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Dear Michigan Innkeeper:
INNKEEPER TAX ISSUES: Innkeepers face a variety of federal, state & local tax issues. For a summary of these issues, please scroll down to the end of this page.
B&B
CONFERENCE: The 25th Annual Michigan Lake To Lake
B&B Association 2012 Conference is scheduled
for Oct. 29-30 (Mon-Tues)
McGuire's
Resort in Cadillac, MI .
Non-members are welcome to attend at a slightly higher
registration fee. As L2L Afffiliate Member
#1, I will be attending &
exhibiting at the Conference. More info is available at: Michigan Lake To Lake B&B Association
NEW & ASPIRING INNKEEPER WEEKEND: The Ludington Historic Bed &
Breakfast Association
is offering a weekend for new & aspiring innkeepers to learn more about
innkeeping from existing innkeepers as well as touring the area
B&Bs. The 2012 dates have yet to be announced.
The program begins with a complimentary wine & cheese reception (sponsored by the Inn Broker, Inc.) on Friday night. On Saturday there is a tour of the 7 area Association B&Bs plus a complimentary networking dinner on Saturday. There is no additional cost for the program! Just select your favorite room for two nights at the regular rate, make your reservations in advance, and you are all set. For more information and to make your reservation, go to: Ludington Historic Bed & Breakfast Association
INN
SALES: The following inns have sold: The Hexagon House- Pentwater; The Landings
of Saugatuck ; PROPERTY TAXES: Many local Boards of Review are hearing property tax appeals during March. While the 2011 Taxable portion of your real estate tax increase will be limited to 1.7%, the State Equalized Value (S.E.V.) increase has no limit! While the S.E.V. has no impact on the current owner, it has a very large effect on the buyer of the property. The assessment “pops up” to S.E.V. the following year for a buyer. We’ve seen property taxes double and triple for the buyers of B&Bs (over $10K)! Most B&B buyers understand how this system works and that projected increase in property taxes reduces their projected net income and value expectations for the B&B. It’s probably in an innkeeper’s best interest to contact the local assessor to find out who does regular presentations before the Board of Review. Then hire one of those people to represent your appeal before the Board of Review. Most municipal property tax and assessment info is available on the municipality’s website.
It is to a B&B seller’s advantage to minimize that “pop up” effect in taxes by appealing their prior to selling. Bear in mind that the B&B property tax assessment is based on the real estate value (buildings and land) of the property. It should not include furnishings (that’s covered in the personal property tax) and goodwill of the business. Goodwill or “blue sky” is amount of the sale price that exceeds the real estate value, furnishings, and covenant not to compete. Obviously on larger inns that cash flow, the goodwill portion of the value could exceed the real estate value. Likewise when a B&B sells, the seller should only be paying the Michigan Transfer Tax (0.75% + county portion) on the amount of the sale price that has been allocated to the real estate portion of the sale price. An allocation of the sales price to these various components of value should be agreed to by buyer and seller prior to the sale date.
The application of Principal Residence (formerly called
Homestead)
Exemption for B&Bs varies greatly among local assessors. Since 2006, the
areas
designated exclusively for the innkeeper should be 100% exempt, shared common
areas should be 50% & guest-only areas should be 0%. For a detailed
description, read the Michigan Internal Directive 2006-10 at: https://michigan.michigan.gov/documents/treasury/IPD2006-10_175263_7.pdf
Unlike the Federal Regulations on allocating personal vs. business use of a
residence, there is no consideration for how many days of the year the space is
used for personal use.
I’m not an accountant or an attorney so innkeepers
should seek the appropriate professional advice on these matters.
MICHIGAN INN SALES
TRENDS- I’m seeing a strong
preference among B&B buyers towards the lower-end priced B&Bs
that are underperforming. These buyers are avoiding the large
mortgages that come with the $1M+ successful inn operations. It’s a combination
of avoidance of high debt and a concern that the expensive, successful inn won’t
be able to sustain their profitability and could decrease in performance. They
are also seizing the opportunity to buy an under-performing inn at a price
slightly above its real estate value. Through facility upgrades and increased
marketing & management, they can improve the profitability and value of the
inn.
The current
I’m looking for more
medium-priced listings that will enable a buyer w/$100K-$150K to replace an
income with an income. In addition to profitability, the inn
needs to be in a popular B&B area. Most inn
buyers are very narrow in the area of search for a B&B. They usually
restrict themselves to areas they are familiar with.
