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October 2011
By Gary Smith

Jury Duty and Facebook

     If you were selected to serve on a jury and one of the parties to the trial was your Facebook “friend,” should you be excused from serving on that jury? [Note: You should not now try to “friend” every person in North and South Carolina in an attempt to avoid jury duty.]

     A juror in a civil auto accident case, while serving on the jury, attempted to “friend” the defendant in the case on Facebook. He also discussed the case on his Facebook page.

     The juror pled guilty to four counts of contempt of court for his actions. After he was dismissed from the jury, he apologized to the defendant through Facebook. Twitter was not mentioned in the case.

     As walls of privacy come down through online postings, it is always important to remember to think before you post and to listen to what the judge tells you not to do.



“Hackers” Steal Up to $1 Billion Annually from Businesses

     Real “bricks and mortar” robberies only amounted to $43 million last year. Security experts estimate up to $1 billion was stolen online from businesses’ bank accounts last year. If your business happens to be hit next, you should expect to bear at least some of this loss.

     One CEO got a call from the bank about a wire transfer. The wire had not been authorized by the CEO, but the wire had been authorized through one of the business’ computers. The total amount stolen was $5 million in a series of transfers.

     Fortunately, the bank was able to recover approximately $4.5 million. According to the bank, the remaining amount was the business’ loss. However, a federal judge made the bank bear the loss in this case.

     Don’t expect your bank to be required to bear the loss. Another federal judge made the business bear the loss of approximately $345,000. The reasoning in that case was that the business had agreed with the bank’s security procedures.

     For your business, you need to check how electronic transfers can be made from your accounts. You also need to have your own safeguards to detect fraud before you authorize a transfer. In addition, make certain you understand who bears the loss among your bank, your business and your insurance carrier.




Tax Benefits Disappearing in December (Use Them or Lose Them!)

     Work Opportunity Tax Credit - Hire the right people and you can get an income tax credit of up to $6,000 per employee ($12,000 for qualified veterans and $3,000 for qualified summer jobs for youth). The targeted groups of qualified employees are based on where the employee lives, the potential employee’s history or government benefits the potential employee has received.

     Differential Wage Payment Credits. If your business paid wages to employees while they were on active military duty for more than 30 days as if the employees were still on the job, you may have a tax credit. The credit is available for businesses with, on average, less than 50 employees who have a written plan governing how these differential wages are paid.

     100% Bonus Depreciation. This depreciation “bonus” applies to qualified property acquired and placed in service prior to January 1, 2012. Qualified property generally includes tangible personal property, software and certain leasehold improvements.

     Expensing. Section 179 expensing is allowed up to $500,000 currently. That amount will be reduced to approximately $125,000 beginning in 2012. Section 179 assets include certain personal property and software.

    Charitable Contributions. If an “S corporation” makes a charitable contribution before January 1, 2012, a deduction is allowed based on the fair market value of the property contributed. However, instead of your stock basis being reduced by that same amount, your stock basis in the S corporation is only reduced by the adjusted basis of the asset you contribute.




Self-Employment Tax and the LLC

     As you may be aware, the IRS and Congress have not decided on rules for when an owner of a limited liability company should pay self-employment taxes. The basic rule is that all trade or business income to an entity taxed as a partnership should be subject to self-employment taxes.

     Owners who are not actively working for the LLC typically take the position that they don’t owe self-employment taxes. This position is based on certain rules in place for limited partnerships. However, the IRS has taken the position that the exclusion from self-employment tax liability is only available to limited partners in a limited partnership.

     A recent Tax Court decision provides some additional guidance for when the basic rule does not apply. The court discussed limiting the exclusion from self-employment tax to individuals who (1) do not actively participate in the business and (2) who receive income of an investment nature. If any of the income is tied to services provided by the individual, the individual should be liable for self-employment tax.

     For planning purposes with regard to when you pay self-employment tax, you should consider structuring your LLC with two classes of ownership where one of the classes is a true investment-only class not subject to self-employment tax. When owners also provide services to the LLC, you may want to consider creating two entities, one for the investment and one for providing services. That structure would allow you to further separate what you are paid for “working” from what you are paid for “investing.”

     Content contributed by Wishart, Norris, Henninger & Pittman, P.A., which partners with owners of closely-held businesses to provide comprehensive legal services in all areas of business, tax, estate planning, succession planning, purchases and sales of businesses, real estate, family law, and litigation. For more information, contact Gary Smith at 704-364-0010, follow on Twitter @glawnews, or visit


Gary Smith is an attorney at Wishart, Norris, Henninger, P.A.
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