on a handshake basis but we are prudent enough to put our relationship in writing. The chances of me not getting my part of the profit is VERY remote... altho I know... anything can happen.

I think a notarized agreement and the equity share note and 1st TD is an inexpensive, informal and pretty decent way of setting this up for a first time venture.

I like the idea of my profit being interest for the lower tax bite. I like the idea of my profit being equity share in that it avoids usury. Bit of a conflict here.

I'm not loaning any money so this really can't be considered interest. I think I'll just go with the equity share note and TD and leave it at that.

Chances of the IRS ever inspecting my real estate project documents isn't very high anyway. Yet, if they did it would be very clear that it was a profit pay out and not interest on a loan. Plus I don't think the IRS is the govmt agency that would be policing for usury, they could care less. It would have to be some govmt agency within the state and I don't know what that would be.