Innkeeping is still the dream job. It
makes a perfect bridge between career and retirement. What other occupation
affords you a nicer house than you otherwise could afford, a desirable location
and hosting the cream of the crop for travelers? None!!
Don't wait until
you have to sell your inn; there's no shortcut to speeding up the process.
Winter is a good time to position your inn for sale for upcoming selling season.
B&B buyers experience the "winter
of discontent" during the bad weather & are ready to spring into a change when the
weather warms. By summer, they become distracted with many other
activities.
WHO KNOWS THAT YOUR
INN IS FOR
There is a trend developing among residential realtors to only split commissions with other agents who exclusively represent the buyer (a Buyer Agent). I don't do buyer agency primarily because I usually have had confidential conversations with many B&B sellers prior to their entry into the mkt. Most inn sellers wouldn't want me to use my 20+ yrs. of B&B selling info & experience to their detriment. If the local agent won't allow me to a be a sub-agent of the seller or a transaction coordinator (represent neither party), I can't track the listing. Make sure that your listing agent does cooperate & share commissions with other brokers (particularly with the guy that has sold more MI inns than anyone else).
Sellers should also be aware that some business brokers are not licensed to sell real estate. To verify a real estate license, go to: http://www.dleg.state.mi.us/verify.htm At the very minimum, your inn for sale should be listed on http://www.bbonline.com/forsale/mi.cfm If your inn for sale or agent is not being promoted outside of the broker's website & MLS, it may be invisible to the market. I use those overpriced/undertermed non-cooperating & FSBO listings as a comparison for buyers to see how much more marketable my listings are. You'd be surprised at how many buyers I've poached from those non-cooperating & FSBO listings. Who's going to show a B&B buyer that what they're buying is a good deal; the B&B seller or a local residential realtor?!
You should check out my web to see if your listing is included in the classified section for your region: http://innbroker.com/inns.html Once an inn is listed w/another broker, I cannot contact that seller directly (although the seller is free to contact me). The typical 2 year inn selling process can be greatly extended if the inn for sale is not being properly priced, termed & marketed.
WELCOME THESE
NEW MICHIGAN INNKEEPERS:
In February, 2010, I assisted John & Nicole Tomaszewski in the purchase of the former Birds of a Feather Inn, Sauagatuck, MI http://www.innbroker.com/birds-of-feather.htm
In July, 2009, I assisted Dana Underwood in the purchase of The Stuart Ave Inn...
In October, 2008,
David Langley & June Spriggs (2007 Innkeeping
Consultants Seminar Graduates) ...purchased
In July, 2007, I
assisted Terry & Laurel Parrott in the purchase of
The
Kalamazoo House
B&B....Kalamazoo, MI http://www.thekalamazoohouse.com/
In June, 2007, I assisted Chris
Green (2006 Innkeeping Seminar Graduate) in the
purchase of
The
Colonial House
Inn..St. Ignace, MI http://www.colonial-house-inn.com
SURVIVING A SLOW B&B SALES MARKET- The uncertain economy has created an a slow B&B sales market. Once the financial markets complete their market adjustments, there will be a pent-up demand for inns. The low profitable, B&Bs for sale inventory and low interest rates will create a very favorable B&B sellers market, for the more profitable inns, compared to the 90's. You could say that the sale of owner operated businesses runs counter cyclical to the economy; the worse the economy/employment opportunities, the more buyers need to replace an income. Selling inns is similar to selling sailboats, there's a lot more buyers in the spring! Prior to spring is a good time for innkeepers to plan their future. Since it can take up to two years to find the perfect match, innkeepers need to put their inn on the market in advance of when they need to sell. There are no shortcuts to speeding up the process. It has been, and probably will be, a B&B buyers market for the smaller, supplemental income B&Bs. The combination of unmotivated buyers perusing a large inventory of over listed, unfinancable listings produces a slow pace for transfers. B&Bs selling at up to 25% below listing price usually was a waste of everyone's time. I generally recommend that the sellers of small B&Bs list them as unfurnished real estate at a lower price (plan on an estate sale for the furnishings) and another premium listing value as a turnkey operation with some seller financing. Many B&B buyers focus their search in a narrow range of resort areas and sometimes some very good B&B businesses go without buyers because of location and aesthetic factors. Likewise, B&Bs that are profitable, in popular locations, offer updated décor amenities, and comfortable keeper quarters seem to sell quicker. Assuming that the demand for B&Bs remains strong, the lesser number of B&Bs available should become more valuable through an increase in revenue (increasing business value) and rising real estate values. REAL ESTATE VALUES SURPASS THE SMALL B&B BUSINESS VALUE: The demand for desirable resort real estate has enabled some small B&B sellers to sell at record values as homes. One innkeeper has even questioned my moniker as "Guide To The Affordable Great Lake State." In the Petoskey area, the majority of the B&B sales have been as homes at prices that were not much less than they were listed at as furnished B&B businesses. I suspect that over the past few years that Michigan has had more B&Bs close and sell as homes than we have had new B&Bs started. On a smaller B&B, the real estate value usually constitutes about 80%+ of its total value. The rising resort real estate market along with principal residence capital gain exclusion has encouraged many of Michigan B&B owners to shut down & sell as a home. Entry into the B&B market via conversion or new construction has been limited by construction costs, financing, and zoning compared to conditions in the 80's. Many of the new start-ups tend to have less guestrooms and are in areas where the owners already reside (which isn't necessarily where most B&B buyers are looking) BUY LOCAL & SUPPORT YOUR INNKEEPING INDUSTRY BOOSTERS: During the past years we have noted the demise of some long term boosters of the innkeeping industry: Bed & Breakfast Journal, Country Inns Magazine, Inn Marketing Newsletter, The American B&B Assn., The Inn Times & The Innsight Magazines Annual Conferences. I believe that part of their demise has been due to the way we now do business over the internet vs. ten years ago. The other factor is that innkeepers have not vigorously supported allied businesses that have been a booster of innkeeping. Having been the Lake To Lake Conference Vendor Coordinator for a number of years, we would typically experience turnover in excess of 50% of our exhibitors each Conf. This was due primarily to the unresponsiveness of innkeepers at a previous Conf. They realized most innkeepers are on a tight budget but they also made comments like "innkeepers wouldn't even make eye contact with them" or otherwise ignored them and treated them simply as a source for donations. Since innkeepers represent such a small percentage of total lodging rooms, it's relatively easy for those B&B boosters to shift their focus to the motel/hotel portion of the lodging industry. I also believe that innkeeper independence and indifference to innkeeping boosters has spread to the only true representative of Michigan innkeepers: The Michigan Lake To Lake B&B Association. Our membership is down and many of the inns who joined simply to be in the Directory are gone. I am confident of the current leadership is moving the organization in a direction that will help restore the group to its former strength. As a small businessperson myself, I can't imagine working in a competitive environment without a network of similarly committed allies. So before you turn over those hard earned dollars to some virtual company, an acquaintance or a distant discounter, ask yourself if you've at least given consideration to the people who have supported our innkeeping industry over the years. Just an observation from L2L Affiliate Member #1. FINANCING TRENDS: The Prime Rate is falling and is still well below its previous 20 year average of 8%. It's lower than in the 90's and the lenders are starting to rebound from the recent financial crisis. Most commercial lenders are quoting a rate of about 6.75% on a 20 year amortization and a half point closing fee and a five year adjustment in rate. These loans typically can be up to 70% of total appraised value or sale price (whichever is lower). Add on to that $2,000 to $4,000 for a commercial appraisal, most B&B buyers prefer seller financing with a longer amortization (even with a balloon) to avoid the upfront fees. Smaller inns are usually better financing as a local portfolio loan (bank does not sell loan in secondary market). These are typically are up to one point over residential rates on a 25 to 30 amortization. They're are based on the owner's income outside of the B&B and up to 80% of the appraised value or sale value of the unfurnished real estate (whichever is lower). SBA Lenders are offering rates similar to the commercial lenders. They can lend up to 90% of the value of the unfurnished real estate (with sufficient cash flow) and can work in a situation where the buyer has a small down payment and the seller is carrying a second mortgage for the buyer. They are up to 25 year amortization loans and can be assumed by a qualified subsequent buyer. They usually include up to two points in fees which can be amortized into the loan. Most commercial lenders expect their borrower to have at least 25% more cash flow than debt payment to cushion the lean years. Many B&B buyers anticipate a 20% down payment (and less than that on a larger inn) and a least a 10% cash return to them on that down payment (their mutual funds yield that much without any effort). Most buyers don't place much value on untapped income potential if they have to create it. Before you put your B&B on the market, take your financials to a lender and get an estimate of how the financing will work based on your estimated asking price. Seller financed inns can receive up to 20% more value from their inn because they can offer attractive terms to the buyer. If the seller refuses to help in the financing, the buyer and lender could make the terms work at the expense of the seller's price. In either event, the savvy buyer won't spend much time on overpriced B&B listings that can't be financed. Most buyers focus on terms while most sellers focus on price. WHY USE A BUSINESS BROKER: Every industry has their gatekeepers and B&Bs are no exception. When you need real estate legal advice, you go to a real estate attorney who specializes in that area. As a business broker, The Inn Broker, Inc. networks, trains and cooperates with other business brokers. Business brokers focus on selling businesses not residential houses. While it may initially appear that it is more expensive to retain a business broker, one needs to evaluate the total cost and benefit of using a specialist who sells businesses. Even if a specialty broker's commission appears higher than a local broker, the specialty broker can render more benefit to the B&B seller as an experienced B&B dealmaker, a timely sale, and a more valuable buyer pool which nets overall more proceeds to the seller. As a B&B broker, I mostly attract B&B buyers who are purchasing a business from which they can earn a living or early out folks who at least want a small B&B that will at least cover its own costs. The local house seller broker is generally most helpful to those B&Bs that are mostly real estate and with very little business value. Many times they can convert a non-innkeeping prospective buyer into a B&B buyer with the same appeal as they might sell a duplex: you can purchase something nicer than you could otherwise afford for some hospitality effort. My co list program doesn't cost the B&B seller any more than they already paying a local broker yet they are doubling their B&Bs exposure with the local broker covering the local area and the Inn Broker, Inc. covering the regional and national markets. A few B&B sellers have been further enticed into marketing their own inn via the internet and national B&B publications. I've had a much greater response to having a great number of inns for sale vs. a single inn ad. If I knew where B&B buyers looked for inns for sale, I'd be there and I'd be rich! I'm not rich but I do rely upon my web and my 12,000+, 20 year compiled mailing list for my buyer base and referrals. My web had over 12,000 hits and 300+ visitors per month this past year; it’s been increasing each year! I also regularly broadcast email over 700+ aspiring innkeepers on my email list. I use advertising to add names to the list for a time in the future when those new folks may be ready to do innkeeping.
Just like selling your own house or
car, most savvy buyers discount what they are willing to pay for a FSBO by what
a sales commission or wholesale cost would produce in net proceeds to the
seller. Many B&B buyers, or their appraisers, contact me seeking reassurance that they are doing the right
thing with an unlisted, or locally listed, B&B. Many times they become interested in the
variety of B&Bs for sale that they may not have known about. Likewise, I have
over 19+ years worth of Michigan B&B sales comps that many appraisers appreciate.
Why not put Michigan's biggest innkeeping booster and my 19+ years of Michigan B&B brokerage CAPITAL GAIN & DEPRECIATION TAXES: With the passage of the last tax bill, we have gained some valuable advantages for the buyers and sellers of inns. The capital gains tax was reduced from 20% to a maximum of 15%. The depreciation recapture rate is still 25%. While the percentage reductions don’t appear large, it could be a substantial tax savings for an innkeeper whose inn in ten years has appreciated over $100,000 and the owner has taken a $100,000 in depreciation deductions. PRINCIPAL RESIDENCE TAX EXCLUSION CHANGES- Even more dramatic is the replacement of the 55 year old, $125,000 one time principal residence exclusion with a $500,000 lifetime exclusions for couples with no minimum age or number of transactions limit. This should be of particular interest to the owners of small B&B’s. If you’re like most small B&B owners, your annual rate of real estate appreciation greatly exceeds what little benefit you may receive from deducting a large percentage of your expenses related to your building (utilities, repairs, depreciation, etc.). Each situation is different, but it may be worth your while to declare a larger portion of the building as your residence (foregoing some annual deductions) for the benefit of retaining a larger portion of the gain as tax free under the new $500,000 exclusion for your principal residence. I just became aware of a B&B seller who is taking their place off the market and shutting it down so that when it does sell later it will be 100% their principal residence. That’s rather drastic because even a small B&B should be worth at least 20% more than an empty house. I suspect that if the owner had been less aggressive in the percentage of the building that had been deducted for business purposes, this shutdown strategy would not be necessary. This change in the exclusion will also be an incentive to buyers of inns so that the sale of their home could be tax free at any age. As with all tax and legal issues, you should consult with your tax and legal adviser to discover how these changes effect your situation. BENEFITS OF LISTING: My national advertising, website, as well as referrals, generates daily inquiries from new aspiring innkeepers. Please email, phone or fax my 800# with any seminar or inn buyer prospects so that you may be properly credited. While I help promote other inn listings, my exclusive listings and co listings receive the following select treatment:
WEBSITE & FLYER HIGHLIGHT: On both my web & flyer, each exclusive
and co-listing is featured with a description and a photo/sketch. The other
listings are merely mentioned in vague terms without a sketch. Obviously, the
activity is greatest on the featured inns. My web had over 118,000+ hits and 3,800+
visitors this past year; it’s been increasing each year!
I also regularly broadcast email over 700+ aspiring innkeepers on my email list. My last flyer was mailed regionally to over 3,500+ aspiring innkeepers of my 12,000+ national list. VIRTUAL TOUR: Since many aspiring innkeepers live a great distance from the inns, I have compiled a virtual tour of each of my listings and their locale. This is complete with narration and letter titling. These tours have been linked to my web. This will help promote inns in areas that may be unfamiliar to buyers. MARKETING PACKAGE: Working with the selling innkeepers, we develop a package that profiles the inn with photographs, and historical, marketing and financial information. We also develop some marketing or management alternatives for the potential inn owner who may have different needs and priorities for the B&B. ADVERTISING: Many aspiring innkeepers aren't certain as to the exact type of B&B they are seeking. Therefore, I market myself as a national clearing-house for Michigan B&Bs. I have used national publications and websites such as the Michigan Education Association Magazine & website , Yellow Brick Road’s newsletter & website, Michigan Lake to Lake B&B Association Directory and website , Professional Association of Innkeepers International Roster and website, BedandBreakfast.com , Virtual Cities , BBResources, BBOnline , Pam Lanier’s , InnShopper.com, BusinessBookPress.com , Michigan Business Brokers Association , Blizzard Internet, inns.com , & Intl. Real Estate Digest websites. I’m also involved in some pay-per-click advertising with Yahoo & Google. Many buyers respond to specialty brokers rather than searching individual listings. As the premier Midwest inn broker, I'm usually contacted by most Michigan B&B buyers (or their appraiser) prior to their purchase. Obviously, there is no one source that potential inn buyers utilize or I'd be rich! I rarely sell an inn directly from paid advertising. I use a generic ad to keep the potential buyer database fresh. Unfortunately, the buying cycle for some buyers can take up to 10 years! MULTIPLE LISTING SERVICES: All of my listings and co listings are submitted to the Michigan Business Brokers Association statewide multiples system and Website: mbba.org. I have served as Treasurer of the MBBA since 1999. I am also a member of the Grand Rapids Association of Realtors, which is the largest in West Michigan. I am also a member of the Southwest Michigan Realtors Multiple Listing Service. I am a member of SWMRIC which is the S.W. Michigan regional MLS. I use the regional MLS to complete the marketing coverage. The more profitable the inn, the less likely I need a local broker to locate a B&B buyer. The local agents are more helpful with B&Bs that priced near their real estate value without much of a markup for the B&B business. LOCAL BROKER CO-LIST PROGRAM- I have a colist program with innkeepers and their local brokers. For half of the local brokers listing commission, I will provide the highlighted services mentioned above. The selling broker receives all of the selling commission and each of the listing brokers half of the listing commission. This enables inns to be marketed on the local multi-list, although I can access the local MLS myself, as well as regionally and nationally through my efforts. For the seller, it provides the best of both local and national market coverage for no more cost than their current local listing cost. CONFIDENTIAL & SINGLE PARTY LISTINGS- Sometimes high profile inns prefer anonymity in their quest for a new owner of their inn. I carry a number of "pocket listings" that are not publicized on my web or MLS. There's a lower probability of success with this method because were totally relying upon my identification of a potential buyer. Most B&B transactions occur as a result of a B&B buyer's response to a listed inn. Although many times they do not buy the inn that piqued their interest, it does get the buyers to reveal their intentions. I also do a "single party agreement" with inn owners if I have identified someone who may be interested in their unlisted inn. That listing agreement is for those identified buyers only. Practically speaking, both of these listing methods are long shots at best. I've never sold any inns with either method. What's worse than someone discovering that your inn is for sale? Not selling!! JUST AN EMAIL or a PHONE CALL AWAY- If you are curious about the marketability of your B&B, please contact me via email or on my toll-free phone line. I travel the State extensively and would be delighted to have a no- obligation meeting or phone conference with you at your convenience. We can also explore some finance and tax planning issues for you to discuss with your accountant and attorney. Why not utilize my 19+ years of Michigan B&B brokerage experience as a value-added service to the sale of your nest egg! Have a fun & prosperous year and please contact me if I can be of any assistance. Thanx! Bob Fuehr
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MI Innkeeper Tax Issues
Presented at The Michigan Lake to Lake B&B Association Conference– 10/24/11
Bob Fuehr The Inn Broker, Inc.
Disclaimer: Mr. Fuehr is a licensed, Michigan real estate broker. He is not an appraiser, attorney, accountant or other licensed professional. You should use the information presented as topics for discussion with your appropriate licensed adviser.
I. Property Taxes; Michigan Taxpayer’s Guide: http://www.legislature.mi.gov/documents/Publications/TaxpayersGuide2011.pdf
A. Property Tax assessment is based on the real estate; not the furnishings or biz.
B. Taxable vs. State Equalized Value (S.E.V.) 1. Taxable Assessment can only increase the lower of the rate of inflation or 5%; 1.7% in 2011. 2. Adjustments to the taxable assessment can be made for changes to the bldg. or to correct errors. 3. Assessments cannot exceed 50% of true cash value.
C. B&B Principal Residence Exemption– http://www.michigan.gov/documents/treasury/IPD2006-10_175263_7.pdf
1. Determination of % of 18 mills exemption: a. Property exclusively used for personal purposes (property not available to guests) – 100% exempt b. Property exclusively used for business purposes (property dedicated to guests)– 0% exempt c. Common areas - 50% exempt/ 50% nonexempt d. Unlike Federal guideline, no consideration of % of year open for business. e. The application of these guidelines, adopted in 2006, varies greatly by area.
D. Pop-up Tax 1. When a property is sold, the property tax assessment “pop-ups” to the S.E.V. for the new owner. Some new B&B owner’s property tax bills have quadrupled over the previous tax bill!
E. Changes in Homestead Property Tax Credit: http://www.michigan.gov/documents/taxes/Tax_Change_Summaries_-_Individual_Income_Tax_359807_7.pdf II. I.R.S. Tax issues
A. Personal vs Business use of bldg. http://www.unclefed.com/SurviveIRS/MSSP/b&b.pdf 1. Only the % of bldg. area used exclusively for the business (not common areas) may be deducted as a business expense. That amount may be further reduced by the % of days of the year that the B&B is open for business.
B. Sale of the B&B: 1. Per Internal Revenue Code Section #121, the portion of the B&B bldg. that was allocated as personal space, may be excluded from capital gain tax for up to $250K individual or $500K/couple.
2. Allocation of Value: Both seller and buyer will submit a Form #8594 after the sale. Both parties should agree on these values prior to closing. Be reasonable; a tax audit is usually more expensive than any tax benefit that may be incurred by an aggressive accounting approach. http://www.irs.gov/pub/irs-pdf/i8594.pdf
a. This will incl. an allocation of sale price: 1. Land- Obtain from appraisal 2. Land Improvements- Gazebo, storage bldgs.; insured value 3. Bldgs.- Obtain from appraisal 4. Personal Property- Insured value of furnishings & eqmt. 5. Non-Compete Covenant- Minimal value; usually $5-$10K 6. Goodwill- Is the difference between the sum of the hard assets listed above and the sale price.
b. Example of a B&B allocation of value: Land 28K Land Improvements 5K Buildings 365K Personal Property 50K Non-Compete Agmt. 15K Goodwill 5K
Total
$468K
5. Depreciation Recapture a. All those years that innkeepers took a depreciation deduction most of which will be paid back at the earned income tax rate; not at the 15% capital gains rate. .
C. Payroll Issues 1. The I.R.S. is targeting L.L.C.’s & Sub S Corps. for owners who are taking most of their profit as distribution and not paying a “reasonable wage” & withholding. 2. Most regular B&B staff are employees and are covered under the Wage & Hour Act (& withholding) regardless of how much of an “independent contractor” that
they may appear to be.
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